News  Last week, Yinson Holdings (YINSON) announced that its acquisition of Fred Olsen Production (FOP) has been completed and it now owns 102,823,421 or 97.1% of FOP shares.

 YINSON intends to initiate a compulsory acquisition for the remaining FOP shares not owned by YINSON, and to propose that FOP applies for a delisting from the Oslo Stock Exchange.

 It is expected that the compulsory acquisition of the remaining FOP Shares will be effective in mid-January 2014.

Comments  We were not surprised by the completion of the acquisition as we understand that management has been working hard to seal the deal.

 The acquisition raises YINSON’s floating production fleet size to 5 units (from 2 units); just below Bumi Armada’s floating production fleet of 6.

 FOP owns and operates three 3 FPSO vessels (one of which is 50%-owned) and manages a MOPU on behalf of a client. More importantly, these FPSOs come with long-term contracts with firm and option periods that run till 2022-2029.

 Upon completion of the deal, it will have a full-year impact to YINSON’s FY15 results.

Outlook  We believe YINSON’s floating production operations will continue to have a strong presence in Vietnam, and now boosted by the FOP fleet, it will have an enhanced geographical presence.

Forecast  We understand that YINSON will announce its 3Q14 results soon. As such, we await such results before making revisions to our forward forecasts.

Rating UNDER REVIEW

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

 We are inclined to switch our valuation to PER-basis as we believe investors are likely to value the company based on its earnings growth traction.

Risks  (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