Period

3Q16/9M16

Actual vs. Expectations

3Q16 results came above expectations with core net profit of RM55.5m, bringing 9M16 net profit to RM131.7m accounting for 88.2% and 87.5% of our and consensus full-year forecast, respectively due to stronger than expected USD appreciation against MYR.

The 3Q16 core net profit forecast is adjusted for: (i) RM17.2m impairment on AFS assets, (ii) RM81.6m unrealised forex gain, (iii) RM19.0m impairment on OSV asset, and (iv) RM8.0 write down on inventories.

Stripping off RM20m from the discontinued operations, the oil and gas segment actually booked in 9M16 core net profit of RM111.7m.

Dividends

On a separate announcement, YINSON proposed to distribute special dividends up to RM160m from the proceeds of its divestment of non-oil and gas subsidiaries, which would translate to a maximum DPS of 15sen. We are not surprised as it was previously guided by the management on the utilisation of the proceeds.

Key Results Highlights

Sequentially, 3Q16 core net profit improved by 54.9% to RM55.5m QoQ from RM35.8m mainly due to (i) stronger USD performance against our home currency, (ii) better contribution from JV and associates as a result of lower finance cost and (iii) higher demand for agency transport business (which is included in discontinued operations segment).

3Q16 core net profit also strengthened by 31.7% YoY due to the abovementioned reasons but was offset by weaker earnings contribution from trading and transport segment, which sank into an operating loss of RM3.6m in 3Q16 as compared to an operating profit of RM7.3m a year ago.

YTD, its 9M16 core net profit stood at RM131.7m, 27.5% stronger than 9M15 largely attributable to better 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 mid-sized 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.

We are guided that the conversion of FPSO for Ghana project has reached 60% of completion, slightly ahead of the initial schedule.

Besides, management also mentioned that YINSON is currently no longer fulfilling the requirement to be Shariah compliant. However, they are trying to maintain its Shariah compliant status by way of converting their existing borrowings into Islamic loan should they secure competitive rates.

Change to Forecasts

FY16/17 CNP revised upwards by 9.3%/14.8% to RM163.1m and RM140.8m after (i) the revision of our USD/MYR assumption to RM3.90/USD from RM3.40/USD in FY16/17 and lower the contribution from its OSV.

Rating

Maintain OUTPERFORM

Valuation

SoP-driven TP is revised to RM4.04 from RM3.89 previously post earnings adjustment.

Risks to Our Call

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

Source: Kenanga Research - 29 Dec 2015