- We maintain our BUY call on Yinson Holdings (Yinson) with an unchanged fair value of RM10.30/share, based on sum-of-parts (SOP) valuation, which implies a FY15F PE of 23x and EV/EBITD (Enterprise Value/Earnings Before Interest, Tax & Depreciation) of 14x - comparable with our current valuations for Bumi Armada.

- Yinson has raised its rights proposal by 20% from RM500mil to RM600mil due to its recent share price appreciation.

- Assuming that the rights exercise is on a 1-for-1 basis (as per the announcement’s pro-forma illustration), the impact is largely beneficial to the group’s diluted EPS and SOP.

- After the rights and 1-to-2 share split, we estimate that Yinson’s diluted EPS will increase by 4% to 14.2 sen for FY15F and 15.9 sen for FY16F. Our ex-all diluted SOP will likewise rise by 3% to RM3.04/share (See Table 1).

- The group’s ex-all net debt will drop by 14% to RM607mil by end-FY15F, lowering its net gearing from 0.6x to 0.5x - significantly lower than Bumi Armada’s 1x.

- All in all, the group will be using 83% of the entire rights proceeds for debt repayment and working capital purposes.

- We remain positive on the group largely due to expectations of 2 significant projects in 2H2014 which should drive Yinson’s re-rating prospects further. The first involves a 49% stake in the charter for the US$150mil Ham Rong FSO in Vietnam, besides at least 4 other floater projects in the country that are in the pipeline.

- The second and more important contract is the much larger US$700mil-US$800mil Offshore Cape Three Points (OCTP) FPSO off Ghana in which Yinson is the leading contender, having leveraged on FOP’s established presence in West Africa.

- The valuation drivers for Yinson stems from its:- (1) strong business connections in Vietnam which offers first right of refusal from PetroVietnam Technical Services Corp to participate in the country’s pipeline of multiple oil & gas projects; and (2) elevated profile in international tenders given the group’s enlarged floater assets and FOP’s strong established track record.

- Despite outperforming the FBMKLCI by 264% over the past year, valuations are still decent at FY15F EV/EBITD of 10.5x – comparable to Bumi Armada’s 11x.

Source: AmeSecurities