YINSON’s 2QFY22 results remain largely stable (flattish QoQ) – reflecting the minimal changes in its business throughout the quarter, with higher EPCIC contribution offset by higher finance costs. It recently entered into exclusive negotiations with Enauta for the Atlanta FPSO, with an official contract award expected in 1QCY22. Meanwhile, it is still in active bids for Limbayong and Pecan. Maintain OP, with TP of RM6.00.

1HFY22 earnings slightly below our expectations. 1HFY22 core net profit of RM234m came in slightly below our expectation at 43% of our full-year forecasts, as we may have overestimated YINSON’s EPCIC profit contribution. Nonetheless, we would like to emphasize that these EPCIC profits arose due to the adoption of finance lease accounting, and hence, are non-cash in nature and do not impact its fundamental valuations. That said, against consensus, 1HFY22 is deemed to be in line with expectations at 50% of earnings forecast. First interim dividend of 4.0 sen per share is also within expectations.

Stable results overall. QoQ, 2QFY22 core net profit of RM118m remains flattish (+2%) – reflecting the stability and minimal changes in its business throughout the quarter. Higher EPCIC revenue from the FPSO Anna Nery conversion was slightly offset by the higher finance costs. Cumulatively, 1HFY22 also saw little changes YoY. Higher revenue from EPCIC and commencement in FPSO Abigail-Joseph in October 2020 was largely offset by the increase in finance costs.

Outlook remains promising. YINSON recently entered into exclusive negotiations with Enauta for the Atlanta Phase 2 FPSO. We expect a formal contract award to materialise by 1QCY22, which will further boost YINSON’s order-book to ~USD12b consisting of 8 FPSOs. The group is also eyeing potential bidding opportunities in Vietnam and Angola, as well as secured pre-FEED contracts for two of Total’s projects in Angola and Suriname. These aside, YINSON is still in active bids projects in Limbayong, Sabah, and Pecan, Ghana. Meanwhile on a longer-term view, we highlight YINSON to be one of the more promising names within the local oil and gas space in terms of energy transition, with the group eyeing to achieve a total renewable energy capacity of 3-5GW in the coming years.

Maintain OUTPERFORM, unchanged SoP-TP of RM6.00. Post results, we trim our FY22E/FY23E earnings by 8%/5% as we lowered our EPCIC profit contribution assumptions. Note that our valuations have not taken into consideration any further new contract wins beyond the recently-awarded Atlanta FPSO.

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

Source: Kenanga Research - 24 Sep 2021