Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) but with a lower sum-of-parts-based (SOP) fair value of RM4.72/share (from an earlier RM5.05)/share), which implies an FY19F PE of 15x, with the removal of the DCF of the group’s 49% stake in the Ca Rong Do (CRD) floating production, storage and offloading (FPSO) bareboat charter.

• Excluding one-off items, Yinson’s FY18 core net profit of RM346mil was within our and street’s estimates. While we have fine-tuned Yinson’s FY19F earnings, FY20F earnings have been cut by 10% largely from the removal of contributions from the CRD FPSO, currently under a force majeure event against the backdrop of a territorial dispute between Vietnam and China.

• Yinson’s FY18 DPS of 12 sen doubled our expectations, largely due to the surprise 4QFY18 payment of a 4 sen special dividend and a final 4 sen payout. The group had secured the US$102mil Lam Son FPSO termination compensation from PetroVietnam in December last year. Hence, we have raised our FY19F-FY21F DPS by 33% to 8 sen, which translates to a payout ratio of 25%.

• Yinson’s 4QFY18 core net profit slid 31% QoQ to RM67mil due to termination of the group’s 49%-owned Lam Son FPSO charter, 83% increase in net interest cost, associate loss and 8%-point increase in effective tax rate. As the Lam Son vessel is still being deployed in the field while Yinson has recently secured an interim charter until 31 December 2018, we expect a lumpy earnings jump from the backdated charter revenue since 1 July last year.

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

• Even though the CRD FPSO bareboat charter may eventually be terminated as in our revised base case assumption, we view the development as mildly positive as the group could still own a fully paid FPSO for redeployment as the operator Talisman is obligated to reimburse all costs already incurred in the project.

• Besides Petrobras’ recent tender for 5 large FPSOs which underpin the acceleration of global floater demand, Yinson is a strong contender for a Hess-related FPSO project in Ghana, which could cost over US$1bil, similar to the group’s earlier vessel for Eni. Recall that Hess’ Tano-Cape Three Points off Ghana won a territorial dispute with the Ivory Coast, as mediated by the International Tribunal of the Law of the Sea last year.

• While the exclusion of the CRD FPSO charter will translate to Yinson’s order book contracting by 13% to US$3.3bil, this still represents a healthy 12x FY18F revenue. Hence, the stock currently trades at a bargain CY18F PE of 15x vs. over 20x for Dialog Group.

Source: AmInvest Research - 30 Mar 2018