YINSON has secured a 12+6 month extension for 49%-owned FPSO Lam Son until Dec 2024. The contract value (including 6- month automatic extension) is estimated at USD27.3m (RM127.9m). We are neutral-to-slightly positive over this smallish contract, which is within our expectations. We estimate that this job will result in earnings accretion amounting to 1.4%-1.8% of FY24-25F profits. We maintain our forecasts, TP of RM3.65 and OUTPERFORM call.

12+6 month extension for Lam Son. YINSON has secured a 12- month extension for FPSO Lam Son’s bare boat charter, with further 6-month automatic extension. The contract value (including automatic extension) is estimated at USD27.3m (RM127.9m). It was awarded to YINSON’s 49% joint-venture with PetroVietnam Technical Services Corporation, namely PTSC Asia Pacific Pte Ltd. The firm extension starts from 1 July 2023 to 20 June 2024. Meanwhile, the automatic extension will stretch until 31 December 2024.

Smallish contract but proves prowess. We are neutral-to-slightly positive over this smallish contract extension. It falls well within our assumption that FPSO Lam Son’s contract will be extended in FY24- 25. Furthermore, it demonstrates YINSON’s prowess in securing extensions due to steady execution. To recap, FPSO Lam Son has been operating in Block 1-2/97, Vietnam since 2014.

Based on our estimates, this job will result in earnings accretion amounting to 1.4%-1.8% of YINSON’s FY24-25F profits. Meanwhile, YINSON’s share of the contract translates to a marginal 0.3% boost to its current orderbook of USD22b.

Forecasts. We maintain our forecasts as it falls within our earlier assumptions.

Maintain OUTPERFORM, with an unchanged Sum-of Parts TP of RM3.65. Note that our valuations have also factored in our in-house 4- star ESG rating (refer to page 5 below).

We continue to like YINSON due to: (i) its diversification into renewable energy (RE) and green tech ventures boosting its ESG profile, (ii) it currently being the sole contender to supply an FPSO for BP’s Block 31 SE-PAJ project, and (iii) strong earnings visibility and growth – anchored by large outstanding order book of USD22.3b with contract tenures that stretch up to 2048.

Risks to our call include: (i) crude oil prices falling below investment hurdle rates for FPSO projects, (ii) regulatory risks and uncertain returns for RE investments that are mainly located in emerging markets (i.e. South America, India), and (iii) execution risks including cost overrun, delays and downtimes for FPSOs.

Source: Kenanga Research - 3 Jul 2023