Period  3Q14/9M14

Actual vs. Expectations  Yinson’s 3Q14 core net profit of RM15.0m brought the 9M14 core net profit to RM42.3m. Our core net profit forecast excludes an unrealised forex loss of RM1.1m for 9M14.

 The 9M14 net profit came in broadly within our expectation, accounting for 68.9% of our full-year estimate of RM61.4m as we believe the earnings will accelerate in trading division in 4Q14.

Dividends  No dividends were declared for the quarter.

Key Results Highlights QoQ, the 3Q14 core net profit was higher by 18.0% to RM15.0m from RM12.7m in 2Q14 mainly due to stronger JV earnings from the new FSO that started operations in Aug-13.

 YoY, the 3Q14 core net profit was significantly higher at RM15.0m (+64.9%) from RM9.1m in 3Q13 mainly driven by: (i) higher JV earnings of RM25.5m from the new FSO compared to a loss of RM0.2m in 3Q13 and (ii) increase in contribution from chartering of two new vessels in the marine segment.

Outlook  We believe YINSON’s floating production operations will continue to have a strong presence in Vietnam. Boosted by the FOP fleet, its geographical presence is further enhanced.

Change to Forecasts We are maintaining our FY14 forecasts as 3Q13 earnings are within expectations.

 For our FY15 forecasts, we have: (i) tweaked our FPSO earnings lower for a six-month contribution versus an 11-month contribution as we have previously been too bullish on the delivery time of the FPSO, (ii) increased our forecasts for FOP earnings amounting to c.RM50m, and (iii) reduced our effective tax rate to 15% (from 17%) as we understand that YINSON’s floating assets are nontaxable. Cumulatively, our changes lead to a 26.7% increase in our FY15 net profit forecasts.

Rating Upgrade to OUTPERFORM (from UNDER REVIEW)

Valuation  We are switching our valuation basis to PER versus SoP as we believe investors will focus on YINSON’s earnings growth moving forward.

 Our new target price of RM7.32 is based on a targeted FY15 PER of 15x. Our new PER is based on a c.18% discount to the current trading CY14 PER of 18.4x for Bumi Armada (Yinson’s closest peer) as YINSON is relatively: (i) smaller in market capitalisation size and (ii) new in the floating asset market.

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

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

Source: Kenanga