Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a higher sum-of parts (SOP) fair value of RM5.05/share (from an earlier RM4.50/share), which implies an FY19F PE of 17x.

• Although our earnings forecasts are maintained, our SOP expansion stems from:

• Assuming an extension of the group’s 49%-owned Lam Son floating production storage and offloading (FPSO) vessel charter by another 7 years but at a discount of 40%. Recall that PetroVietnam-Petronas partnership had terminated the FPSO charter with a fee of US$209mil but is still employing the vessel currently. We based Lam Son’s NPV extension of RM436mil over 7 years on an equity discount rate of 6%. This is conservative as the vessel should enjoy risk-free rate of 4% given that the vessel’s debt has been fully repaid by the termination fee while the project’s equity portion has also been fully repaid.

• Adding the Layang FPSO’s NPV of RM395mil, assuming a capex of US$350mil, following the proposed novation of TH Heavy Engineering’s (THHE) contract with JX Nippon. We expect THHE’s court proceeding (under PN17 status since April last year) on its financial regularisation scheme with its creditors and the completion of the novation to be completed in 2Q2018.

• Our forex conversion rate has also been lowered to RM4.00=US$1 from an earlier RM4.30=US$1, which has partly offset the impact from the incorporation of the Lam Son contract extension and Layang charter.

• With the excess cash of US$35mil post-full settlement of the Lam Son FPSO debt which was paid off with the termination fee, coupled with US$117mil proceeds from selling a 26% stake in the JAK FPSO to a formidable Japanese consortium, the group has a massive cash pile of RM1.3bil (30% of market cap) to secure new FPSO projects.

• If Yinson secures the charter for the US$1bil FPSO for Hess’ Tano-Cape Three Points project off Ghana by the end of the year, Yinson’s SOP can be raised further by 35% or RM1.79/share.

• Even if Yinson does not secure this new Ghana FPSO project, there are multiple other FPSO charters up for grabs, predominantly in Brazil. 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 14x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 24 Jan 2018