• Yinson is pursuing its 3rd FPSO project this year after technically secured Marlim and Parque das Baleias FPSO projects in Brazil.

• Rising Brazilian FPSO demand and limited supply gives more bargaining power to Yinson for higher charter rate.

• Against this backdrop, we estimate each Brazil project orderbook size could be worth c.US$6.0bn. This will more than triple the company’s existing orderbook to US$17bn from US$5bn.

• Reiterate BUY call with higher SOP-derived TP of RM7.70 (from RM5.10), which implies 33x FY20F PE before it drops to 22x FY21F. We think the market has not fully reflect the potential contribution from 2 Petrobras’ project.

Getting ready for 3 large projects

Yinson currently has 3 active bids in Brazil and Ghana with total capex estimated at US$3.5bn (Table 1). The Brazil prospect looks promising after Yinson was the sole bidder in both Marlim and Parque das Baleias FPSO projects, potentially adding at least 2 new job wins to its orderbooks. While management previously shared that it only has capacity for 2 large projects, it is now willing to pursue for the third.

Rising yield in FPSO market

Rising Brazilian FPSO demand amidst limited supply gives FPSO operators bargaining power for higher charter rate. This is further amplified by fierce competition among the shipyards to secure the conversion works, helping the FPSO operator to manage its cost. As such, we assume DCR of US$750k/day and US$650k/day for Parque das Baleias and Marlim FPSO respectively, implying project IRR of 12%. For comparison, we estimate previous FPSO JAK’s project IRR is at 9% implying DCR of US$450k/day (Table 2).

Set to triple its orderbook

Given such lucrative FPSO market, we estimate each Brazil project could be worth c.US$6.0bn. As such, this will more than triple its existing orderbook to c.US$17.0bn from US$5bn, providing earnings visibility for the next 25 years. In our forecast, we included 2 Brazilian projects in our valuation and earnings forecast which would boost its bottomline by c.RM600m/year from FY24F onwards.

Reiterate BUY with high TP RM7.70 (from RM5.10)

We reiterate our BUY call with a higher SOP-derived TP of RM7.70 (from RM5.10) which implies 33x FY20F PE before it drops to 22x FY21F (Table 3). At current price, we think it has not fully reflect the potential contribution from 2 Petrobras projects, particularly its size and the rate of return. Should it secure FPSO Greater Pecan from Aker Energy for offshore Ghana, we estimate there is another RM1.24/share potential upside to the valuation.

Source: BIMB Securities Research - 28 Jun 2019