Period  2Q14/1H14

Actual vs. Expectations  YINSON’s 2Q14 core net profit of RM12.7m brought 1H14 net profit to RM27.2m. This was largely within expectations making up 44.6% of our (RM61.4m) and 45.1% of consensus (RM60.1m) full-year estimates, respectively. Our core net profit excludes unrealised forex loss of RM2.5m for 1H14.

 We believe its earnings are on-track to meet expectations as we expect a better 2H on the back of more aggressive earnings from the FSO which kick-started field operations in July-13.

Dividends  No dividends were declared in the quarter.

Key Results Highlights  QoQ, the 2Q14 core net profit was down (-12.4%) to RM12.7m from RM14.5m in 1Q14 mainly due to lower trading division earnings. This is typically the case after the seasonally high enjoyed during the festivities in 1Q14. We also understand that there was a one-month downtime for Yinson’s FSO as it underwent installation in the field, hence the 26.7% QoQ decline in JV and associate earnings.

 YoY, the 2Q14 net profit was significantly higher (+31.6%) from RM9.7m in 2Q13, 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 into the Group’s prospects.

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

 YINSON hopes to complete the acquisition by Nov-13. For now, it has received acceptances for approximately 97.0% of the outstanding shares and votes in FOP.

Change to Forecasts  No change to earnings estimates as results are largely within expectations.

Rating   Maintain OUTPERFORM

Valuation  Our SOP-based target price of RM5.58/share is left unchanged.

Risks to Our Call  (i) Higher-than-expected capex requirements could see further up in gearing.

 (ii) Contractual and project execution risks in new projects causing earnings disappointment.

Source: Kenanga