Yinson has entered into yet another consortium agreement with PTSC to manage a charter contract for an FPSO project from the Lam Son Joint Operating Company (LSJOC). The contract is worth US$737.3m (~RM2.35b) with a duration of 10  years. (7 + 3 years). We already have high hopes for the company given its 1) steady YoY net profit growth and 2) its close relationship with Petrovietnam, which makes it a proxy to the opportunities in Vietnam's Oil & Gas market. The successful completion of the project will take the company to new heights. After the inclusion of the new project and some fine-tuning to our WACC and balance sheet  assumptions for the existing businesses, we have raised our Sum-of-Parts (SOP) base target price to RM2.68 (from RM2.25.share) based on FY14 numbers.  

Staying conservative on delivery date. First oil for the project was initially expected by Oct-2013 but given the delay, we believe the JV could be given a grace period till end-1HCY14. In view  of the potential timeline risks for the project, we have gone a step further and conservatively factored in only a 8-month contribution in FY15E (i.e. start-up by June 2014).

FPSO earnings to grow along the years.   We anticipate the project will bump Yinson's FY15-16 earnings by  RM16.5m and RM27.2m respectively. Consequently, we expect earnings to continue growing as interest costs are subsequently paid off. Based on 1)  WACC discount assumption of 8.9%;  2) 70:30 debt to equity ratio and 3) interest costs of 5%, we estimate that the project could add 94 sen/share to Yinson's sum of parts valuation. Our WACC discount rate is significantly higher than that of Yinson's previous FSO project at 4.8%) to account for the 1) enhanced complications for a FPSO project and 2) the tight deadline that the consortium has to try to adhere to (less than 18/24 months project).

Corporate exercise for equity portion within FY13.  We do not rule out the possibility that Yinson will  raise fund for its equity portion of the contract. In the interim, it is believed that it will rely on short-term borrowings but aiming to kick off a fund-raising corporate exercise within FY13. Assuming a drawdown of c.RM76m for the project in FY13, interest costs will rise by RM4.6m and net profit will be reduced to RM27.7m (from RM31.4m). We have accounted for such costs in our FY13, which reduces our net profit by 12.2% to RM27.6m. In regard to any other corporate exercises, there is potential dilution from additional equity but the net impact will very much depend on the ultimate instruments and financing structure. We highlight this as something for investors to look out for.

Fine-tuning FSO assumptions.  We have 1) assumed some additional administrative costs; 2) increased our  interest cost assumptions to 5% (from 4% previously (which bumps up our WACC assumptions to 5.29% (from 4.8%); and 3) increased our foreign exchange rates to RM3.15 (from RM2.90). This resulted in our FY14-15E JV contribution falling to RM13.8m and RM23.6m (from RM15.2m and RM25.1m) respectively. Overall our FY13-14E net profit estimates have been reduced by 12.2%  and 2.4% respectively. However, our FY15E net profit has increased by 21.1% largely from the FPSO contributions. 

Maintain OUTPERFORM.Our new target price is RM2.68 (from RM2.25), which  boasts  a  total  return  of  27%  (inclusive  of  dividend  yield  of  0.8%).  We maintain our OUTPERFORM call on the stock. We highlight that while there are significant risks for the company taking on such a large contract, a successful completion will nonetheless boost Yinson's experience, skill-sets and track records.