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.

• The Layang floating production, storage and offloading vessel (FPSO) charter award to Yinson may take a longer time to materialise given that the former contract recipient, TH Heavy Engineering (THHE), under PN17 status since April last year, has to work through its financial regularisation scheme with its creditors and court proceedings.

• The Court of Appeal has allowed an application by Global Mariner Offshore Services S/B to stay the validation of THHE’s proposed novation of the contract to provide engineering, procurement, construction, installation and commissioning (EPCIC) and leasing of the Layang FPSO, earlier contracted between JX Nippon Oil & Gas Exploration (Malaysia) Limited and THHE on 27 November 2014, to Yinson.

• Global Mariner, one of THHE’s multiple creditors, is claiming US$3mil for technical services provided in the conversion of the Layang FPSO. THHE has also applied a winding-up order and claim of RM18mil from Global Mariner.

• Recall that THHE, which is in the process of converting the FPSO for US$230mil, had acquired the Deep Producer 1 FPSO for US$82.5mil back in 2011. However, THHE has not been able to deliver the FPSO as contracted given its current financial distress.

• We understand that Yinson, should it secure the Layang field in Block SK10 off Sarawak, may not employ the Deep Producer 1 FPSO given that it now wholly owns the currently idle FPSO Four Rainbow.

• The group has recently acquired the remaining 49% stake in Four Rainbow from Four Vanguard Service E Navegacao for US$9mil, which means that the current vessel costs only US$44mil.

• Besides this potential project in Malaysia, 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, 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 - 12 Jan 2018