- 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 fixed its proposed rights issue price at RM2.20/share on a 1-for-1 entitlement basis, slightly lower than our earlier expectation of RM2.30/share. Based on Yinson’s last closing price, this represents a 59% discount to its ex-rights price of RM5.43/share.

- After the rights and 1-to-2 share split, we estimate that Yinson’s basic FY15F EPS of 45 sen will drop to 14.6 sen and FY16F EPS from 53 sen to 16.6 sen. Also, our ex-all diluted SOP will drop from RM10.30/share to RM3.12/share.

- With the rights proceeds, the group’s net gearing of 2x as at end-FY14 will drop to 0.4x as at end-FY15F - significantly lower than Bumi Armada’s 0.9x.

- All in all, the group will be using 77% of the entire rights proceeds for debt repayment and working capital purposes.

- We remain positive on Yinson as its lower gearing positions the group to secure up to 2 prospective projects in 2H2014, which could drive Yinson’s re-rating prospects further.

- The first involves a potential 49% stake in the charter for the US$150mil Ham Rong floating storage and offloading vessel 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) floating, production, storage and offloading vessel off Ghana, in which Yinson could be 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 right of first 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 9.9x compared to Bumi Armada’s 11.5x.

Source: AmeSecurities