News

Yesterday, YINSON received a letter of offer from Liannex Labuan Limited, which is effectively owned by the group’s owner Mr Lim Han Weng to acquire its trading and logistics business.

Offer price for YINSON’s non-core assets amounts to RM228.0m with binding agreement to be entered between in the involved parties 3 months from the date of acknowledgement.

Comments

Not a surprise to us as it has been looking to hive off its noncore assets since last to refocus its resources into up and coming FPSO business. The group has also proposed to raise net proceed of RM289.5m through private placement last week.

Offer price is fair valuing its logistics and trading businesses at 11.8x FY16E PER based on our projections for the business segment. This is in-line with our in-house 12.5x target PER ascribed to local logistics service providers.

Earnings impact is expected to be neutral assuming the proceeds of disposal are utilized to pay off its debt borrowings. Our FY16 earnings forecast for the trading logistics is RM19.4m and the loss of this income stream would be offset by RM15.4m interest savings on loans assuming an average interest rate of 6.75%.

The combined proceeds (RM517.5m) to be raised from the disposal of non-core assets and private placement will bring the expected net gearing down to 0.3x from 0.7x in FY15, leaving ample room for further expansion in its core business.

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- 200m 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 SoP valuation is raised marginally to RM3.89 from RM3.86.

Even though our SoP will increase significantly after we replace our valuations for trading and logistics with RM228.0m proceeds from potential disposal, the increase number of shares will eventually dilute it.

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 - 30 Jun 2015