YINSON's FY24 results met our forecast. Its FY24 core net profit rose 21% thanks to contribution from FPSO Anna Nery, partially offset by higher finance cost. It is poised to achieve the first oil for both FPSO Atlanta and Maria Quiteria in FY25F. We fine-tune down our FY25F earnings forecast by 2%, trim our TP by 1% to RM3.41 (from RM3.44) but maintain our OUTPERFORM call.

Its FY24 core net profit of RM383m (adjusted for RM36m forex gain, RM112m deferred tax expense, and RM647m EPCIC profit) met our forecast. The consensus estimate is not meaningful due the inconsistency with regards to the inclusion of EPCIC profits.

YoY, its FY24 revenue surged 84% mainly due to the commencement of oil production by FPSO Anna Nery in May 2023 and higher EPCIC revenue from FPSO Agogo's conversion. However, its core profit (excluding EPCIC profits) only grew 21% due to elevated finance cost as it drew down loans for upcoming projects, and widened losses in other segments, which include higher overheads from project startup expenses for new FPSO projects.

QoQ, its 4QFY24 topline saw a 4% decrease mainly due to lower work recognition in FPSO conversion projects. When excluding the EPCIC impact, revenue from FPSO operations remained stable. However, its core profit fell by 11% due to increased interest cost as the group drew down more borrowings (for FPSO Agogo and Maria Quiteria).

Key takeaways from YINSON’s results briefing are:-

1. YINSON guided for first oil from FPSO Maria Quiteria by 4QFY25 and FPSO Atlanta by 3QFY25. FPSO Agogo is slated to start operations in FY27.

2. FPSO Agogo achieved a 50% completion rate in 4QFY24, doubling its progress from 25% in 3QFY24, keeping it on track for its scheduled delivery.

3. YINSON's two solar power plants in India, namely Bhadia and Nokh, are operational, yet the renewables segment is still operating at a loss. The Peru solar project, Matarani, is expected to start in 2HFY25, though significant earnings contributions are not anticipated.

Forecasts.We fine-tune down our FY25F earnings forecast by 2% after accounting for a slightly higher loan balance assumption. We also introduce FY26F earnings of RM617m, which assumes a full-year contribution from FPSO Maria Quiteria.

Valuations. Correspondingly, we reduce our SoP-TP by 1% to RM3.41 from RM3.44 (see Page 3). Note that our TP reflect a 5% premium given a 4-star ESG rating as appraised by us (see Page 5).

Investment case. We continue to favour YINSON due to: (i) a strong FPSO order book pipeline with multiple major FPSO jobs under the conversion stage which provide significant earnings growth in coming years, (ii) its strong project execution track record which positions the company to benefit from strong structural demand for FPSO contractors anticipated in the coming years, and (iii) it being one of the first local oil & gas company invest in green technology companies (solar, e-mobility, etc) which in our view would help with the company’s long-term energy transition agenda. Maintain OUTPERFORM.

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

Source: Kenanga Research - 25 Mar 2024