Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based (SOP) fair value of RM5.05/share, which implies an FY19F PE of 14x.

• Yinson held a teleconference today to reaffirm that its announcement highlighted that PetroVietnam Technical Services Corporation (PTSC), which owns 51% in the Ca Rong Do floating production, storage and offloading (FPSO) bareboat charter, has been notified of a force majeure event by the field operator, Talisman Vietnam 07/03 B.V.

• A force majeure event exempts contracting parties from fulfilling their contractual obligations for causes that could not be anticipated or beyond their control during a period, likely for 2-3 months.

• Management highlighted that the charter contract has not yet been suspended or terminated by Talisman at this point, pending resolution with PetroVietnam. Recall that media has reported that China disputed Vietnam’s territorial claims over block 07/03 offshore Vietnam.

• In April last year, the Yinson/PTSV JV was awarded the FPSO charter which has an estimated total aggregate value of US$1bil for the entire 15-year charter inclusive of all five yearly extension options.

• As a service provider, management reaffirmed that Yinson will be entitled to claim full compensation for the costs incurred for the FPSO, which involve the acquisition of OSX-1 from a distressed Brazilian operator. The vessel is currently sailing from Norway towards Asia, where it is expected to undergo some minor upgrading works.

• Pending a formal announcement, we maintain Yinson’s forecasts with the caveat that that the foregone future revenues from a likely charter termination of its 49%-stake in the Ca Rong Do FPSO bareboat charter could reduce Yinson’s FY20F earnings by 11% and a 36 sen (7%) cut in our SOP to RM4.72/share.

• Yinson also entered into an interim contract with PTSC to charter its 49%-owned FPSO PTSC Lam Son for the Lam Son Field, backdated to 1 July 2017. Recall that PetroVietnam-Petronas partnership had terminated the FPSO charter in June 2017 with a fee of US$209mil but is still employing the vessel currently.

• While the charter rate and tenure have yet to be finalised, our SOP has already assumed a DCF accretion of RM437mil from this extension of the group’s 49%-owned Lam Son FPSO bareboat charter by assuming another 7 years at a 40%-reduced charter rate and an equity discount rate of 6%.

• 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 - 27 Mar 2018