YINSON was awarded the Pecan FPSO contract from Aker Energy in Ghana, at a 10-year firm period and 5 yearly extensions. First oil is expected in 2022-2023, with rates expected to be similar to its FPSO JAK (its first project in Ghana), thus implying bareboat charter contract value of ~USD2.5b based on our assumptions. We are positive on YINSON’s new win, having successfully edging out its competitor SBM Offshore. Maintain OUTPERFORM, with higher TP of RM8.80.

Awarded Pecan FPSO contract. YINSON announced that it has received a letter of intent from Aker Energy Ghana Limited for a proposed FPSO award. This includes both the bareboat charter and the operation and maintenance agreement. The contracts are for a primary term of 10 years, with 5 times 1-year period extensions – thus making up a possible duration of 15 years.

Takeaways from what we know. Based on what we know, this FPSO will be deployed to the Greater Pecan development in the Deepwater Tano/Cape Three Points block, off Ghana, with expected first oil in 2022-2023. While no contract values were being disclosed, we believe rates should be similar to FPSO JAK (also in Ghana), albeit at a shorter contract tenure (FPSO JAK contract was for a 15-year firm period, with 5 yearly extensions), thus implying a bareboat charter contract value of ~USD2.5b, based on our estimations. Based on our model assumptions of: (i) IRR of 14%, lower than FPSO JAK’s IRR of 17%, but understandable given the shorter contract duration, (ii) discounting rate of 6%, similar to the one used for FPSO JAK, (iii) capex of USD900m, slightly smaller than its Brazilian Marlim 2 FPSO awarded last year, which has an estimated capex of ~USD1b, and (iv) YINSON’s 100% stake for the bareboat charters, this Pecan FPSO should contribute RM1.80/share to our valuations. Positive on the contract award. The contract award represents YINSON’s second project in Ghana, after FPSO JAK. We believe its established expertise gave YINSON the added advantage to edge out SBM Offshore, whom was its main competition in bidding for the project. Finance lease accounting treatment (as opposed to operating lease) also means that earnings recognition could start during the fabrication phase (instead of upon project commencement), although this may result in some mismatch with cash flows.

Reiterate OUTPERFORM, with higher SoP-TP of RM8.80 (from RM8.05 previously), after pricing in this Pecan FPSO. Our TP implies 26x PER on FY21E. Note that our valuations have also priced in a successful contract win for the Parque das Baleias FPSO in Brazil, which according to recent news flow, will be awarded soon, with YINSON the only remaining bidder for the project. Beyond that, the company is also among the frontrunners for the Limbayong FPSO in Sabah, in partnership with MISC, with expected award late in the year.

Risks to our call include: (i) project execution risk, (ii) weaker-thanexpected margins, (iii) termination of contracts, and (iv) failure to land new contracts.

Source: Kenanga Research - 24 Feb 2020