FY19 came in above our expectation due to our more conservative margins assumptions, but was in-line with consensus estimates. Overall, results were expectedly poorer from higher finance costs and lower JV contributions. However, its forward prospects remain positive, expecting a huge earnings jump in FY21, with the company still actively tendering for further contract wins. Maintain OUTPERFORM with SoP-driven TP of RM5.50.

Above our expectations, but within consensus. FY19 core net profit of RM266.3m (arrived after stripping off impairments, forex and other non-core items) came in slightly above our expectation by 7%, due to our slightly higher finance cost assumptions coupled with slightly better-than-expected operating margins. However, the results were inline with consensus at 99% of forecasts. Announced dividend of 2.0 sen per share was also within expectations, bringing its full-year dividends to 6.0 sen per share.

Poorer results overall. YoY, FY19 core net profit dived 23% on the back of: (i) a jump in finance cost following FPSO JAK’s commencement in June-2017, and (ii) lower JV contributions following a scheduled step-down of chartering rates in FSO PTSC Bien Dong 01, and interim charter for FPSO PTSC Lam Son. Meanwhile, 4Q19 core net profit of RM59.9m came in 10% lower YoY, mainly due to lower contributions from FPSO J.A.K. following its 26%-stake sale to Japan Sankofa (reflected in the NCI line of the income statement). Sequentially, 4Q19 posted a 27% decline QoQ, mainly dragged by: (i) lower JV contribution, which we suspect this was due to impairment costs recognised in FPSO PTSC Lam Son, given that its charter is currently on interim until June-2019, on top of (ii) slightly poorer OSV performances.

Positive outlook ahead. Moving forward, we see YINSON’s outlook as positive, expecting a huge jump in earnings in FY21. This is driven by the commencement of two contracts – (i) Yinson’s first local job in FPSO Helang, and (ii) the recently awarded FPSO Abigail-Joseph, operating on the Anyala & Madu fields offshore Nigeria, both of which are expected to commence operations by 4QCY19, bringing its current order-book to ~USD4.9b. Outside of its order-book, YINSON is also understood to be actively bidding for several FPSO charters globally, with notable ones including: (i) Marlim 1 and 2 in Brazil, (ii) Parque das Baleias in Brazil, and (iii) Pecan fields in Ghana. Any contract wins would further drive earnings growth beyond FY22.

Maintain OUTPERFORM. Post-results, we raised our FY20E earnings by 6% on higher margins assumption, and introduced our FY21E earnings with growth at 56%. Coupled with some post-results model updates, our SoP-driven TP is also raised to RM5.50 (from RM5.00 previously) – implying 15.6x PER on FY21E, roughly in-line with its 5- year average. Note that our valuations have also priced in (i) one potential new contract win, and (ii) successful charter extensions for FPSO Adoon and FPSO PTSC Lam Son. Overall, we continue to like YINSON 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 domestic peer - ARMADA, YINSON is far superior both financially and operationally.

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 - 28 Mar 2019