YINSON’s FY17 results beat expectations, thanks to additional offshore work orders received from African clients. We continue to like the stock for its steady earnings delivery backed by firm FPSO contracts. No changes to earnings pending further update from an analysts’ briefing today. In all, we maintain OUTPERFORM call on the stock with unchanged SoP-driven TP of RM4.08/share, which implies forward FY18E PER of 17.7x.

Above expectations. FY17 core net profit of RM233.5m came above our and consensus forecast by 28%/25% of the respective full-year estimates. The positive variance was largely due to additional offshore work orders received by the client. Our core net profit is adjusted for: (i) RM27.0m unrealised forex gain, (ii) RM29.7m impairment loss of PPE (3 OSVs and FPSO Four Rainbow), (iii) RM30.9m impairment on receivables, and (iv) RM3.5m loss on disposal. No dividend was declared as expected.

Strong QoQ earnings performance. Sequentially, 4Q17 core net profit surged by 66% to RM84.3m from RM50.8m in 3Q17, in tandem with 45% QoQ stronger top-line arising from higher FPSO shipping services and additional work offshore orders received from African clients but was offset by higher finance cost. Note that c.RM16m of impairment is made on its JV-owned FPSO Four Rainbow. On a YoY basis, 4Q17 core net profit also increased by 67% attributable to: (i) additional work orders as evident by 60% stronger revenue, and (ii) stronger performance of USD against MYR.

Cumulatively, FY17 core net profit also surged by 41% YoY to RM1,233.5m in tandem with a 28% increase in revenue backed by stronger USD performance (average rate of RM4.1538/USD in FY17 vs RM3.9681/USD in FY16) as well as higher contribution from FPSO segment arising from additional revenue of c.RM48m from shipping services and variation orders.

No changes to our earnings forecast. We are keeping our FY18E earnings forecasts of RM252.5m assuming 5-month contribution from Yinson Genesis pending further update from the 4Q17 analysts’ briefing today.

Pending details of CRD project. In January, YINSON has received the letter of intent 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.

Reiterate OUTPERFORM. We like YINSON for its: (i) secured long-term FPSO contracts, which provides recurring cash flow, and (ii) 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. We maintain OUTPERFORM call on the stock with unchanged SoP-driven TP of RM4.08/share, which implies forward FY18E PER of 17.7x.

Risks to our call include: (i) project execution risk, and (ii) weaker-than- expected margins.

Source: Kenanga Research - 31 Mar 2017