Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based (SOP) fair value of RM5.51/share, which implies an FY19F PE of 14x.

• Our SOP includes the additional NPV of RM860mil or 79 sen/share arising from the likely award of a charter for a US$400mil floating production storage and offloading (FPSO) in the Anyala and Madu fields under Oil Mining Leases (OML) 83 and 85 respectively, offshore Nigeria.

• Recall that Yinson may secure a 100% equity stake in the bareboat charter and 40% in the operation and maintenance services, in which the company will acquire an existing FPSO from third parties.

• Yinson’s 1QFY19 core net profit of RM63mil was within our and street’s estimates, accounting for 19% of our FY19F earnings vs. 16%-23% for 1QFY16-1QFY18 to their respective years. The group did not declare any interim dividend, as expected.

• As the ringgit has weakened recently while the group’s operating costs are expected to decrease in the subsequent quarters, our FY19F-FY21F earnings are maintained, which has yet to include contributions from the Anyala-Madu FPSO pending first oil completion by the end of 2019. 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%.

• Yinson’s 1QFY19 core net profit slid 7% QoQ largely due to the 8% appreciation of the ringgit against the group’s USD revenues, higher lumpy operating expenses in its operations in Africa and demobilisation provision for the group’s Gabonbased FPSO Knock Allan, which is expected to expire in 2019.

• On a YoY comparison, Yinson’s core net profit decreased 11% due to the termination of the group’s 49%-owned Lam Son FPSO charter. As the 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.

• Meanwhile, the group 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 for the Law of the Sea.

• We have already incorporated a potential DCF accretion from the novation of the Layang FPSO and charter extension from the Lam Son charter, which was also discontinued earlier. Underpinned with locked-in earnings visibility from an outstanding order book of US$4.3bil (25x FY18F revenue), the stock currently trades at a bargain CY18F PE of 15x vs. over 20x for Dialog Group and Sapura Energy.

Source: AmInvest Research - 28 Jun 2018