Investment Highlights

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

• Yinson’s 49%-owned floating production storage and offloading vessel (FPSO) PTSC Lam Son has received a fee of US$209mil (RM840mil) for the termination of the bareboat charter effective on 30 June 2017 following the liquidation of Lam Son Joint Operating Company (LSJV). The cash settlement has been deployed to fully settle the outstanding loan on the FPSO, with a net cash balance of US$22mil.

• Recall that this charter, signed on 28 December 2012, services the Thang Long–Dong Do field for Blocks 01/97 & 02/97, off Vietnam. Operating in Lam Son Field since June 2014 on a fixed primary term of 7 years, there is only 4 remaining years for the charter.

• This FPSO, which cost US$400mil, contributes an estimated net profit of RM40mil or 18% to Yinson’s earlier FY18F earnings. However, as mentioned in our update, Yinson was entitled to the discounted cash flows of the remaining time charter, which we still estimate at RM460mil in our SOP – 11% of our SOP and close to our valuation for the termination fee.

• PetroVietnam continues operating the Lam Son field and is still utilising the current FPSO. Hence, we are mildly positive on this development as the termination itself will be NPVneutral for Yinson while the high likelihood for a new charter with PetroVietnam, albeit at a lower rate, will provide further DCF and earnings accretion.

• There are still further prospective value enhancements to the group as its now wholly-owned FPSO Four Rainbow, currently idle, could be redeployed in the Southeast Asian region. The group has recently acquired the remaining 49% stake from Four Vanguard Service E Navegacao for US$9mil, which means that the current vessel costs only US$44mil (including the exercise of US$11mil option shares).

• 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.

• 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 - 4 Jan 2018