YINSON is set to dispose ~10% of its stake in Marlim 2 FPSO to K Line, for USD49m. This will thereby reduce its equity stake in the project to ~65% (from 75%), as well as lowering its net-gearing to ~1.3x (from 1.6x). We deem valuation of the disposal to be fair and justifiable. Overall, the disposal will allow YINSON to monetise the project while is still in its early phase, and recycle the capital into other ventures – most notably Parque das Baleias FPSO (yet to be awarded). Maintain OUTPERFORM, with SoP-TP of RM7.10. Disposal will not significantly impact SoPvaluation of the share.

Partial disposal of Marlim 2 FPSO. YINSON had announced a proposed disposal of a minority equity interest in Marlim 2 FPSO (officially named as “FPSO Anna Nery”). The deal involves paring down a stake of between 8.5% and 10% to Japan’s Kawasaki Kisen Kaisha Ltd (K Line) for USD49m (or ~RM210m).

Disposal enables recycling of capital to fund other ventures. The disposal would see YINSON’s stake on the Marlim 2 FPSO go down to as low as 65%, from 75% currently, as well as introduce a third equity stake holder into the project, after Sumitomo Corporation’s holding of 25%. The disposal implies a total project valuation of ~RM2.1b, which is slightly below our ascribed valuation on the project of RM2.8b. But nonetheless, we feel that this is acceptable and justifiable, given that the project is still in its early construction phase (market value of the project should appreciate as it gets closer to commencement, reflecting reducing delivery risks). Post-disposal, YINSON’s net-gearing is expected to reduce to ~1.3x, from 1.6x as at end-FY20A.

Overall, we are neutral on the disposal, as it is somewhat expected. Via the disposal, YINSON would be able to monetise the project which is still in its early phase, and recycle the capital into other ventures – most notably, the yet-to-be-awarded Parque das Baleias FPSO project in Brazil.

Maintain OUTPERFORM, with unchanged SoP-TP of RM7.10. No changes to our FY21-22E numbers. Note that despite the disposal, SoP valuation of the share will not significantly change, as the lowered stake in the project will be offset by the reduced net debt value. We kept our SoP unchanged, pending finalisation of the disposal.

Moving forward, aside from the aforementioned disposal, we are also anticipating a possible rights issue, in efforts to raise capital to fund its upcoming Parque das Baleias FPSO project. This may lead to a possible share base dilution of ~10%, which we have yet to factor into our SoP.

We continue to like YINSON, for being a resilient player within the oil and gas sector.

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

Source: Kenanga Research - 10 Jul 2020