YINSON’s 3QFY22 results slightly missed our expectations, given the weaker EPCIC profits. Despite so, overall operations remain largely stable, as non-EPCIC profits stay flat QoQ. After recently securing the contract for the Parque das Baleias FPSO, we believe an equity fund-raising exercise of >RM1b may come soon in order to part finance the project’s capex. Nonetheless, current prices are still at sizable discount compared to our SoP valuations. Maintain OP with TP of RM7.35.

9MFY22 results slightly below our expectations. YINSON recorded 9MFY22 core net profit of RM338m, coming in slightly below our expectations at 67%, due to the weaker EPCIC profit contributions, primarily from its FPSO Anna Nery. 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 should not have any impact towards the company’s fundamental valuations. Against consensus estimates, the results were within expectations at 76%. No dividends were announced, as expected.

Largely stable operations. YTD, 9MFY22 earnings weakened 32% YoY, as last year saw the recognition of contributions from the outright sale of FPSO Abigail-Joseph upon its lease commencement in Oct- 2020 (note that this is also non-cash in nature). For the quarter of 3QFY22, core net profit came in at RM104m – representing a 12% decline QoQ. This was mainly dragged by lower EPCIC profits given the scheduled slower progress for the FPSO Anna Nery conversion. Nonetheless, its non-EPCIC segment came in largely flat – reflecting the steady day-to-day business of the company.

Likely for rights issue to come. After recently securing the contract for the Parque das Baleias FPSO, the group is likely to go for an equity fund raising via a rights issue in the near future, seeking to raise >RM1b to part finance the equity portion of the project’s capex. Meanwhile, while the group is also bidding for tenders in Angola, Suriname and Vietnam, we believe its immediate focus will be on the proper execution of projects on hand. The group’s investments into renewable energy and green technologies may also serve as a long- term re-rating catalyst.

Maintain OUTPERFORM, unchanged SoP-TP of RM7.35. Post results, we trimmed our FY22E CNP by 16% to account for lower EPCIC profit assumption. Note that our valuations have already factored in a 15% share base dilution assumption arising from the potential upcoming fund-raising exercise.

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

Source: Kenanga Research - 20 Dec 2021