We attended a well turned-out 3Q15 analyst briefing by Yinson Holdings (“YINSON”) yesterday. Key takeaways were: i) 3Q15 earnings benefited from costs savings and the stronger USD, especially for the FOP business; ii) management is confident on winning a contract within the coming months; iii) they are purchasing two OSVs for marine division with delivery in CY15 and iv) they are still on track to divest the non-oil and gas divisions by CY15. We are keeping our FY15-16 net profit forecasts for now pending a contract win by the company before fine-tuning our earnings. As mentioned before we like YINSON for its long-term contracts and ambitious management, but we believe the market has priced-in some wins judging from the premium valuations (20.1x) it has over larger peer Bumi Armada, which trades at CY14-15 PER of 15.4-13.3x; tipping the risk-to-rewards balance towards more risks as YINSON embarks on more global contracts. We maintain our TP of RM2.31 and Underperform call for now.

3Q15 net profit actually better than expected. Post the briefing; we understand that the 3Q15 net profit should be RM49.1m (versus our initial RM41.1m) as there was lower unrealised forex gain of RM16.9m (versus our initial RM24.8m expectations). This renders the 9M15 core net earnings being RM110.1m (versus the RM102.2m disclosed in our report yesterday) and earnings making up 87% and 92% of our (RM126.9m) and consensus’ (RM119.2m) full year estimates. We understand the main drivers for the better-than-expected quarterly performance were cost savings from FOP; as YINSON managed to save on some maintenance costs and the stronger USD meant services were on an overall cheaper. 4Q15 results will still be lower, on the back of the loss of Petroleo Nautipa earnings and management guidance is that it could mirror core net earnings of 2Q15, which was c.RM37.5m.

Significant contract win soon? Management was optimistic on its prospects for the Sankofa-Gye Nyame oil and gas project off Ghana. According to Upstreamonline the FPSO is large and designed to handle 170m cubic feet per day of gas and 50,000 barrels per day of oil. It will be moored in about 1000 metres of water in Eni’s Offshore Cape Three Points (OCTP) licence. The tenure of the project could be 15 years firm with an optional 5 years and the conversion period would be about 3-years. Assuming a win by next month this implies that earnings contributions could be by CY18.

New OSVs to boost marine division. Management mentioned that they are looking to acquire two 5kbhp anchor handling tug vessels (AHTS); with deliveries in 2QCY15; to boost the earnings of the marine division. Such vessels are targeted for the international market (very likely in the West Africa region) to expand their service range exposure. This would help to bring in fresh earnings to the marine division.

On track for non-oil and gas segment divestment. YINSON is still targeting the divestment of the non-oil and gas division (transport; trading; ports businesses) by next year. This is as they believe YINSON should have firm focus on the oil and gas business moving ahead.

Keeping FY14-15 forecasts for now. We are maintaining our earnings for now, pending announcement of a new win before we fine-tune our forward earnings. We are inclined to lift our margins for the FOP assets in lieu of the costs savings, but we will balance that with the reduction of Petroleo Nautipa earnings in FY16.

Maintain UNDERPERFORM with TP of RM2.31. As mentioned before we like YINSON for its long-term contracts and ambitious management, but we believe the market has priced-in some wins judging from the premium FY16 valuations (c.20.1x) it has over larger peer Bumi Armada, which trades at CY14-15 PER of 15.4-13.3x tipping the risk-to-rewards balance towards more risks as YINSON embarks on more global contracts. We await further details on Ghana before making any changes on earnings and prospects.

Source: Kenanga