YINSON’s 1QFY23 results came within expectations, with a QoQ improvement thanks to stronger EPCIC contributions, although YoY saw a mild decline from higher finance cost following borrowings drawdown. Going forward, the group will continue to tender for FPSO bids globally, with Eni’s Agogo project in Angola likely the soonest to be awarded. Maintain OP albeit with a lowered SoP-TP of RM2.50.

1QFY23 within expectations. 1QFY23 core PATAMI of RM108m came in within expectations at 26% of our and consensus full-year forecasts. No dividends were announced, as expected.

Sequentially stronger earnings. QoQ, 1QFY23 core earnings managed to jump 46%, largely thanks to: (i) stronger EPCIC profits following the conversion works of FPSO Maria Quilteria, and (ii) stronger non-EPCIC contributions following the post-audit reclassification of its operation and maintenance (O&M) arm for its FPSO JAK from a JV entity into a subsidiary, coupled with the lower admin costs during the quarter. YoY however, core earnings mildly deteriorated 7%, dragged by the higher finance costs following the drawdown of bridging loan for the Marlim project, coupled with a slightly lower EPCIC contribution as FPSO Anna Nery is at the tail-end of its conversion phase.

Eyeing further growth opportunities. The group continue to eye growth opportunities as it seeks to participate in FPSO bids in Angola, Suriname and Vietnam. Timeline-wise, we believe Eni’s Agogo project in Angola could be the soonest to be awarded, in the coming months. With competitors potentially including Bumi Armada and Saipem, YINSON seems to be a favourite given that it is financially the healthiest among them. Meanwhile, the group is also at the forefront of energy transition, with currently ~1.5GW of projects in the development and approval stage, as it targets to achieve carbon neutrality by 2030.

Maintain OUTPERFORM, with a lowered SoP-TP of RM2.50 (from RM2.70 previously), following some post-results model updates as well as rolling forward our valuation base year. Nonetheless, minimal changes to our FY23-24E earnings for the time being.

Overall, we continue to like the name for its capable management team, continued growth prospects, as well as its long-term ESG angle of energy transition being well ahead of other local oil and gas peers.

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

Source: Kenanga Research - 24 Jun 2022