Period     1Q14

Actual vs. Expectations     Yinson’s 1QFY14 core net profit of RM14.6m was within expectations making up 24.8% of our (RM58.5m) and consensus (RM58.7m) full-year estimates respectively. Our core net profit excludes unrealised gain on forex of RM0.9m.

Dividends    No dividends were declared in the quarter.

Key Results Highlights   QoQ, the 1QFY14 core net profit was up 2.3% from RM14.2m in 4QFY13 mainly due to higher JV earnings from the floating storage and offloading (FSO) vessel. This mitigated the lower margins from the transport division. The FSO has not started operations. Hence, it is earning lay-up fees for the time being.

YoY, the 1QFY14 net profit was significantly higher (+36.1%) from RM10.7m in 4QFY13, again mainly due to JV earnings from the new FSO. 

Outlook    We believe that investors will be looking at the completion of the Fred. Olsen Production (“FOP”) acquisition, for further insights on the Group’s prospects. 

Assuming a successful acquisition, YINSON inherits  a seasoned international management; and enhanced geographical presence as FOP’s FPSOs are in currently in Nigeria and Gabon.

YINSON hopes to complete the acquisition by Nov-13.

Change to Forecasts     While results were within expectations, post discussions with management, we note we have been too conservative on the FY14-15 FSO and FPSO associate contributions and the Group finance costs, as such we are fine-tuning our assumptions. 

Main changes are for the FSO and the FPSO. We understand that YINSON adopts a residual value of 15%, as such depreciation costs are lower-than-our-expectations. We also suspect Yinson is able to garner lower-than-expected interest costs and kick-start the FPSO contributions earlier than our assumed 8-month contribution, as such we assume a 11-month contribution in FY15.

Our changes revise: 1) FY14-15 FSO contribution to RM21.6m and RM33.2m respectively (from RM17.3m and RM23.6m previously); 2) FY15 FPSO contribution to RM30.4m (from RM16.2m previously); and 3) overall FY14-15 net profit by 2.9% and 18.8%.

Rating  MAINTAIN OUTPERFORM

Valuation     Whilst we have raised our net profit assumptions, we note that short-term borrowing attributable to the trading division is slowly decreasing as the company shifts more attention to its floating production ventures. As such, we can no longer justify only taking 25% of short-term debts into our sum-ofparts. We now account for 60% of short-term debt.

Overall, our changes result in our SOP-based target price dropping to RM5.58 (from RM5.73). However, given the significant upsides (+18.2%), we are still positive on the stock. 

Risks    1) High capex requirements brings gearing up; and 2) contractual and project execution risks in new projects due inexperience.

Source: Kenanga