YINSON is believed to be close to clinching a Marlim FPSO contract, with an official announcement expected in 3-6 months. BUY with a TP of RM7.75, as we increased our equity-stake assumption to 70% (from 50% previously) on its second expected win, based on assumptions of (i) 15% IRR, (ii) capex of USD1bn, and (iii) discounting rate of 8%. Earnings from these new wins are only expected to come in at FY23-24 upon project commencement.

There is an air of optimism from management on the potential new contract wins overseas particularly for its bids in Brazil. In fact, the company had been ramping up its investments in personnel and expertise in the Brazil for advanced preparation of any new contract wins to come from the country.

YINSON is reportedly close to clinching one Marlim FPSO contract although management guides that an official announcement would take up to 3-6 months as negotiations are still undergoing. Meanwhile, YINSON is also understood to be in close competition as front-runners in (i) Parquedas Baleias FPSO in Brazil, and (ii) Pecan FPSO in Ghana, where YINSON also widely thought to have an advantage given its existing expertise in Ghana.

YINSON should have the capacity to take on 2 additional contracts, both financially and operationally, eyeing stakes of around 70-80%. Sumitomo is already set to take-on at least a 20% stake should YINSON win a Marlim FPSO contract, and we suspect a similar equity holding structure to be in place for other future wins as well.

However, a third contract win could possibly necessitate an equity raising exercise (about RM500m). Capex per new project is estimated at around USD1bn, with a funding structure of roughly 75% debt and 25% equity. With project commencement from the potential new wins expected only in 2022-2023, current earnings growth is largely expected to be driven by FPSO Helang and Abigail-Joseph – both of which are on-track for commencement by end of the year. FY21E is expected to show a significant jump in earnings (+56%, based on current assumptions) on the back of these two FPSOs.

Source: Rakuten Research - 28 Jun 2019