Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged forecasts and sum-of-parts-based (SOP) fair value of RM4.50/share, which implies an FY19F PE of 14x.

• Yinson has confirmed its discussions with JX Nippon Oil & Gas Exploration (M) Limited and TH Heavy Engineering to take over the charter for the floating production, storage and offloading (FPSO) vessel, to be deployed in the Layang field in Block SK10 off Sarawak.

• JX Nippon, which has a 75% stake in the Layang block with the rest held by Petronas Carigali, contracted TH Heavy in May 2014 to convert the Laurita, a partly converted FPSO, into the FPSO Deep Producer 1.

• The partly completed FPSO and turret are still at Dubai Drydocks, with the modification works yet to commence due to TH Heavy’s operational problems. Under its 2014 contract with JX Nippon, TH Heavy was to lease the FPSO at US$372mil for a fixed 7 years, with up to 10 one-year extensions worth US$457mil. We understand that the charter may be re-contracted next year with Yinson looking at various options, including securing its own vessel or another strategic partner.

• Currently, the group has its 51%-owned FPSO Four Rainbow, which cost EUR60mil, with Italy’s Premuda holding the remaining stake. This vessel could be suitable for the Layang field 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.

• Assuming a total cost of US$400mil, project IRR of 12%, interest cost of 5%, charter tenure of 7 years and equity stake of 51%, we estimate that securing the Layang FPSO charter could add 22 sen or 5% to Yinson’s SOP while raising its FY20F earnings by 17% (assuming full year contribution). The group, which has recently sent up a multi-currency perpetual securities programme of up to US$500mil, could easily fund this project.

• There is also a strong likelihood that its 49%-owned joint venture with PetroVietnam Technical Services Corporation (PTSC) for the FPSO PTSC Lam Son may be securing an alternative value-enhancing charter in Vietnam by the end of this year.

• The Lam Son JV is still operating at the Lam Son Field, off Vietnam, effective 1 July 2017, after PTSC terminated the original 7-year primary FPSO charter in April this year with an estimated fee of US$220mil as the Lam Son field’s production rate fell below expectations to 7,000 barrels per day.

• The group may also be eyeing a Hess-related FPSO project in Ghana, which could cost over US$1bil, similar to the group’s earlier vessel for Eni. Hess’ Tano-Cape Three Points off Ghana recently won a territorial dispute with the Ivory Coast, as mediated by the International Tribunal of the Law of the Sea.

• Underpinned with locked-in earnings visibility from an order book of US$4.2bil (25x FY18F revenue), the stock currently

Source: AmInvest Research - 30 Oct 2017