Above expectations. 1Q18 core net profit of RM77.4m came above expectations at 34%/32% of our and consensus 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) RM15.0m unrealised forex loss, (ii) RM2.9m FV loss on investment properties, (iii) RM0.2m net FV gain on other investment. No dividend was declared, as expected.

Weaker QoQ earnings performance. Sequentially, 1Q18 core net profit decreased by 8% to RM77.4m in tandem with 7% QoQ weaker top-line arising from lower FPSO shipping services and additional work offshore orders received from African clients but these were offset by lower finance cost. On a YoY basis, 1Q18 core net profit jumped by 1.1x YoY from RM36.8m in 1Q17 in tandem with a 49% increase in revenue backed by stronger USD (average rate of RM4.4292/USD in 1Q18 vs RM4.0412/USD in 1Q17) as well as higher contribution from FPSO segment arising from additional revenue of c.RM43m from shipping services and variation orders.

Upgrade our FY18E earnings by 33%. We increased our FY18E earnings forecast by 33% to RM301.3m assuming: (i) unexpected additional work orders from clients, and (ii) additional 2-month contribution from FPSO John Agyekum Kufour given that it hit first oil at the end of last month, 3 months ahead of schedule.

Lamson case still pending. With the intention to redeploy FPSO PTSC Lamson, Petrovietnam is currently in the midst of discussing new charter contract with PTSC AP while firming up the compensation amount. As the vessel will be operated in the same field with a possibility to tie up the FPSO to other surrounding fields, it is likely that the new contract will have a duration of four years which is similar to the remaining contract period of the existing contract. As the FPSO is still operating on site, we believe the client will firm up a new contract in the near term after the expiry of existing contract to ensure continuity of the oil production.

Reiterate OUTPERFORM. Post earnings upgrade, we maintain our OUTPERFORM call on the stock with higher SoP-driven TP of RM3.83/share (from RM3.73 previously), which implies forward FY19E PER of 14.1x. 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.

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

Source: Kenanga Research - 20 Jun 2017