We are positive on the new contract win as it will improve YINSON’s earnings outlook, backed by the long-term contract of which the counterparty risk, in our view, is relatively low. No changes to our FY17/18E forecasts given that the CRD FPSO earnings will only kick in by 3QCY19. With the inclusion of the CRD project, our SoP-driven TP is now revised up to RM4.08/share from RM3.79/share previously, which implies forward FY17-18E PER of 24.4-17.7x. Maintain OUTPERFORM.

Bagged Ca Rong Do project. Yesterday, YINSON announced its indirect wholly owned subsidiary, Yinson Production Pte Ltd has received letter of intent dated 20 January 2017 from Talisman Vietnam 07/03 B.V., a wholly- owned subsidiary of Repsol S.A., for the supply of a Floating Production, Storage and Offloading (FPSO) Facility for the Ca Rong Do (CRD) Field Development located in Block 07/03 in the Eastern Sea Offshore Vietnam. The finalisation of the terms and conditions of the contract, commercial arrangement and approvals of the relevant authorities is expected to be completed by April 2017.

Contract value worth USD800-900m? The contract award is not a total surprise to us given that YINSON and ARMADA (MP; TP: RM0.65) were the finalists for the project. We are positive on the win as it will improve YINSON’s earnings outlook backed by the long-term contract of which the counterparty risk, in our view, is relatively low. TLV is a wholly-owned subsidiary of Repsol S.A., a global integrated oil company listed on the Madrid Stock Exchange and is the operator of the CRD field. The other owners in the CRD Field are PetroVietnam, PetroVietnam Exploration Production Corporation (PVEP), Mubadala Petroleum, and Pan Pacific Petroleum. While pending more details, we estimate the firm contract value ranges around USD800-900m assuming: (a) USD500m capex, and (b) 10 years firm period with another 5 years extension option.

Maintain JV business model in Vietnam. We gather that YINSON intends to purchase OSX-1 vessel, a vessel that was delivered in 2011. The vessel is designed with production capacity up to 60k boe/day with storage capacity up to 900k bbl/day. We believe the conversion will take approximately 24 months, commencing from 2QCY17 and first oil deadline is likely to fall in early 3QCY19. Financing wise, we opine YINSON is likely to maintain its existing joint-venture business model with PetroVietnam in Vietnam at 20-30%/70-80% equity-debt financing.

Earnings to kick in by 3QCY19. We made no changes to our FY17-18E forecast as its CRD FPSO earnings will only kick in by 3QCY19. We estimate the new FPSO maiden earnings to contribute c. RM32m/annum, which is 17%/13% of our FY17/FY18 estimates.

Maintain OUTPERFORM. We like YINSON given its secured long-term FPSO contracts, which provides recurring cash flow and ability to secure contracts with oil majors amid competitive global FPSO market. Based on our ballpark estimates, the Vietnam’s CRD project could be worth an additional RM0.29/share to our valuation. With the inclusion of the CRD project, our TP is now revised up to RM4.08/share compared to RM3.79 previously, which implies forward FY17E/FY18E PER of 24.4x/17.7x. Hence, we maintain OUTPERFORM call on the stock. Risks to our call include: (i) project execution risk, and (ii) weaker-than-expected margins.

Source: Kenanga Research - 24 Jan 2017