YINSON landed an FPSO contract for the Anyala & Madu fields in Nigeria. We are positive as it finally materialised after exclusive negotiations with First E&P since last June. The contract carries a total value of USD901.8m, with seven firm years plus eight extendable years, and is expected to commence in 4QCY19. We make no changes to our forecasts as it is already within our assumptions. Maintain OP and SoP-TP of RM5.00.

FPSO for the Anyala & Madu fields. Yesterday, YINSON announced that it had managed to secure from First E&P the bareboat charter, and operations and maintenance (O&M) contract for an FPSO for the Anyala & Madu fields, offshore Nigeria. The term of the contract is for a 7-year firm period with one extendable period of 24 months, followed by another 6 further extendable periods of 12 months each – summing up to a cumulative duration period of up to 15 years. The estimated value of the contracts, assuming the extensions are fully exercised, are (i) USD617.1m for the bareboat charter, and (ii) USD284.7m for the O&M portion – summing up to a total estimated contract value of USD901.8m. The FPSO is expected to commence operations at the fields by 4Q CY19, and will be named “Abigail-Joseph”.

Positive on the contracts. We are extremely positive on the contracts finally being materialised after exclusive negotiations with First E&P since June last year, with the contract contributing to increased earnings visibility towards the company for the coming few years. We believe this signifies YINSON’s competencies, having the capabilities in successfully landing, and sealing contracts on agreeable terms for both parties. As we understand, YINSON’s FPSO Allan, which has been idle since January after completing its charter contract, will be redeployed for the Anyala & Madu fields. FPSO Abigail-Joseph would be YINSON’s second project in Nigeria (behind FPSO Adoon). Based on our estimated assumptions, we reckon the FPSO would fetch roughly ~35% EBIT margin.

Expecting more contract wins. Having successfully secured the O&M portion for FPSO Helang, this represents the second win YTD for YINSON. Moving forward, we believe YINSON should be able to land one more major FPSO contract within the year, as we understand the company has been aggressively bidding for projects in Brazil and Ghana, as well as several local projects.

Maintain OUTPERFORM, with an unchanged SoP-TP of RM5.00, implying PER of 22-23x for FY19-20E – roughly +2S.D. from its mean. Overall, we made no changes to our forecast numbers, as we have already imputed a successful materialisation of an FPSO contract at Anyala & Madu – contributing to 12% of our SoP. Note that our valuations have also priced-in one additional new contract win and successful extensions for FPSO Adoon. 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 local 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 - 1 Mar 2019