Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a lower fair value (FV) of RM3.96/share (from an earlier RM4.04/share) based on a sum-of-parts (SOP) valuation, which also incorporates a premium of 3% for our unchanged ESG rating of 4 stars given that the group is the first oil & gas service provider to proactively invest in renewable energy assets. This implies FY25F PE of 12.4x – 1 SD below its 5-year average of 18x.

• The lower SOP stems from lower net present value contribution from the floating production storage and offloading vessels (FPSO) Maria Quitéria and FPSO Atlanta due to slower recognition of charter revenues by 6-9 months. However, we raise FY24F-26F earnings by 7%-27% mainly to account for higher revenue growth fueled by strong progress recognition of ongoing engineering, procurement, construction, installation and commissioning (EPCIC) contracts for Maria Quitéria and FPSOs Atlanta/Agogo, which will lead to charter revenue accretion as early as mid-2024.

• After stripping off RM5mil net foreign exchange gain, Yinson’s 1HFY24 core net profit (CNP) of RM433mil came in above our expectations at 54% of our earlier full-year FY23F net profit and 64% of street estimate. As a comparison, 1H accounted for 36% of Yinson’s FY22 core net profit.

• The group also YoY doubled 1HFY24 dividend to 2 sen, translating to a 15.7% dividend payout ratio.

• YoY, 1HFY23 revenue grew substantially by 2.3x to RM6.1bil on (i) strong progress for EPCIC contracts for FPSO Maria Quitéria, FPSO Atlanta and FPSO Agogo, and (ii) maiden contribution of FPSO Anna Nery’s charter income. However, CNP rose by a smaller 76.7%, partly negated by increased finance costs and tax expenses.

• Sequentially, 2QFY24 CNP (after excluding RM6mil net gains on foreign exchange) climbed 7.2% to RM224mil on the back of a rise in revenue of 3.1% to RM3.1bil from FPSO Anna Nery conversion work and revenue from an option to purchase the vessel for FPSO Atlanta.

• Since achieving the first oil on 7 May 2023, FPSO Anna Nery’s current performance is in line with the group’s run rate expectations with an estimated annual revenue of RM200mil and profit after tax (PAT) of RM70mil.

• Additionally, Yinson has secured contract extensions for FSO Bien Dong and FPSO Lam Son worth US$74.6mil up to June 2028 and US$27.3mil up to Dec 2024, ahead of the end of their initial contracts.

• As of 2QFY24, progress for the group’s EPCIC projects is well on track:
  (i) FPSO Atlanta is now at 63% progress completion and expected to achieve first oil in mid-2024 (following its decision to exercise the option to purchase the vessel for a consideration of US$465mil consisting of US$86mil to be paid in cash/deferred payments and 15-year debt of US$379mil);
  (ii) FPSO Maria Quitéria is now at 73% progress completion with a first oil target by 2H 2024, according to Upstream; and
  (iii) FPSO Agogo at 27% progress completion.

• We expect the quarterly growth of EPCIC revenues to moderate sequentially in the coming quarters as FPSOs Altanta and Maria Quitéria have nearly passed peak progress, and to be driven primarily by FPSO Agogo from FY25F. Additionally, we believe monetisation of its FPSO assets may be required to create larger financial headroom to fund more projects in the future given the huge required capex per vessel.

• We remain confident of Yinson’s ability to win future contracts and to replenish its orderbook against the backdrop of a thriving FPSO market. Given the limited pool of global players, mainly due to impact from oil price downcycles since 2014, the industry is currently struggling against the prolific pipeline of FPSOs being tendered. Yinson lists 3 prospects in the near-term: BP’s 10-well subsea Palas, Astrea and Juno (PAJ) project in Angola, Eni’s Baleine field offshore in Ivory Coast and an invitation to tender on a study on carbon capture, storage and injection facility in Malaysia by Shell.

• The stock currently trades at a compelling FY25F PE of 7.8x vs. its 5-year average of 18x for a globally recognised FPSO player with a healthy balance sheet and multiple prospects of substantively expanding its already formidable outstanding order book of RM99.9bil (US$22.7bil) as at 2QFY24.

Source: AmInvest Research - 2 Oct 2023