Despite being surprised by the under-performance of the oil field for FPSO PTSC Lamson, we believe the firm contract negotiated should allow YINSON to recoup at least all the NPV of the remaining contract value in case of termination. We continue to like the stock for its steady earnings delivery backed by firm FPSO contracts. Post minimal earnings adjustment and rollover of valuation base to FY19, our SoP- driven TP is now revised down to RM3.93/share from RM4.08/share previously, which implies forward FY18-19E PER of 17.3-12.9x. Maintain OUTPERFORM.

Still finalizing CRD contract. In January, YINSON received 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. We gather that currently YINSON is still finalising the terms and conditions of the contract, commercial arrangement while approvals of the relevant authorities are expected to be completed by this month. Note that client is expecting to hit first oil by 3QCY19.

Ghana project on track and could be earlier. FPSO John Agyekum Kufuor (formerly known as Yinson Genesis) is being mobilised to the OCTP Block Ghana. The vessel will undergo final stage of installation pending approval of the client, ENI before it can hit its first oil slated in August this year. We also understand there could be a possibility of early delivery of the project, subject to the final work by client.

Lamson contract at stake? Apart from FPSO Allan which is working in an economically unviable field under current oil price level, we also gather that there could be termination risk for its FPSO PTSC Lam Son as the Thang Long-Dong Do Field in Vietnam where the FPSO is operating in is performing below expectations. No further details were given due to confidentiality issue. Recall that the contract was secured in 2012 for 7 years with a yearly extension option for another 3 years. FPSO PTSC Lam Son produced its first oil in June 2014. We estimate that the contract will contribute RM50m/annum to the bottom-line. In the event of termination, we believe YINSON should be able to recover the NPV of the remaining contract value, estimating at RM1.0b.

Full-year contribution from Ghana FPSO in FY19. We tweaked down our FY18E earnings by 2% to RM248,2m after adjusting higher finance cost. Meanwhile, FY19E earnings of RM332.0m (implying YoY growth of 34%) is introduced assuming full-year contribution from its FPSO John Agyekum Kufuor. The newly secured CRD FPSO earnings will only kick in by 3QCY19. We estimate the new FPSO’s maiden earnings to contribute c. RM32m/annum, which is 13%/10% of our FY18/FY19 estimates.

Maintain OUTPERFORM. Post minimal earnings adjustment and rollover of valuation base to FY19, we maintain OUTPERFORM call with lower SoP-driven TP of RM3.93/share from RM4.08/share previously, which implies forward FY18-19E PER of 17.3-12.9x. Despite surprised by the under-performance of oil field for FPSO PTSC Lamson, we believe the firm contract negotiated should allow YINSON to recoup at least all the NPV of the remaining contract value if and when any termination happens. Note that termination of Lamson contract without compensation would reduce our SoP by RM0.92/share or 23% of our TP.

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

Source: Kenanga Research - 03 Apr 2017