Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a higher sum-of-parts-based (SOP) fair value of RM5.51/share (from an earlier RM4.72/share), which implies an FY19F PE of 18x.

• The higher SOP stems from the additional NPV of RM860mil or 79 sen/share arising from the likely award of a charter for a floating production storage and offloading (FPSO) in the Anyala and Madu field under Oil Mining Leases (OML) 83 and 85 respectively, offshore Nigeria. Yinson may secure a 100% equity stake in the bareboat charter and 40% in the operation and maintenance services.

• Potentially costing US$400mil, the existing FPSO, which is planned to have a capacity of a daily output of 50,000 barrels of oil and 120 million cubic feet of gas, will be acquired from as-yet-undisclosed third parties and upgraded before being redeployed to the shallow waters 40 km off the Niger Delta by 4Q2019.

• The parties are currently negotiating for the bareboat charter as well as the operation and maintenance agreement for an initial 7 years which will have an option to be renewed for another 8 years.

• Assuming a project IRR of 14% and project financing of 70:30 for debt to equity, we estimate that this new FPSO charter could raise FY21F earnings by 29%. For now, we maintain our forecasts pending first oil completion.

• First E&P owns 40% of the rights to the 2 fields, which has estimated 193 million barrels in crude reserves, with the remainder being held by Nigerian National Petroleum Corporation on an unincorporated joint venture basis.

• Major oil service provider Schlumberger will contribute the required services in kind and capital for the project development until first oil. The joint project team will leverage the technical expertise of Schlumberger and the local knowledge of the partners.

• This will be Yinson’s second FPSO project in Nigeria after FPSO Adoon, currently deployed in the Antan field and likely to be extended following the firm period expiry in October this year given the field’s good production profile.

• Given the relatively small value of the Anyala and Madu FPSO vs the US$1bil capex for the Ghana-based John Agyekum Kufuor vessel, we would not be surprised if the group is still looking for additional projects. Management earlier indicated that Yinson was eyeing FPSO charters from Brazil, Mexico and West Africa which are up for tender. Three of those bids, of which two are large floaters, likely to cost over US$1bil, are likely to be awarded by the end of this year.

• Unlike in the past 3 years, there is now significantly lower number of operators with the financial capability to handle these projects given the industry downturn. The main players are Modec, SBM Offshore (which has been barred from Brazil due to ongoing bribery charges) and local rival Bumi Armada, who may only be able to manage up to 2 large FPSOs at a time. The stock currently trades at a bargain CY19F PE of 16x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 14 Jun 2018