YINSON has secured the Agogo FPSO contract, having successfully converted the previous agreement for preliminary activities into a formal contract. We maintain our forecasts (contract commencement in 4QCY25), but raise our TP by 20% to RM3.65 (from RM3.05) after imputing this contract, and maintain our OUTPERFORM call.

Successfully secured Agogo FPSO contract. YINSON has entered into a contract with Eni for the provision, operation and maintenance of an FPSO vessel to be deployed for the Agogo Integrated West Hub Development Project, located in the West Hub part of Block 15/06 in Angola. The term of the charter is for a fixed period of 15 years, with an option to extend up to another 5 years thereafter. The estimated aggregate value of the contract is approximately USD5.3b (inclusive of the extensions). The final acceptance of the contract is expected to take place in 4QCY25, with the Agogo FPSO expected to commence operation thereafter.

Positive on the contract award. The contract award follows up the previous agreement for preliminary activities (worth USD310m) for the Agogo FPSO that was first announced in December 2022. Overall, we were not surprised (albeit positively) that the preliminary activities have been successfully converted to a formal contract, as this was already well anticipated. This will also be one of YINSON’s biggest contracts in its order book.

Maintain OUTPERFORM, albeit with a higher SoP-TP of RM3.65 (from RM3.05 previously). While our previous valuations had included a new win assumption, the actual contract size was higher than our initial assumptions. Our new SoP-TP includes the Agogo FPSO contract, based on the assumptions of: (i) capex of USD1.3b, (ii) IRR of 15%, and (iii) WACC of 6%. Note that our valuations have 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 Malaysia based 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 - 1 Mar 2023