Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a slightly higher ESG-adjusted sum-of-parts fair value (FV) of RM4.02/share (from RM3.99/share previously) upon updating our model assumptions for FPSO Anna Nery and higher earnings forecast. Our FV includes a 3% premium for Yinson’s ESG rating of 4-stars given that the group is the first oil & gas service provider to proactively invest in renewable energy assets.

• We maintain FY24F earnings while raising FY25F profit by 14% to reflect an earlier commencement of the charter for floating production, storage and offloading (FPSO) conversion Maria Quitéria. We also introduce FY26F earnings with a growth of 9% backed by the full-year charter earnings of FPSO Maria that more than offset the decline in engineering, procurement, construction, installation and commissioning (EPCIC) earnings as the conversion of Maria Quitéria and Atlanta will be completed in mid-FY25F.

• Yinson’s full-year FY23 core net profit (CNP) of RM682mil (after stripping off RM44mil net forex loss, RM117mil impairment loss, RM35mil gains on disposal/liquidation of subsidiaries and RM30mil write-backs of cost provisions) came in above expectations, exceeding our forecasts by 32% and street estimates by 30%. We reckon that the positive variance stemmed from stronger-than-expected EPCIC progress and improved charter profit margin.

• The group also declared a final dividend of 1 sen, bringing full-year FY23 dividend to 1.7 sen/share. This translates to a payout ratio of 8%, which is lower than our projections of 30%, given the need to preserve cash for ongoing projects.

• YoY, FY23 revenue surged 75% to RM6.3bil on (i) higher EPCIC progress recorded for FPSO Maria Quitéria and Atlanta; and ii) increased operating & maintenance rates for existing vessels due to higher oil prices. Sequentially, FY23 CNP jumped by 82% YoY in tandem with the higher revenue and steady profit margins.

• QoQ, 4QFY23 CNP grew by an impressive 97% to RM290mil on the back of higher EPCIC works for FPSO Maria Quitéria and Atlanta. We note that EPCIC operations remain on track with the current projects reaching 46% completion for FPSO Maria (3QFY22: 25%) and 32% for FPSO Atlanta (2QFY23: 30%).

• Meanwhile, FPSO Anna Nery has reached 97% completion and achieved provisional acceptance as at the end of January 2023. The vessel is now awaiting final approval from the local authority and is expected to achieve first oil in 2QCY23.

• We also gather that the group was awarded an increase of US$50K/day in Anna Nery’s daily charter rate due to higher project costs amid heightened raw material costs.

• In addition, management revealed that FPSO Agogo is expected to make meaningful maiden EPCIC earnings in 2QFY24. Recall that Yinson formally secured the charter contract worth US$5.3bil from Eni Angola in February 2023.

• The group is on the lookout for potential stake divestment of its existing assets including Anna Nery, Agogo and Maria Quitéria to fund future projects.

• The group is also exploring opportunities for future projects such as Petrobras’ Albacora project in Brazil, TotalEnergies’ Maka project in Suriname and BP’s Block 31 SE-PAJ in Angola. However, Yinson will cautiously bid for new projects given the need for additional capital amid the huge capex required for current EPCIC projects.

• We continue to like Yinson as it is expected to benefit from the thriving FPSO market given the current limited pool of global players decimated by oil price downcycles since 2014.

• The stock currently trades at a compelling FY24F PE of 10x vs. its 5-year average of 19x. We believe that the discount is unjustified as Yinson is a global FPSO player with a healthy balance sheet. Yinson’s outlook is also bright as it is positioned to expand its outstanding order book of RM90bil (US$20.4bil) as of 23 March 2023 (14x FY23 revenue).

Source: AmInvest Research - 24 Mar 2023