Post briefing, we affirmed our POSITIVE view on YINSON as the company is competitive enough to win more projects globally with its strengthening balance sheet. We believe the market has priced in the potential termination risk for CRD as all costs incurred are expected to be recoverable in the worst-case scenario. Without changes in our estimates, we maintain our OP call on the counter with unchanged SoP-driven TP of RM4.50.

Limited disclosure on CRD project for now. Following the announced force majeure by TLV on CRD project, management reiterated that it is neither a suspension nor a termination. The situation would probably last till the long-stop date (estimated 2-3 months later) whereby TLV must make a decision on the contract. While YINSON still emphasizes that all costs are recoverable assuming termination of contract, they are still in the midst of discussion with the client and financiers on the vessel, which is the biggest cost item of the project.

Update on FPSO Lam Son. Management highlighted that the JV losses incurred in 4Q18 was largely attributable to: (i) unexpected repair cost on FPSO Lam Son, which is irrecoverable from insurance, and (ii) adjustment of differential in charter rates recognition in the past two quarters since July 2017 upon formalization of interim contract (worth USD27.3m) effective from 1st July 2017 to 31 December 2018. YINSON is aiming to establish a new contract with DCR higher than the interim contract within the next six months. Recall YINSON’s JV has received USD209m termination fee and part of the amount was used to fully repay the outstanding amount under the financing facility of Lam Son project. Note that the termination fee is offset against the book value of FPSO Lam Son.

In good position to win new projects. Management guided that its net debt to adjusted EBITDA ration will be reduced to 2.0x by end of the year from 2.89x upon repayment of borrowings related to FPSO JAK with the proceeds received (USD117m) from the disposal of 26% equity interest in YPWAPL to Japanese consortium. The completion of the transaction is currently pending conditions precedent fulfilment by all parties on or before 30 June 2018. These will allow YINSON to build a war chest, in preparation for future projects. We understand that YINSON is capable of bidding for big projects on its own but could also jointly bid with strategic partners.

Robust FPSO Demand. Overall, demand for FPSO is picking up as the oil majors are gradually reviving some of these shelved projects during the industry downturn underpinned by stabilisation of oil prices. There are currently multiple potential projects in countries such as Mexico, Nigeria, Brazil and Ghana. YINSON is likely to submit three commercial bids (two of them are of project size of c.USD1b) by June and any contract award could be expected earliest by end of the year.

Maintain OUTPERFORM with unchanged TP of RM4.50. Post the analysts’ briefing, we make no changes to our FY19-20E earnings. We continue to like YINSON for its: (i) recurring cash flow, and (ii) ability to secure contracts with oil majors amid competitive global FPSO market. All in, we keep our OUTPERFORM call on the stock with unchanged SoP-driven TP of RM4.50, implying forward FY19-20E PER of 16.5- 18.1x. Note that we have imputed an additional contract win in FY20 into our SoP valuation amounting to 49.0 sen assuming: (i) 14% IRR, (ii) 8-year firm period, (iii) 50% equity stake and (iv) USD1b capex. Risks to our call include: (i) project execution risk, and (ii) weaker-thanexpected margins.

Source: Kenanga Research - 2 Apr 2018