1QFY22 results came in within expectations, helped by EPCIC profits from the conversion of its FPSO Anna Nery. Moving forward, we are still expecting YINSON to win at least one new FPSO contract within the year. Meanwhile, in light of the group’s energy transition efforts, YINSON is also expected to continue expanding its renewable energy ventures to reach a development pipeline of 3-5GW global capacity in the coming years. Maintain OP with TP of RM6.55.

1QFY22 within expectations. 1QFY22 core net profit of RM116m came in within expectations at 20% and 25% of our and consensus full- year forecasts, respectively. No dividends were announced, as expected.

Earnings affected by EPCIC profits. YoY, 1QFY22 saw a 19% jump in core earnings, mainly thanks to: (i) recognition of EPCIC profits from FPSO Anna Nery, and (ii) contributions from FPSO Abigail-Joseph, which commenced its lease in October 2020. Meanwhile sequentially, 1QFY22 saw a 15% decline in core earnings QoQ, mainly dragged by: (i) lower EPCIC profits from the FPSO Anna Nery conversion – in line with the planned progress of the project, (ii) absence of an one-off pre- ops revenue recognised in 4QFY21 for FPSO Helang, coupled with (iii) slightly higher finance costs.

Expecting new contract wins within the year. YINSON is still actively bidding for several FPSO projects, which include: (i) Parque das Baleias, Brazil, (ii) Pecan, Ghana, and (iii) Limbayong, Malaysia. We expect the group to secure at least one of the above, with a projected award date in 2HCY21.

Upstream had reported that YINSON had once again emerged as the sole bidder in the re-tendering of Parque das Baleias FPSO by Petrobras, at a bid day rate of ~USD645k. As such, we highly believe that it is a matter of time before a formal award of contract is reached. Meanwhile for Limbayong, YINSON is still in competition against other local FPSO players such as Bumi Armada, MISC and Sabah International Petroleum (non-listed). As for Pecan, it was reported that aside from YINSON, Norway’s Ocean Yield and Oslo-listed BW Offshore may also be interested in landing the contract, although YINSON is seen as the favourite given that it was awarded the contract during the project’s initial bidding round, before being scrapped due to the Covid-19 pandemic.

In light of its energy transition journey, the group has also set a renewable energy development pipeline of 3-5GW global capacity in the coming years, expanding from the 330MW currently in its order- book.

Maintain OUTPERFORM, albeit with a lowered SoP-TP of RM6.55 (implying forward PER of 13x), from RM6.95 previously, after some post-results model updates. Our FY22E/FY23E core earnings are also slightly trimmed by 4%/9% after tweaking our EPCIC profit recognition assumption to be more in line with the project’s conversion timeline.

Note that our valuation has already factored in one new contract win assumption (~RM1.45/share), but have yet to factor in contributions from its upcoming renewable energy expansions. Keen investors should also be wary that the stock is likely to fall out of Shariah- compliance list come the November 2021 review.

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

Source: Kenanga Research - 28 Jun 2021