- We maintain our BUY recommendation on Yinson Holdings (Yinson) with an unchanged fair value of RM3.60/share, based on our sum-of-parts valuation, which implies an FY16F PE of 20x.

- Yinson has proposed to undertake a private placement of up to 103.3mil new shares, or 10% of its 1,032.8mil outstanding share base, to investors to be identified later. The placement shares will not be priced at more than 10% discount to the five-day volume weighted average market price (VWAP) prior to the price fixing date.

- We estimate that the placement exercise will raise net proceeds of approximately RM290mil, which will be used for the repayment of its bank borrowings. The exercise is expected to be completed within six months.

- While our FY16F-18F EPS will be diluted by the 10% increase in share base, our initial estimation shows that this will be offset by the expected interest savings of RM18.7mil per annum. Yinson’s net gearing will be reduced from 0.57x to 0.31x (as at end-FY15). Upon the completion of the exercise, our fair value may be reduced to RM3.53/share.

- With the recent Offshore Cape Three Points (OCTP) FPSO contract win in Ghana, the group’s net gearing was previously expected to increase to >2x over the next 2-3 years. As such, we believe that this is a pre-emptive move by Yinson to deleverage and free up cash flows to take on more projects going forward.

- We understand that Yinson is actively bidding for more FPSO contracts. One such contract is the Ca Rong Do project in Vietnam by Talisman (now Repsol), according to Upstream. The FPSO will have a production capacity of between 25k barrels per day (bpd) of oil and 30k bpd, plus 60 mmscfd of gas, with first production targeted in 2QCY18.

- Yinson’s plan to divest its non-O&G operations (valued at ~RM273mil) this year will further help pare down its gearing levels.

- The group currently trades at an FY16F PE of 22x.

Source: AmeSecurities Research - 26 Jun 2015