Period

2Q16/1H16

Actual vs. Expectations

2Q16 results came in within expectations with core net profit of RM35.8m, bringing 1H16 net profit to RM76m accounting for 50.9% and 50.4% of our and consensus full-year forecast, respectively.

The 2Q16 core net profit forecast is adjusted for: (i) RM10.2m fair value gain on derivative, (ii) RM39m unrealised forex gain, (iii) RM5.3m realised loss on derivative, and (iv) RM1.6m goodwill impairment.

Dividends

No dividend was declared in the quarter as expected.

Key Results Highlights

2Q16 core net profit declined slightly by 4.1% to RM35.8m YoY from RM37.4m together with a 17.5% drop in group topline from last year driven by weaker Transport and Trading division due to a slump in general demand possibly caused by the weaker economic environment. On the other hand, the Marine division’s performance was stronger due to reduction in operating cost due to gains in efficiency and favourable USD/MYR forex effect, which partially negated the overall weakness in other divisions.

Sequentially, 2Q16 core net profit weakened by 11.1%, attributable to decline in Trading segment, higher administration and legal fees incurred from bidding and contracts (RM6.4m) and weaker OSV business performance with lower hire rates and dry docking maintenance activities. Nevertheless, this was partially offset by stronger FPSO business due to favourable forex movements.

1H16 core net profit stood at RM76m, 21.9% stronger than 1H15 despite a 15.1% slump in revenue, mainly due to stronger performance from Marine division (predominantly FPSO) due to efficiency gains and forex movements. This in turn was partially offset by overall weaker Transport and Trading divisions, no thanks to weaker overall demand.

Outlook

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

Notwithstanding, it could still stand a chance to secure a midsized FPSO project through JV with FVSN, a subsidiary of Premuda S.P.A., a major Italian shipping company, of which options are in place in the contract to protect YINSON’s business interest.

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

Issuance of USD100m unrated perpetual security was also completed recently, opening up its balance sheet to support its future CAPEX plans.

YINSON’s business focus in Offshore Production and OSV business will help to transform the group into one of the biggest player in the world in the future.

Change to Forecasts

FY16 CNP revised downwards by 17.6% as we take out the earnings forecast of the to-be-disposed trading and transport business.

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 - 30 Sep 2015