- We maintain our HOLD rating on Yinson Holdings with an unchanged fair value of RM2.85/share, based on our sum-of-parts valuation, which implies an FY16F PE of 20x.

- We have fine-tuned Yinson’s FY16F-FY17F earnings as its earnings came in within both our and consensus expectations. The group declared a dividend of 1.5 sen/share for FY15 (1.25 sen in FY14).

- Excluding exceptional items comprising gains on foreign exchange of RM56mil, fair value adjustments on derivatives of RM30mil, impairment loss on receivable of RM9mil and inventories write down of RM10mil, Yinson reported 4QFY15 core net profits of RM33mil, which brought FY15 earnings to RM145mil. This accounted for 102% of both our and consensus estimates.

- 4QFY15 core net profit declined by 36% QoQ, due to the absence of contributions from the 50%-owned Petroleo Nautipa FPSO that was sold in 3QFY15.

- On a YoY comparison, FY15 core net profit surged by 140% due to the inclusion of the Fred Olsen Production FPSO earnings, as well as the inclusion of the Lam Son FPSO. However, this was slightly offset by lower EBIT from its transport division by 34% and trading division by 63%.

- Yinson will not recognise any contributions from the US$3.2bil FPSO contract at the OCTP block in Ghana during the conversion period of ~2.5 years. However, the FPSO is expected to contribute approximately RM150mil p.a. to the bottom line upon the commencement of production in 2017. With a 75:25 debt:equity funding for the project, the group’s net gearing is expected to increase from 0.32x currently to >2x over the next 2-3 years.

- The recovery of non-associated gas, which is yet to be awarded, is a further upside for Yinson. The capex involved is estimated to be US$150mil-US$250mil.

- Yinson is targeting to divest its non-O&G operations by this year, as previously guided. We currently value its non- O&G operations at RM273mil, with transportation operations at RM65mil (9x PE), trading operations at RM168mil (9x PE) and 40%-owned port at RM40mil (1.5x BV).

- Although we are positive on the award of the OCTP contract award, significant earnings accretion will nevertheless only come three years later. The stock currently trades at an FY16F PE of 20x, compared with Bumi Armada’s 14x.

Source: AmeSecurities