Kenanga Research & Investment

Yinson Holdings Bhd - Higher Profitability from EPCIC Works

Publish date: Fri, 23 Dec 2022, 06:44 PM

YINSON’s 9MFY22 results beat expectations, thanks to stronger EPCIC profits from conversion works for FPSO Maria Quiteria and FPSO Atlanta. Eyeing further growth opportunities, an official contract award is expected to be finalised in the coming weeks following preliminary activities agreement with Azule Energy for the Agogo FPSO project. We raise our FY23F earnings by 5% but maintain our TP of RM3.15. Reiterate OUTPERFORM.

9MFY22 exceeded expectations. YINSON’s 9MFY22 core PATAMI of RM400m came in above expectations at 84% and 99% of our and consensus full-year forecasts, respectively, mostly due to overconservative EPCIC profit recognition assumptions.

Results remain stable. 9MFY22 core PATAMI grew 18% YoY, thanks largely to stronger EPCIC profits during the period, given the conversion works done for FPSO Maria Quiteria and FPSO Atlanta. This was partially offset by lower EPCIC contributions from FPSO Anna Nery as the project progresses closer to sail-away.

Anticipation of new contracts. Following the preliminary activities agreement with Azule Energy for the Agogo FPSO project, we believe an official charter contract award is likely to be finalised in the coming weeks. According to industry sources, the contract is expected to be 15 firm years plus 5 yearly extensions, with first oil expected in late-2025. We estimate total capex to be ~USD1.5b (assuming 100% stake), with total contract value surpassing the USD5b-mark – thus making it one of YINSON’s biggest contracts in its order book. Overall, given how tight the current global FPSO market is at the moment, we believe any new tenders or contract wins would yield attractive returns and financing options.

Forecasts. We raise our FY23F earnings by 5% to account for a stronger EPCIC profit assumption.

Maintain OUTPERFORM and SoP-TP of RM3.15. Our valuation has already included one new win assumption, based on: (i) capex of ~USD1b, (ii) IRR of 13%, and (iii) WACC of 6%. Note that our valuations also included a 5% ESG premium, based on our in-house 4- star ESG rating.

We continue to like YINSON for: (i) its strong market position, with a fleet of nine FPSOs (including three on order) – making them the fourth largest FPSO player in the world and the largest amongst Malaysiabased players, (ii) its strong management team, given its untainted track record of project deliveries thus far, and (iii) its conscious decision to diversify into non-fossil energy sectors (e.g. solar, battery technology) to future-proof its earnings sustainability.

Risks to our call include: (i) crude oil prices falling below hurdle rates for floating production projects, (ii) counter-party risk for FPSO contracts, and (iii) project execution risks including cost overrun, delays and downtimes.

Source: Kenanga Research - 23 Dec 2022

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