YINSON posted a strong set of 1QFY21 core earnings, thanks to the commencement of FPSO Helang. Results deemed above expectation, in anticipation of stronger quarters ahead as FPSO Abigail-Joseph is set for commencement in 2HFY21. Overall, we feel YINSON stands among the more resilient names within our sector universe, despite the current oil down-cycle, given the “ironclad” nature of its FPSO contracts and project-financing debts with minimal risks of defaults. Maintain OUTPERFORM, with TP of RM7.10.

1QFY21 deemed above expectations. YINSON posted 1QFY21 core net profit of RM94.7m, coming in at 29% and 27% of our and consensus full-year forecasts, respectively. Note that in computation of our core net profit, we have excluded various non-recurring items, which include: (i) forex gains of RM35.5m, (ii) impairments of RM6.5m, (iii) one-off transaction costs for loan refinancing of RM41.6m, and (iv) contract acquisition costs written off of RM34.9m, among other non core items. We deem the set of 1QFY21 results as above expectations, given the higher-than-forecasted contribution from FPSO Helang, as well as in anticipation of stronger earnings ahead as FPSO Abigail Joseph is set to commence in 2HFY21. No dividends were announced, as expected.

Results lifted by commencement of FPSO Helang. YoY, 1QFY21 core earnings leapt 81%, mainly thanks to the commencement of FPSO Helang in December 2019. QoQ, 1QFY21 also improved 26%, similarly thanks to a full quarter contribution from FPSO Helang, coupled with lower opex as 4QFY20 recognised a warranty costs (RM10.3m) and JV’s insurance claims expenses (RM4.6m). The massive fall-off in revenue sequentially was due to the recognition of one-off sale revenue of FPSO Helang in 4QFY20, but this was mostly an accounting measure and had a neutral bottom-line impact.

Resiliency within the oil and gas sector. 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. Meanwhile, earnings are also expected to be given another boost later in the year once FPSO Abigail-Joseph commences in 2HFY21.

Maintain OUTPERFORM, with SoP-TP of RM7.10. Post-results, we raised our FY21/22E earnings by 20%/19%, after factoring in higher contributions from FPSO Helang. Subsequent to the earnings upgrade, our SoP-TP is also raised to RM7.10, from RM6.55. Within our SoP, the Parque das Baleias FPSO remains as the only contract that is still yet to be awarded (contributes ~RM1.60/share in our SoP), and thus would naturally pose as the highest risk of facing deferment/termination. Meanwhile, we believe other secured contracts at hand in the order-book carry relatively low risk of termination.

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

Source: Kenanga Research - 25 Jun 2020