Stronger 4QFY20 results, as anticipated, thanks to the commencement of FPSO Helang in Dec 2019. Despite the recent turmoil in global oil and gas landscape, we feel YINSON stands among the more resilient names given the “ironclad” nature of its FPSO contracts and project financing debts minimising any default risks. Already sanctioned FPSO projects in Brazil are also still expected to go through. Maintain OUTPERFORM with TP of RM8.80.

FY20 results within expectations. YINSON posted FY20 core net profit of RM220m (arrived after stripping-off non-core items from reported PATAMI of RM261.3m), coming in within expectations at 101% and 102% of our and consensus full-year earnings forecasts, respectively. The company also announced a final tier dividend of 2.0 sen per share, bringing full-year dividends to 6.0 sen per share (flat YoY) – also within expectations.

Stronger quarter thanks to commencement of Helang. For 4QFY20, the quarter posted core net profit of RM57.6m – representing a 22% jump QoQ, thanks to the commencement of FPSO Helang in Dec 2019. Note that due to finance lease accounting, the quarter also saw a massive spike in revenue from a one-off outright sale recognition of FPSO Helang, although this likely have a mostly neutral impact on the quarter’s bottom-line. Cumulatively, FY20 core net profit declined 17% YoY, due to the cessation of FPSO Allan’s charter contract in end-FY19, although this is partially offset by the commencement of FPSO Helang in Dec 2019. FPSO Allan is currently undergoing conversion works, and is set to be redeployed as FPSO Abigail-Joseph at the Anyala and Madu fields, Nigeria, in 2QFY21.

“Ironclad” contract nature provides certainty. Despite the recent turmoil in the global oil and gas landscape, we feel YINSON is among the more resilient names. That is because (i) YINSON’s FPSO contracts are “ironclad” in nature, with termination clauses in place to safeguard against any premature termination of contracts, and (ii) most of YINSON’s borrowings are project financing in nature, ring-fenced around the project asset and guaranteed by the client, thus providing a very low risk of default. Additionally, Petrobras has also showed little signs of pulling back the already-sanctioned upcoming FPSO projects, with the Marlim 2 and Parque das Baleias FPSOs expected to still continue as planned. Post-results, we trim our FY21E earnings by 11%, as the commencement of FPSO Abigail-Joseph has been slightly deferred to 2QFY21 (from previous schedule of 1QFY21). We also introduce our new FY22E numbers.

Maintain OUTPERFORM, with unchanged SoP-TP of RM8.80, implying FY22E PER of 28x. Although we advocate caution towards the oil and gas sector for the time being, YINSON is among the few proven resilient names, and we feel its prospects are relatively unaffected despite recent macro-environment volatility.

Risks to our call include: (i) project execution risk, and (ii) weaker than-expected margins, and (iii) termination of contracts.

Source: Kenanga Research - 26 Mar 2020