Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged fair value (FV) of RM3.61/share based on an ESG-adjusted sum-of-parts (SOP) valuation. This reflects a premium of 3% for our ESG rating of 4 stars given that the group is the first oil & gas service provider to invest in renewable energy assets proactively.

• Upstream reported that Yinson is the front-runner to secure the long-awaited floating production, storage and offloading (FPSO) charter for Eni’s 1bil barrel deep-water Agogo project after outbidding Bumi Armada and Italy’s Saipem with its commercial offer and technical proposals.

• In addition, industry sources also revealed that Eni is expected to sign a letter of intent with Yinson soon, and will finalise a commercial contract later this year. This is well in line with management’s earlier guidance of an eventual contract award in 2HCY22.

• The new FPSO unit is expected to be equipped with a production capacity of 120K barrels of oil per day as well as a storage capacity of 1.6mil barrels. In terms of project costs, despite the lack of clarity on the potential upfront capital payment from Eni, management hinted earlier that the Agogo project would likely involve a substantive capex of US$1–1.5bil.

• We deem the potential contract award in coming quarters timely as Yinson could quickly redeploy its project team that was previously working on the Anna Nery FPSO conversion with the finalisation of the contract award. Recall that Anna Nery sailed away from Cosco Qidong shipyard in China in early July 2022 and is scheduled to arrive in Brazil in October to carry out final commissioning and acceptance tests.

• Assuming that Yinson is able to officially secure the project award by the end of 2022, we estimate that the vessel conversion would take least 24 months, with the FPSO commencing operation in the second half of 2025. Overall, we feel positive on the latest development as it implies that the group’s consistent expansions are gradually coming into fruition, supported by robust FPSO pipeline prospects.

• Based our assumptions of a US$1.5bil capex, daily charter rate of US$600K, 20-year firm contract period, 65% EBIT margin and project IRR of 15%, we estimate the successful award of Agogo project could potentially lift Yinson’s SOP by an additional 21% or RM0.77/share.

• We continue to view a thriving FPSO supplier market given the current limited pool of global players decimated by the oil price downcycles since 2014, against the backdrop of a strong pipeline of multiple project awards over the coming quarters. Hence Yinson’s prospects remain promising even in the unlikely event of failing to secure the Agogo project. While still under evaluation, the group’s strategic review to potentially list its FPSO business in Oslo could unlock the segment’s stable recurring revenue and provide additional funds for its promising renewable energy and green tech investments, further entrenching the company’s strong ESG credentials.

• The stock currently trades at a compelling FY23F PE of 15x vs. its 5-year average of 19x for a globally recognised FPSO player with a healthy balance sheet and multiple prospects of substantively expanding its already formidable outstanding order book of RM73bil (US$16.7bil) as of 30 June 2022, which translates to a robust 18x FY23F revenue.

Source: AmInvest Research - 8 Sept 2022