Investment Highlights

• We maintain BUY call on Yinson with an unchanged fair value of RM3.96/share based on a sum-of-parts (SOP) valuation, which also incorporates a 3% premium for our 4-star ESG rating 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.

• Upstream reported that Petrobras has delayed the commercial bid deadline for the Sergipe-Alagoas development offshore Brazil by 2.5 months to 15 Jan 2024 due to concerns over funding and high costs associated with the 30%-40% minimum local content requirement.

• The Sergipe-Alagoas basin contains blocks BM-SEAL-10 and BM-SEAL-11 which harbour the Cavala, Palombeta, Agulhinha and Budiao fields. It is a deep-water development with depths of more than 2,500 metres.

• The development features 2 floating production, storage and offloading (FPSO) vessel tenders: (a) SEAP-1 with a processing capacity of 120k barrels of oil per day (bopd) and 10mil metric standard cubic meter of natural gas per day (mmcmd); and (b) SEAP-2 with a processing capacity of 120kbopd and 12mmcmd. Both will have a minimum storage capacity of 1.4mil bopd and be chartered over 21 years. First oil is expected by late-2027.

• Upstream cites that the tenders are expected to attract floater players such as SBM Offshore, Modec, MISC, Yinson, BW Offshore and Ocyan. Among these, we believe Yinson would be a strong contender should the group enter the bidding process given its strong track record of execution and existing relationship with Petrobras via FPSO Anna Nery and FPSO Maria Quitéria.

• Recall, during the 1HFY24 analyst briefing, the group had reported that following its first oil in May 2023, FPSO Anna Nery’s current performance is in line with its forecast run rate of RM200mil annual revenue and RM70mil profit after tax (PAT). The completion progress for FPSO Maria Quitéria project has reached 73%, within expectations.

• Should Yinson successfully secure this project, we estimate this could provide an incremental SOP of +14% to Yinson’s SOP, based on FPSO capex of US$1.7bil with a project IRR of 12%, a 70:30 debt-to-equity ratio and a WACC of 8.5%.

• However, we maintain our forecasts and valuations for now pending confirmation of a successful tender. Management indicated that although Brazil has seen a significant rise in FPSO tenders, the group is cognizant of single country concentration risks. For reference, Brazilian projects accounts for 73.2% of Yinson’s FY23 total revenue.

• 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 - 11 Oct 2023