• Yinson 2QFY19 core earnings fell 29% yoy mainly on weaker contribution from FSO Bien Dong and FPSO Lam Son.

• Overall, 1HFY19 core earnings declined 23% yoy and were within ours and consensus’ estimate at 45% and 49% respectively.

• We expect the finalization of FPSO Anyala and Madu project to add US$1bn to its existing orderbook of US$4.3bn.

• 4 sen interim DPS was declared similar to FY18 interim DPS.

• Maintain HOLD with an unchanged TP of RM4.55 (implied FY19 PE: 14.5x). We think the gestation period from new project could drag earnings and limit upside in the near term.

Weaker profits on lower JV contribution

Yinson’s 2QFY19 core profits fell 29% yoy to RM79m mainly on continued lower charter rate from FSO Bien Dong and FPSO Lam Son as well as higher interest charges from commencement of FPSO JAK charter. For the same reason, 1HFY19 core earnings dropped 23% yoy to RM140m and came within ours and consensus’ estimate at 45% and 49% respectively.

Stronger QoQ performance

On QoQ basis, 2QFY19 core earnings grew by 27% as revenue was translated at higher US$ against the MYR and higher operating margin due to lower admin expenses.

Stronger balance sheet for new projects

Yinson’s net gearing reduced significantly to 0.4x from 1.2x in 1QFY19 with the issuance of perpetual Sukuk Mudharabah Programme in 2018 worth RM950m (note that accounting standards classifies perpetual Sukuk as equity). This provides Yinson more room to gear up and bid for new FPSO projects. As at 1 Aug 2018, its orderbook is strong at US$4.3bn inclusive of the FPSO Helang project. We expect the orderbook to expand by at least another US$1bn upon finalisation of the Head of Agreement with the First E&P company for the Anyala and Madu FPSO contract.

Declared 4 sen DPS

Yinson declared an interim DPS of 4 sen which implies payout ratio of 30%. This was similar to the DPS paid in 2QFY18.

Maintain HOLD with unchanged TP RM4.55

We retain our HOLD recommendation with an unchanged TP of RM4.55 which implies 14.5x FY18F PER (Table 3). While we remain positive on Yinson given its healthy orderbook and favourable outlook for the sector, we think near-term challenges such as weak JV result and gestation period from new project could pose a drag to earnings and limit upside in the near term.

Source: BIMB Securities Research - 25 Sept 2018