- We downgrade our call on Yinson Holdings (Yinson) to HOLD from BUY with a higher fair value of RM3.67/share (from an earlier RM3.12/share), based on a sum-of-parts (SOP) valuation, which implies an FY16F PE of 29x and EV/EBITD (Enterprise Value/Earnings Before Interest, Tax & Depreciation) of 15x – a 15% premium to Bumi Armada’s 13x.

- Our higher SOP stems from raised capex assumption for the very large FPSO vessel – up from US$700mil to US$1bil, reflective of Bumi Armada’s Block 15/06 Angolan FPSO, which is estimated to cost US$1.5bil. The group had recently signed a MoU with Golden State Petro to buy a Samsung-built 309,000DWT very large crude carrier Ulriken, which was built in 1998.

- The FPSO is likely earmarked for the Sankofa-Gye Nyame field under the Offshore Cape Three Points (OCTP) licence at offshore Ghana, which is being bid for by Yinson, Tokyo-based Modec and Bumi Armada.

- Since Yinson’s accounting policy recognises FPSO earnings only upon commencement of operations, we maintain Yinson’s FY15F-FY17F earnings, with the group’s 1HFY15 net profit of RM61mil largely in line with expectations – accounting for 52% of our FY15F net profit of RM118mil and 51% of street’s RM119mil.

- On a YoY comparison, the group’s 1HFY15 net profit surged 2.4x YoY from the expansion of its marine operations together with the Lam Son FPSO which achieved first oil on 6 June 2014.

- The group’s 2QFY15 net profit was flat QoQ at RM31mil, as the full quarter recognition of its 49%-owned Lam Son FPSO was largely offset by the one-off bonus of RM15mil for its early delivery by three weeks.

- But in 2HFY15, we expect the group’s core performance, (excluding the estimated exceptional gain of RM79mil from the sale of a 50% stake in FPSO Petroleo Nautipa to BW Offshore for US$59mil) to dip slightly from the loss of its contributions.

- The group remains on the prowl to secure fresh FPSO charters in Africa and Southeast Asia. Management indicated that the result of a large FPSO tender is likely to be revealed by the end of the year while the small-to mid-sized projects would be known next year.

- After outperforming the FBMKLCI by 111% over the past year, Yinson’s valuations are now fair at FY16F EV/EBITDA of 18x, which is at a 28% premium to Bumi Armada’s 14x.

Source: AmeSecurities