Period  2Q15/1H15

Actual vs. Expectations YINSON’s 2Q15 core net profit of RM36.9m brought 1H15 net profit to RM60.6m. This made up 47.7% of our full-year estimates (RM126.7m) and 51% of market consensus (RM118.8m).

 Our 2Q15 core net profit forecast is adjusted for the inclusion of unrealised forex losses of RM5.4m.

Dividends  No dividends were declared for the quarter.

Key Results Highlights QoQ, 2Q15 core net profit rose by 55.8% (from RM23.7m in 1Q14) mainly due to: (i) FPSO JV inclusion this quarter (in the last quarter, our core earnings estimate stripped out the bonus of RM15m for early delivery of the FPSO); and (ii) better performance in its marine and trading divisions. We suspect the marine division is slightly up due to higher utilisation of vessels within 2Q15; whilst the trading segment is up largely due to seasonal reason where the 1Q typically the weakest quarter.

 YoY, net profit was up +>100% mainly due to the inclusion of FOP earnings and the inclusion of Lam Son FPSO. These key items also led to 1H15 core net profit jumping by 122.6% from 1H14 figures.

Outlook  Market talk had it that YINSON is close to winning a large FPSO contract soon. This is within the previous guidance that it is bidding for at least 3 projects that could see some results in 2H15.

 We believe the market has factored this potential win, judging from steep increase in share prices in the past weeks. Whilst we are positive on this; we highlight that any new project would only yield earnings by end FY16-17 (due to construction period of 18-24 months). Also we do not rule out cash calls should the new project is a huge one.

 There are plans to divest the non-oil and gas division, but this might only occur from next year onwards.

Change to Forecasts We maintain our net profit forecasts for now given that the reported results were within our expectations.

Rating Maintain UNDERPERFORM

Valuation  Whilst we like YINSON for its long-term contracts and also sound management judgement in making bids, we believe that the market has priced-in at least 1-2 contract wins, which would contribute only from CY16.

 Moreover, the stock is now trading at a steep premium to its larger peer Bumi Armada, which trades at CY14-15 PER of 19.5-16.4x tipping the risk-to-rewards balance towards more risks as YINSON embarks on more global contracts.

 Our TP remains unchanged at RM2.31, based on CY15 EPS of 13.6 sen and unchanged PER of 17x. Whilst we have cut the PERs of YINSON’s peers by 1x, due to our concern on the prospects of the domestic oil and gas segment; we have maintained our PER for YINSON due to its ability in winning contracts and the tight share liquidity of the stock.

Risks to Our Call Higher-than-expected contract wins; and better-than expected margins on current divisions.

Source: Kenanga