• 9MFY1/24 core net profit exceeded expectations at 79% of our full-year forecast due to strong EPCIC revenue and profit recognition.

• Reiterate Add as Yinson remains on track to deliver on its three FPSO projects, which should drive core net profit to above RM1bn by FY27F.

• We reduce our end-CY24F SOP-based TP slightly to RM3.18 as we recalibrate our net debt forecasts.

Robust EPCIC Progress From FPSO Agogo in 3QFY24

3QFY24 (Aug-Oct 2023) core net profit of RM249m was 26% higher qoq, mainly because of a sharp qoq decline in tax provisions, as Yinson recalculated its tax liabilities on the basis that withholding tax payable in Angola is wholly (rather than partially) deductible against income tax payable in Singapore. Excluding the favourable tax impact, core pretax profits in 3QFY24 fell 14% qoq on account of lower revenue and EBIT, as well as higher interest expense. The qoq lower revenue and EBIT was the result of lower EPCIC revenue from FPSO Maria Quiteria (MQ) and FPSO Atlanta due to slower pace of construction progress in 3QFY24 compared to the immediately preceding quarter, as well as the lumpy recognition of EPCIC profit for FPSO Atlanta in 2QFY24 when Yinson exercised its purchase option to take ownership of the asset, partially offset by higher EPCIC revenue from FPSO Agogo due to faster work progress. Meanwhile, the higher interest expense was due to a 31% qoq rise in Yinson’s gross debt, or a RM3,364m (c.US$706m) increase in the absolute debt level, due to a drawdown of project financing and the US$230m mezzanine debt for the FPSO MQ as well as the US$300m mezzanine debt for the FPSO Agogo (both mezzanine debts were secured in Aug 2023).

All Three FPSO Projects Remain on Track and on Budget

The lower EPCIC revenue in 3QFY24 is not a concern, as all three ongoing construction projects are on time and on budget, according to Yinson. FPSO Atlanta was 72% complete at end-Oct 2023 and first oil is targeted for mid-CY24F, which is about half-a-year from now; Yinson management staff was at the Dubai Drydocks offshore yard yesterday for FPSO Atlanta’s naming ceremony. FPSO MQ reached 82% completion at end-Oct 2023 and first oil is also targeted for mid-CY24F. Meanwhile, the FPSO Agogo reached 41% completion at end-Oct 2023, with first oil targeted for 1QCY26F.

Rerating Catalysts and Downside Risks

The near-term outlook is positive as Yinson’s 95%-owned Nokh solar power plant in India began commercial operations on 3 Nov 2023 and could contribute incrementally to 4QFY24F results. Yinson is still seeking client approval to book in standby rates from the FPSO Anna Nery for a duration of about five months, which may be a one-off boost to earnings. Downside risks include construction cost overruns for Yinson’s existing FPSO projects, continuing losses from Yinson’s investments in the green technologies segment, and the burden on internal cash balances from Yinson’s future renewables investments.

Source: CGS-CIMB Research - 15 Dec 2023