News

Yesterday, YINSON proposed to undertake a private placement of up to 103.3m additional shares.

The gross proceeds raised will be utilized to repay its bank borrowings. Assuming issue price of RM2.90/share, the group will raise a total proceed of RM289.5m excluding listing expenses.

Comments

It is a surprise to us as we were not expecting the group to raise equity financing to pare down borrowings as typically the loans repayments would be supported by its fairly predictable FPSO long-term cash flow streams.

We are NEUTRAL on this development as the group will benefit from lower gearing giving further headroom for its long-term growth. However, the long-term potential benefit is difficult to be quantified at this juncture.

From the EPS perspective, it is expected to be earnings neutral despite a 10.0% increase in share base. FY16 EPS is expected to remain relatively unchanged post the exercise at 14.7 sen (vs.14.4 sen currently) as we factor in potential interest savings of RM18.7m assuming interest cost of 6.75% per annum.

Its net gearing ratio could potentially be reduced to 0.5x from 0.7x in FY16 assuming a reduction in debt after the placement.

All in, we believe it is a necessary move to pare down its borrowings to position itself in a stronger position to ride on the long-term growth of the CAPEX-heavy floating production solution industry.

Outlook

YINSON does not expect to secure another major FPSO contract this year to avoid overstressing their balance sheet.

There is a potential opportunity for YINSON in Ghana as ENI has also signed an agreement with the government to produce non-associated gas in Gye Nyame field nearby.

The estimated CAPEX required by YINSON is c.USD120m-RM200m for the gas producing project, but the nature of the potential contract remains uncertain for now pending further discussions with ENI.

This could be the next positive catalyst to the group, but it could only be awarded possibly in mid-2016.

That aside, the group is also looking for buyers for its trading business as part of its effort to refocus its resources on its core business.

Forecast

We maintain our forecast for now

Rating

Maintain OUTPERFORM

Valuation

Our Target Price is maintained at RM3.86 based on SoP-driven valuation. Post-placement, our TP will be reduced slightly to RM3.76 after adjusting for a larger share base.

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 Research - 26 Jun 2015