Period

1Q16

Actual vs. Expectations

1Q16 results came in within expectations with core net profit of RM40.3m accounting for 27.0% and 25.8% of our and consensus forecast, respectively.

Our 1Q16 core net profit forecast is adjusted for: (i) unrealised forex loss of RM16.8m, (ii) fair value loss of derivative of RM10.2m, and (iii) realized forex loss of RM2.8m.

Dividends

No dividend was declared in the quarter as expected.

Key Results Highlights

1Q16 core net profit surged 70.0% YoY despite a 12.7% decline in revenue primarily driven by: (i) lower YoY interest cost due to lower borrowings, (ii) savings in management fee upon acquiring Fred Olsen database for YINSON’s vessels, and (iii) reduction in charter cost for FPSO Knock Allen. This was partially offset by weaker contributions from transport business division due to lower activities and demand. Therefore, resulting in weaker revenue for both divisions YoY.

1Q16 core net profit rose by 7.9% QoQ underpinned by: (i) stronger marine division QoQ driven by higher EBIT margin (1Q16: 25.6% vs. 4Q15: 22.1%) due to seasonally stronger activities in the segment, (ii) favourable mix of higher margin FPSO contribution from its acquired Fred Olsen FPSO business, and (iii) stronger Trading division due to seasonally stronger demand. This is offset by weaker QoQ earnings performance in its transport business due to overall decline in demand. This led to negative earnings contribution from the transport division despite 7.6% QoQ improvement in its top line.

Outlook

YINSON is not expected to secure another major FPSO contract this year to avoid overstressing its balance sheet for CAPEX.

There is potential opportunity for YINSON in Ghana as ENI has also signed an agreement with the government to produce non-associated gas in the 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. We reckon a similar offshore production unit will be required for the project to channel the produced gas to the underutilized power plants in Ghana.

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

YINSON also does not discount the possibility of securing another mid-size FPSO contract in end-2016.

The proposed private placement and disposal of its non-core transport and trading business is expected to free up more cash on its balance sheet to prepare the group to take on more FPSO projects in the future to fuel its long term growth.

Change to Forecasts

We maintain our earnings forecasts for now.

Rating

Maintain OUTPERFORM

Valuation

SoP-driven TP is maintained at RM3.89 post adjustment for private placement.

Risks to Our Call

(i) project execution, and (ii) weaker-than-expected margins.

Source: Kenanga Research - 1 Jul 2015