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.

• Following the signing of heads of agreement in July this year, Yinson has entered into a purchase agreement to sell a 26% equity stake in its wholly-owned floating production storage and offloading vessel (FPSO) John Agyekum Kufuor (formerly named Yinson Genesis and currently deployed at Ghana's Offshore Cape Three Points block) to a Japanese consortium for a maximum price of US$117mil (RM489mil), subject to final adjustments, from an earlier range of US$104mil-US$117mil.

• Expected to be completed by 1Q2018, the consideration is in line with our valuations. However, we estimate that the minority charge from the sale will reduce Yinson’s FY19F earnings by 10%. As in our earlier update, we remain mildly positive on the sale as Yinson will be securing upfront cash from this project which can be redeployed for fresh new jobs without resorting to shareholders.

• Additionally, Yinson may now pitch for larger projects by leveraging new equity partners as the acquiring consortium comprising Sumitomo Corp, Kawasaki Kisen Keisha, JGC Corp and Development Bank of Japan. Sumitomo is a leading global trading company, Kawasaki Kisen Keisha is among the world’s largest shipping companies while JGC designed and engineered Petronas’ Rotan floating LNG vessel and the Bintulu LNG train 9.

• 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 Asia region. Recall that Yinson is in discussions with JX Nippon Oil & Gas Exploration (M) Limited and TH Heavy Engineering to take over the charter for the FPSO, expected to cost less than US$400mil and to be deployed in the Layang field in Block SK10 off Sarawak.

• 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 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 trades at a bargain CY18F PE of 13x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 22 Nov 2017