YINSON posted a strong set of 3QFY21 results, thanks to the recognition of EPCIC profits from FPSO Anna Nery. Next quarter is expected to be even stronger, helped by the charter commencement of FPSO Abigail Joseph in October 2020. Nonetheless, we downgrade the stock to MP, with unchanged TP of RM5.50. Following the earlier retendering of the Parque das Baleias FPSO project, we feel the stock to be fairly valued at this level.

9MFY21 results above expectations. YINSON recorded 3QFY21 headline net profit of RM100.8m. However, this figure includes several significant non-recurring items, e.g. (i) RM84.8m deal deposit written- off, (ii) RM50m contract acquisition costs written-off, (iii) RM10.6m warranty costs, and (iv) net forex loss of RM9.4m, among many others. After stripping-off all unusual items, we arrived to a 3QFY21 core net profit of RM255.7m. This brings cumulative-9MFY21 core net profit to RM495.7m – far exceeding expectations by coming in 2% above our full year forecasts, and 20% above consensus. The huge mismatch is mainly due to the recognition of engineering, procurement, construction, installation and commissioning (EPCIC) profits from the FPSO Anna Nery project, arising as a result of finance lease accounting treatment. No dividends were announced, as expected.

Strong results from EPCIC profits. Cumulative-9MFY21 saw core earnings more than doubled YoY, mainly helped by the aforementioned EPCIC profit (YTD contributed RM234m in core earnings). This aside, the results were also helped by contributions from FPSO Helang, which commenced its charter in December 2019. In terms of QoQ, 3QFY21 saw core earnings jumped +76% from 2QFY21, similarly thanks to EPCIC profits. Stripping-off the EPCIC profits, contributions from 3QFY21 was actually weaker amidst higher overheads (3QFY21 saw EPCIC profits of RM192m). Note that during the quarter, an additional revenue of ~RM1.3b was also recognised, arising from the one-off outright sales recognition for FPSO Abigail Joseph as the FPSO had commenced its lease in October 2020 under a finance lease classification. We believe this should be an accounting-related adjustment, and should have a neutral impact towards the bottom-line (nullified by recognition of related expenses).

Expecting stronger 4QFY21. We are expecting an even stronger upcoming 4QFY21, following the commencement of FPSO Abigail Joseph in October 2020.

Downgrade to MARKET PERFORM, with unchanged SoP-TP of RM5.50. Post-results, we raised our FY21E/FY22E core earnings by 56%/78% to account for stronger EPCIC contributions.

After the rebidding of the Parque das Baleias project and subsequently removing the project from our SoP valuations earlier (refer reported dated 20 Oct 2020), we believe the share to be fairly valued at this level. Re-rating catalyst would include the securement of another FPSO project in the short future.

Risks to our call include: (i) project execution risk, and (ii) weaker- than-expected margins, and (iii) unexpected contract wins.

Source: Kenanga Research - 22 Dec 2020