We view the rebidding of the Parque das Baleias FPSO (PDB) as a negative, as the project is no longer a “sure- win” for YINSON. Nonetheless, the group is confident in winning the rebid, given its huge costing advantages against potential competitors, but we feel that lower charter rates as compared to the original tender could be inevitable. For now, the stock lacks immediate catalyst as any potential contract wins may only materialise in 2HCY21. Maintain OUTPERFORM, given the knee-jerk over-selling of its shares, but with lowered SoP-TP of RM5.50, after entirely removing the Parque das Baleias project from our valuations.

Note that this report follows-up on our previous reported dated 19 Oct 2020.

Parque das Baleias bid re-opened for more pricing competition. To recap, Petrobras has called for a rebid for the Parque das Baleias FPSO after reportedly pushing back the project’s first oil date by a year to 2024. We believe this is to induce further pricing competition from FPSO providers in hopes of getting a lower and more competitive charter rate for the FPSO. In the original tender, YINSON emerged the sole bidder with both parties in exclusive negotiations for the past one year, but the project has failed to materialise nonetheless. We believe Petrobras’ limited bargaining power during negotiations, given the lack of options for FPSO providers, coupled with the weakness in oil prices, may have prompted the company to re-launch the bidding with hopes of attracting more pricing competition.

YINSON still confident of the rebidding. Management has guided that YINSON will continue to participate in the re-bidding of the Parque das Baleias FPSO. The group is still confident of securing the award, as it sees itself having a sizable advantage against any potential competitor, given that it already has a huge head-start in terms of engineering and project planning, thus giving the group a far more competitive costing structure. Scope and technical specifications of the project will most likely remain the same, but the delayed first oil date could mean that the contract may only be awarded in 3QCY21. We believe the re-bidding exercise would also almost certainly result in lower charter rates as compared to YINSON’s original tender.

Bidding for other projects. Parque das Baleias aside, YINSON is currently eying to participate in bids for another two mid-sized FPSOs: (i) Enauta’s Atlanta fields, off Brazil, and (ii) Limbayong field, off Sabah, Malaysia. Awards for these projects are also expected to be in the later part of CY21.

Maintain OUTPERFORM, SoP-TP lowered to RM5.50 (from RM7.10 previously). Overall, we see the re-bidding of Parque das Baleias as a huge negative, and a de-rating catalyst, as the project is now no longer a “sure-win” award for YINSON. As such, we have removed the project entirely from our SoP-valuations (previously contributing to ~RM1.60/share).

The share lacks immediate catalyst at the moment, as any potential new contract award will only materialise in the later half of CY21. Nonetheless, our OUTPERFORM call remains intact given the knee- jerk over-selling of its shares.

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

Source: Kenanga Research - 20 Oct 2020