Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a higher sum-of-parts-based fair value of RM4.50/share (from an earlier RM4.30/share), which implies an FY19F PE of 12x.

• Our FY18F earnings have been raised by 10% as the group’s 1HFY18 core net profit of RM187mil came in above expectations, accounting for 68% of our FY18F forecast and 71% of consensus. As a comparison, 1HFY17 accounted for 45% of FY17 core net profit.

• However, we have only slightly raised FY19F-FY20F earnings as the group’s sale of a 26% equity stake in its wholly-owned floating production storage and offloading vessel (FPSO) John Agyekum Kufuor (JAK), expected to be completed by December this year, will lead to a moderation in the earnings momentum.

• We have also raised our FY18F-FY20F dividend assumptions as Yinson has declared an interim dividend of 4 sen dividend, 2x above our forecast for the full year.

• Yinson’s 2QFY18 core net profit surged 41% QoQ to RM110mil due to the commencement of the JAK FPSO, formerly named Yinson Genesis, and deployed currently at Ghana's Offshore Cape Three Points block.

• This also drove the group’s EBITDA margin from 59% in 1QFY18 to 85% in 2QFY18. Recall that with Eni’s final acceptance in early June this year of the JAK FPSO, there was a 2-month contribution from this project, which achieved first oil in May 2017, to boost 2QFY18 earnings.

• While the JAK FPSO will continue to drive earnings momentum in the subsequent quarter, this will be partly offset by the termination of the charter for the group’s 49% stake in FPSO PTSC Lam Son effectively on 30 June this year. The 1-month impact caused 2QFY18 associate contribution to drop 27% QoQ and 19% YoY to RM20mil.

• Over the longer term, Yinson’s earnings growth will be further supported by its 49%-owned Ca Rong Do (Red Emperor) FPSO, which is targeted to achieve first oil in September 2019.

• There are still further prospective value enhancements to the group as its 51%-owned FPSO Four Rainbow, currently idle, could be redeployed in the Southeast Asian region. Recall that this is a medium sized vessel with a storage capacity of 600,000 barrels with a production capacity of 40,000 barrels per day and gas compression facilities of 10 mmscfd.

• Given Yinson’s locked-in earnings visibility with an order book of US$3.7bil (22x FY18F revenue), the stock currently trades at a bargain FY19F PE of 9x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 28 Sept 2017