Investment Highlights

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

• We raise FY23-24F earnings by 6-14% mainly to account for higher revenue growth fueled by accelerating progress of its ongoing floating production, storage and offloading (FPSO) projects Maria Quitéria (Maria) and FPSO Atlanta.

• Yinson’s 1HFY23 core net profit (CNP) of RM245mil, after stripping off RM18mil net gains on foreign exchange, came in above expectations at 53% of our earlier FY23F net profit and 60% of street’s estimates. As a comparison, 1H accounted for 37-59% of Yinson’s FY20-FY22 earnings. The group also declared a 1HFY22 dividend of 1 sen (-75% YoY), translating to a slight 8% dividend payout ratio.

• YoY, 1HFY23 revenue grew substantially by 28% to RM2.6bil on (i) FPSO Maria’s higher conversion progress coupled with Atlanta’s fresh engineering, procurement, construction, installation, and commissioning (EPCIC) contribution; and ii) higher operation & maintenance rates achieved by FPSOs John Agyekum Kufuor, Abigail-Joseph and Adoon amid higher oil prices. Nevertheless, 1HFY23 CNP rose by a smaller 5% YoY as the higher revenue was partially negated by increased finance costs and tax expenses.

• Likewise, 2QFY23 CNP (after excluding RM2mil net gains on foreign exchange) climbed 36% QoQ to RM141mil in tandem with a 61% increase in revenue to RM1.6bil. We gather that as of the end of 2QFY23, FPSOs Maria and Atlanta are right on schedule with project completion of 14% for Maria and 18% for Atlanta.

• Meanwhile, FPSO Anna Nery is expected to reach Marlim 2 field, offshore Brazil by the end of this year and subsequently achieve the first oil in 1QCY23. This paves the path for the commencement of charter income, as well as opening up its project management capacity to take on another sizeable project such as Eni’s 1bil barrel deep-water Agogo project.

• Recall that Yinson reportedly became the front runner to secure the Agogo FPSO project after outbidding Bumi Armada and MISC recently. Yinson is also widely anticipated to sign a letter of intent with Eni, leading up to an eventual contract award by the end of 4QCY22, which we estimate may 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 due to unfavorable capital market conditions amid the US Federal Reserve’s aggressive rate hikes, 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 14x 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 RM70bil (US$15.2bil) as of 31 July 2022, which translates to a robust 16x FY23F revenue.

Source: AmInvest Research - 23 Sept 2022