Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based (SOP) fair value of RM4.50/share, which implies an FY19F PE of 15x.

• We have raised our FY18F earnings by 10% for higher FPSO margin assumptions as the group’s 9MFY18 core net profit of RM276mil (excluding impairments and unrealised forex losses) came in above expectations, accounting for 91% of our FY18F forecast and consensus. As a comparison, 9MFY15-9MFY17 accounted for 58-68% of FY15-FY17 core earnings.

• However, we maintain 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), which is now expected to be completed by March 2018, will lead to a moderation in the earnings momentum. No interim dividend was declared, as expected.

• Yinson’s 3QFY18 core net profit slid 18% QoQ to RM90mil due to a sharp decline in JV contribution as its bareboat charter for its 49%-owned FPSO PTSC Lam Son was terminated in June this year, coupled with the 1ppt appreciation of the ringgit against the group’s mostly overseas earnings contribution.

• This was partly offset by the full 3-month (vs. 2 months in 2QFY18) contribution from the JAK FPSO, formerly named Yinson Genesis and currently deployed at Ghana's Offshore Cape Three Points block. 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.

• 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 a new value-enhancing charter early next year after finalising the early termination fee.

• Yinson 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.

• 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 12x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 14 Dec 2017