- 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 25x.

- Yinson announced that Liannex Labuan Ltd has offered RM228mil for the 100% equity interest of Yinson’s non-oil and gas assets, namely its trading, transportation and port operations. This is within our expectations.

- Liannex Labuan is owned by Mr Lim Han Weng and Mdm Bah Kim Lian, who are also the major shareholders and directors of Yinson.

- Based on our estimates, the divestment values its noncore assets at a forward PE of 8x, slightly below our current valuation of 9x in our assumptions.

- Nevertheless, we are positive on the group streamlining its business model to enable it to focus on O&G operations.

- Taken together with the placement of 10% of its outstanding share base, which we estimate will raise ~RM290mil, this will increase the group’s war chest by a substantial ~RM520mil and reduce its net gearing in order for the group to take on more projects going forward. The group’s net gearing was earlier expected to increase to >2x over the next 2-3 years, with the recent Offshore Cape Three Points (OCTP) FPSO contract win in Ghana.

- 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.

- Overall, we remain upbeat on the outlook of the company as the OCTP FPSO is expected to contribute to the bottom line significantly upon its commencement in September 2017, with approximately RM150mil full-year accretion to bottomline – effectively double that of FY15F.

- We also like Yinson’s prudence in the contracts it had secured thus far, where the execution and counterparty risks are low. This is exemplified in the contract terms for OCTP between Yinson and Eni Spa where the early termination fees would preserve its net present value currently derived from the project.

- The stock currently trades at an FY16F PE of 21x.

Source: AmeSecurities Research - 30 Jun 2015