• 3QFY19 core earnings fell 16% yoy mainly due to higher interest and minority charges. Overall, 9MFY19 core earnings declined 20% yoy and were within our estimate at 72% but ahead consensus’ estimate at 86%.

• Yinson is still in discussion to finalise charter contracts for FPSO Anyala and Madu as well as to extend the charter contracts for FPSO Adoon and Lam Son.

• 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 higher interest and minority charges

3QFY19 headline PATAMI slumped 52% yoy and 50% qoq to RM43m mainly due to impairment charges on PPE amounted to RM66m which partially offset by gain on FX amounted to RM32m. Excluding these and other exceptional items, core PATAMI declined 16% yoy to RM82m mainly due to higher interest expenses from issuance of perpetual sukuk and higher minority charges from 26% equity stake sale in FPSO JAK to a Japanese consortium in 2QFY19. Overall, 9MFY19 core earnings dropped 20% yoy to RM222m and came within our forecast at 72% but ahead consensus’ estimate at 86%.

Stronger QoQ performance

On QoQ basis, core earnings rose for second consecutive quarters partly due to weaker ringgit against US$. The revenue grew by 8% to RM266m leading to higher core earnings by 4%.

FPSO JAK remains the backbone

FPSO JAK remains the main profit contributor with firm charter ending in 13 years. We expect this will remain so until FPSO Helang starts its charter possibly in 2HCY19 while the talks to finalise the FPSO Anyala and Madu contract with First E&P Ltd is ongoing. The company is also in discussion to extend charter contracts for FPSO Lam Son and Adoon which firm charter shall end by Apr 2019 and Dec 2018 respectively. Separately, Yinson received a notice to terminate the FPSO Allan charter 3 month earlier than scheduled. We think the impact is minimal as the charterer obliges to honour the compensation payment in Jan 2019.

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 of US$4.1bn and rising demand for FPSO especially from Brazil, we think contract renewal risk and long gestation period for new project could pose a drag to earnings and limit upside in the near term.

Source: BIMB Securities Research - 21 Dec 2018