• 1QFY19 core earnings declined by 12% yoy mainly on weaker contribution from FSO Bien Dong and FPSO Lam Son. Overall, it trailed ours/consensus estimates at 17%/19% respectively.

• Oustanding orderbook expanded to US$4.1bn with finalization of the FPSO Helang project for JX Nippon at the Layang field.

• Weaker-than-expected JV contribution prompts 10-17% earnings cut over FY19-21 but new orderbook is positive.

• Downgrade to HOLD with a higher SOP-derived TP of RM4.55 (implied FY19 PE: 14.5x). Despite the earnings setback, Yinson’s long term prospect remains positive. Revisit at lower levels.

Weaker profits on lower JV contribution

1QFY19 core profits fell 12.2% yoy to RM61.7m mainly on lower JV contribution which dwindled to just RM1.2m (1QFY18: RM26.9m). This was due to unfavourable scheduled charter rates for FSO Bien Dong and FPSO Lam Son. As a result of the lower-than-expected charter rates, the 1QFY19 core earnings trailed ours and consensus estimates at 17% and 19% respectively.

Flat QoQ performance

On QoQ basis, 1QFY19 core earnings eased 2% possibly amidst the stronger ringgit; revenue declined 9% as ringgit strengthened to RM3.90/US$ (FY18: RM4.20/US$). However, this was partially offset by lower overhead and finance costs.

Poised for growth

Orderbook expanded to US$4.3bn (from US$3.1bn) as at 1 May 2018 (Table 2) with the new FPSO Helang project. It would be chartered to JX Nippon at the Layang field over an initial 8-year period with a 10 extension periods; total charter is estimated to be worth US$860m.

Cut earnings forecast

We cut our FY19 and FY20 estimates by 17% to reflect the lower-than expected charter rates for FSO Bien Dong. Meanwhile, we lower FY21 earnings by 10% as impact from FSO Bien Dong is partially offset by the new FPSO Helang as the total contract value was higher than our initial assumption of US$550m. We revisited our USD/MYR exchange rate assumption after it reversed its course in 2Q18 (Table 4).

Downgrade to HOLD with higher TP RM4.55

We downgrade to HOLD mainly on valuation grounds as we remain positive on Yinson given its healthy orderbook and favourable outlook for the sector. We see near-term challenges such as weak JV result and gestation period from new project could limit upside in the near term. Revisit at lower levels with higher TP of RM4.55 which implies 14.5x FY18F PER (Table 3).

Source: BIMB Securities Research - 28 Jun 2018