Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a higher sum-of-parts based (SOP) fair value (FV) of RM3.89/share (from RM3.61/share previously) after incorporating cashflows from the Agogo project and updating our model assumptions. Our FV includes 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 our FY23/24F earnings by 8%/13% to account for incremental earnings from the conversion of a floating production, storage and offloading (FPSO) unit for the Agogo project. We expect the group to be awarded the bareboat charter and operation & maintenance contracts in the 1QCY23 and subsequently commence engineering, procurement, construction, installations and commissioning (EPCIC) works thereafter.

• Yinson announced that its subsidiary has secured a contract worth US$218mil from Eni Angola S.p.A. (Eni Angola) to carry out preliminary activities for a FPSO unit related to the Agogo project. Note that Eni Angola is owned by Azule Energy (50:50 joint venture between BP and Eni), and is the operator of the 1bil barrel deep-water Agogo field.

• We gather that the contract for preliminary activities was signed mainly to kick-start the Agogo project in advance, in anticipation of a contract award in earlier 2023.

• We also attended an analyst briefing yesterday, and the following are the salient highlights:
  • US$218mil will be provided by Azule Energy as part of the upfront payments to commence preliminary works for the project. The group expects further upfront payments to be provided by the client, and is hoping to secure one-third of the project costs.
  • While the contract tenure for the prelimary works is relatively short with only 60 days, management expects the actual charter award to materialise after the end of the preliminary activities.
  • We expect the contract value (for both bareboat charter and operation & maintenance) to be at least US$5bil for a project tenure of 20 years (15-year firm period and 5 one year extensions). This implies a lucrative daily charter rate of at least US$685K, higher than our earlier assumptions of US$600K which is fairly reasonable given the tight FPSO market currently.
  • The project is also expected to be the largest contract ever to be secured by Yinson. To put into perspective, the total contract value for FPSO Anna Nery was US$5.4bil while FPSO Maria Quiteria’s was US$5.2bil.
  • The group is also in talks to rope in equity partners for the project to alleviate massive capex requirements. However, we note that the group is still keen on holding at least 70% stake in the project.
  • The total capex is guided to be at least US$1.5bil, in which the group might not need to fork out considerable initial equity funding in 2023 given the upfront payments provided by the client as well as the funding contributed by the equity partners.
  • The FPSO is targeted to be delivered in the second half of 2025, and achieve the first oil by late 2025.
• Based on our assumptions of a US$1.5bil capex, daily charter rate of US$700K, 20-year firm contract period, 65% EBIT margin and project IRR of 15%, we estimate that the Agogo project would contribute an additional 21% or RM0.81/share to our SOP valuation.

• The stock currently trades at a compelling FY23F PE of 16x vs. its 5-year average of 19x. Yinson is a globally recognised FPSO player with a healthy balance sheet. Also, the group is seen as having 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 - 6 Dec 2022