News

Further to the announcement made on 20 October 2014 in respect of the Extension of Contract for the charter of FPSO Adoon, it was announced that Addax Petroleum Development (Nigeria) Limited (ADDAX) has further extended its contract for the charter of FPSO Adoon with Adoon Pte Ltd (ADOON) by three years with effect from 17 October 2015 to 16 October 2018 (the 2nd Extension Contract). There are no material changes to the terms of the original contract that will have material adverse effect to YINSON.

The 2nd Extension Contract is valued at approximately USD129m (equivalent to approximately RM531m at an exchange rate of USD1:MYR4.12). The 2nd Extension Contract is expected to contribute positively to the revenue and earnings of YINSON Group for the financial year ending 31 January 2016 and the financial periods thereafter for the duration of the 2nd Extension Contract.

FPSO Adoon has been operating on the Antan field in Nigeria throughout the contract period.

Comments

We were not surprised by the extension as the field is still producing more than enough barrels of oil to provide cash flow to the client.

This will be positive to the company as it reaffirms our cash flow projections for the project spanning towards 2022.

Implied revenue/year is higher for the recent extension at USD43m/year compared to USD39m/year realized in the exercise of one-year option last year, which is a positive to the company, especially under the current challenging scenario of low oil prices.

This also showcased the group’s ability to maintain its FPSO assets, which results in client’s willingness to extend their contract with a higher rate even amid the current slowdown in the O&G industry.

Outlook

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

However, 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.USD120- 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.

Forecast

We maintain our forecast for now despite the higher implied charter rate of asset as we elect to be more conservative amid the challenging oil industry to account for potential downside risk in time beyond the 3-year extension of the Knock Adoon contract.

Rating

Maintain OUTPERFORM

Valuation

Our SoP valuation is maintained at RM3.89.

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 - 20 Oct 2015