Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a higher sum-of-parts based (SOP) fair value (FV) of RM3.99/share (from RM3.89/share previously). 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.

• Yinson has secured a contract worth US$5.3bil from Eni Angola S.p.A. (Eni Angola) to provide a floating, production, storage and offloading (FPSO) vessel together with operation and maintenance services for the 1bil barrel deepwater Agogo Integrated West Hub Development Project, located in the West Hub part of Block 15/06 off Angola, Africa. The charter contract comes with a firm period of 15 years, with options to extend the term for up to 5 years.

• Our forecasts are unchanged given that we have earlier factored in the earnings contributions from the FPSO conversion for the Agogo project. We expect the group to start recognising earnings from the vessel’s engineering, procurement, construction, installation and commissioning (EPCIC) works in 1QFY24 and subsequently commence the charter of the vessel in 4QFY26.

• We also attended an analyst briefing yesterday with the following salient highlights:
  • The contract value covers a total period of 20 years (including firm charter and extensions), translating to a lucrative daily charter rate of US$726K. This is slightly higher than our previous assumptions of US$700K – fairly reasonable given the tight FPSO market currently.
  • We also note that the client is expected to provide a total upfront payment of at least US$500mil to alleviate Yinson’s capital outlay, which is in line with management’s earlier expectations to secure one-third of the project costs. Management highlighted that the actual daily charter rate would have been higher if the US$500mil upfront payment was included in the contract value.
  • The EPCIC works of the FPSO is expected to take 30 months with a target to achieve the final delivery to Eni Angola in late 2025. Management revealed that it has kicked off the life extension and hull conversion works of the vessel in China’s shipyard following the completion of agreement for preliminary activities earlier.
  • Total capex for the project is also slightly increased to US$1.6-1.7bil (including upfront payment), higher than management’s previous guidance of US$1.5bil.
  • However, the management rules out the need to undertake a fund raising exercise given the client’s upfront payments together with funding from prospective equity partners. We understand that the group is still keen on holding at least a 60-80% stake in the project.
  • Nevertheless, the group would be relying on capital recycling (stake divestments of existing FPSOs) and progressive cash flows generated from charters to fund any future sizeable projects.
  • Separately, we note that FPSO Anna Nery has reached provisional acceptance stage – a key milestone in terms of contract delivery – in early 2023. The vessel is en route to achieve final acceptance and sequentially commence charter in the upcoming months.
• Based on our revised assumptions of a US$1.2bil capex (excluding client’s upfront payment), daily charter rate of US$726K, 20-year firm contract period, 65% EBIT margin and project IRR of 16%, we estimate that the Agogo project would contribute an additional 23% or RM0.91/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 RM66bil (US$15bil) as of 31 October 2022, which translates to a robust 11x FY23F revenue.

Source: AmInvest Research - 1 Mar 2023