-  We maintain our BUY call on Yinson Holdings (Yinson) with an unchanged fair value of RM3.12/share (post 1-to-2 share split), based on a sum-of-parts (SOP) valuation, which implies an FY16F PE of 25x and EV/EBITD (Enterprise Value/Earnings Before Interest, Tax & Depreciation) of 14x – comparable with our current valuations for Bumi Armada.

-  We are neutral on Yinson entering into a share purchase agreement to sell its entire 50% stake in a floating production, storage and offloading (FPSO) vessel called Petroleo Nautipa to BW Offshore (BW) for US$59mil (RM188mil). The sale is expected to be completed in 3Q2014.

-  Assuming that the vessel stake generates earnings of RM13mil for Yinson, we estimate that the prospective PE works out to 15x, which is almost 2x BW Offshore’s FY14F PE of 8x.

-  Based on the remaining six years of FPSO charter contract until September 2020 and including the option to renew for up to two years, we understand that the transaction price works out to a project IRR of up to 3%, well below the targeted threshold of 11%-12% for fresh tenders currently.

-  The sale will generate an exceptional profit of RM79mil (65% of Yinson’s FY15F earnings) and will reduce its net gearing from 0.5x to 0.3x.

-  On the flipside, we have marginally reduced Yinson’s FY15F-FY17F earnings by 3%-5% due to the loss of Petroleo Nautipa’s contribution, which is unlikely to be replaced by a fresh FPSO charter, even if the latter is secured this year.

-  This is because of Yinson’s accounting policy of recognising earnings from an FPSO only after achieving first oil and the completion of conversion, which could take 18 to 24 months.

-  Currently, this FPSO services the Etanne field off Gabon on a 6-year firm contract until 3Q2020, with a value of US$196mil and a 2-year extension option worth US$62mil. Hence, the sale will cause group’s order book to drop by 11% to US$2.1bil (RM6.8bil).

-  Recall that either a sale or acquisition was being considered since Yinson acquired Fred Olsen Production (FOP) last year as both the group and BW compete in the same business by providing floating solutions globally to oil majors.

-  Valuations are still decent at FY16F EV/EBITDA of 14x – comparable to Bumi Armada’s.

Source: AmeSecurities