Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a slightly higher sum-of-parts-based (SOP) fair value of RM5.53/share (from an earlier RM5.51/share), which implies an FY21F PE of 14x.

• Following an analyst briefing yesterday, we have cut FY19FFY20F earnings by 14%-33% due to the upcoming minority charge from the completion sale of a 26% equity interest in the US$1bil floating production storage and offloading (FPSO) John Agyekum Kufour to the Japanese consortium on 6 June this year together with the likely cessation of FPSO Knock Allan, currently operating off Gabon, in April 2019.

• However, we have raised FY21F earnings by 29% due to the inclusion of contributions of FPSO Helang (formerly Layang) and the second Nigerian FPSO in the Anyala and Madu fields, off Nigeria. These 2 FPSOs, which require minimal modifications, are scheduled to commence operations on a fast-track basis towards the end of 2019. Meanwhile, we maintain our assumption that the charter for FPSO Adoon, currently operating in Nigeria, will be extended for another 4 years after October this year under Addax Petroleum at a 20% charter reduction as the field remains commercially viable.

• Currently, the Four Rainbow FPSO, which will be deployed in the Helang field, is being refurbished in a China-based yard. Recall that Yinson has completed the novation of the former Layang FSPO charter from TH Heavy Engineering on 1 June this year. Including the cost of novation, we have raised the all-in cost of the vessel by US$50mil to US$400mil in our NPV assumption.

• Yinson, which expected to complete the charter arrangement with First Exploration and Production Development Ltd (FEP) and Nigerian National Petroleum Corporation, is currently sourcing for an existing FPSO for the Anyala and Madu fields. Recall that Yinson has entered into an MoU with FEP to secure a 100% equity stake in the bareboat charter and 40% in the operation and maintenance services.

• The group remains optimistic of securing another US$1bil FPSO early next year with multiple rollouts of projects in Brazil, West Africa and Gulf of Mexico (See Exhibit 3) amidst a limited pool of contenders with the necessary expertise and financial capability following project scarcities over the past 3 years.

• Given its low FY20F net debt-to-EBITDA of 3x which should enable the group to easily secure external project financing, we do not expect any equity raising exercise. With the completion of the 2 Suezmax-sized FPSOs by the end of next year, Yinson’s project management capacity appears comfortable securing another large project towards early 2019.

• 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 - 29 Jun 2018