YINSON has announced securing an O&M contract for the Helang FPSO which is set to commence operations in the Layang oilfield by 4Q CY19, with an estimated value of USD578m. This brings the entire Helang FPSO contract value (including the bareboat charter) to approximately USD1.4b. Overall, no changes to our numbers which are deemed to have already reflected the O&M portion of the contract. Maintain OP and SoP-TP of RM5.00.

Operation and maintenance contract. Yesterday, YINSON announced having received and accepted a letter of award from JX Nippon to undertake a contract for the provision of operation and maintenance (O&M) services for the Layang oilfield FPSO. The contract tenure is similar to the charter contract for Layang FPSO, which is a firm period of 8 years, with options for 10 extension periods of one year each. The O&M contract is estimated to be worth USD578m.

Positive on the contract win. We are positive on the O&M contract win for Yinson, serving as an additional income stream on top of the bareboat charter for the Layang FPSO. To recap, the Layang FPSO is believed to be c.USD860m in value for the bareboat charter. Together with the O&M portion, this would bump up the total contract value to USD1.4b. We estimate the O&M portion to be able to fetch approximately 30% EBIT margins.

Progress of Layang FPSO. The FPSO (currently named “Four Rainbow”) is presently undergoing upgrading works in Cosco’s Qidong yard in China. Having reportedly arrived to the yard back in December, upgrading works is expected to take about eight months to complete, and the FPSO will be renamed “Helang” once works are completed. The FPSO is currently on-track for its commencement of operations in the Layang oilfield field off Sarawak by 4Q CY19.

Maintain OUTPERFORM, with SoP-TP of RM5.00, implying PER of 22x/23x for FY19E/FY20E – roughly +2SD from its mean. We made no changes to our FY19-20E numbers, as we deem them to have already reflected the O&M portion of the charter contract. Currently, FPSO Helang contributes roughly 4% to our SoP. Note that our valuations have also priced-in: (i) one new contract win, (ii) successful materialisation of a contract at Anyala & Madu, and (iii) successful extensions for FPSO Adoon and PTSC Lam Son. As such, failure of fruition of any of the aforementioned would pose as a downside risk. Overall, we continue to like YINSON within the FPSO space for being well managed, as proven by its project execution delivery and strong financial footing, coupled with contract winning ability moving forward. Against its closest peer ARMADA, YINSON has far superior financials given its better-managed debts and project financing approach. Risks to our call include: (i) project execution risk, and (ii) weakerthan-expected margins, (iii) termination of contracts, and (iv) failure to land new contracts.

Source: Kenanga Research - 15 Feb 2019