Yinson  announced  a  USD39m  1-year  extension  contract  for  its  FPSO Knock Adoon, now deployed to Nigeria. We are neutral, as this is withinour  forecast,  and  remain  mindful  of  the  risk  that  the  remaining  sevenoptions may not be exercised. Upgrade to NEUTRAL, with our TP still at MYR2.60  (1.9%  downside,  21x  FY16  P/E,  12x  FY16  EV/EBITDA)  as  we think  speculative  elements  have  been  removed,  and  it  is  now  fairly valued. 

Details of the extension.  Yinson recently received a 1-year extension contract for its 100%-owned floating production,  storage  and offloading (FPSO)  vessel  Knock  Adoon,  which  is  chartered  by  Addax  Petroleum Development  in  the  Antan  Field  (Nigeria).  The  extension  contract  is valued at USD39m (MYR127.5m)  for a period until  16 Oct 2015. Given the value, the bareboat daily charter rate (DCR) translates to ~USD100k, slightly higher than Fred Olsen’s last reported DCR of USD80.6k.   

Nevertheless  it  is  within  our  expectations.  We  retain  our  FY15/16 forecasts,  which  include  the  extension  contract  and  its  value  from  this FPSO’s  contribution.  The  FPSO  has  served  for  an  8-year  firm  period (from Oct 2006) and is expected to have  a  8x1 optional renewal. While the extension is welcome  news,  we are neutral on its impact as  the risk of  the  client  not  exercising  the  remaining  seven  extensions  may  affectYinson’s earnings beyond FY16. It may also reduce our SOP numbers,which  had  fully  valued  the  extension  contracts.  This  risk  depends  on several  factors,  eg  the  field’s  production  profile  and  the  FPSO’s operational track record.  

Upgrade to NEUTRAL, TP remains  at MYR2.60.  Our TP (reflecting a 21x  FY16  P/E  and  12x  FY16  EV/EBITDA)  is  based  on  SOP  and  DCF valuations of its FPSOs, which are valued through both firm and optional periods.  We take the opportunity to upgrade Yinson to NEUTRAL  from Sell, given that its share price has  fallen by  23% in the past month and the  counter  is  now  fairly  valued.  We  beli eve  the  speculative  elements have  been  removed  from  the  share  price  when  market  sentiment recently  declined.  However,  investors  still  expect  Yinson  to  secure  at least  one  additional  new  FPSO  project  as  soon  as  in  the  next  few quarters.  We  remind  investors  that  earnings  from  new  FPSO  projects would  only be material two years after the contract is awarded. As such, we do not expect FY16F/FY17F profit growth to be exciting. 

Source: RHB