9MFY15  core  profit  of  MYR108m  surpassed  expectations,  as  margin expansion  from  fuller  FPSO  contributions  and  cost  savings  from favourable  exchange  rates  offset  decreasing  revenue  from  its traditional  businesses.  Maintain  NEUTRAL,  SOP  TP  of  MYR2.60  (7.5% downside) as we believe valuations remain lofty. Our earnings forecasts are under review, pending guidance in today’s management briefing. 

Exceeds  expectations.  Yinson’s 9MFY15 core profit of MYR108m was at  94%/91%  of  our/consensus  full-year  estimates,  mainly  on:  i)  betterthan-expected  floating,  production,  storage  and   offloading  (FPSO)performance  and  ii)  cost  savings  from  favourable  exchange  rates. Despite weakening business and demand for the  traditional businesses (-15%  revenue  growth  for  trading  division  and  -8%  in  the  transport segment),  the  FPSO  continues  to  offload  strong  performances.  The Vietnam assets, namely  FPSO Lam Son  and FSO Bien Dong,  both had first  full  quarterly  contribution  of  MYR29m.  Despite  the  sale  of  PN, Yinson still recognises  MYR15m as it contributed profit up till Oct 2014. As  our  earnings  forecasts  had  initially  excluded  Petroleo  Nautipa  (PN)after the sale of the vessel,  the  core profit YTD would have met 81% of our  full-year  forecasts  including  PN.  We  believe  the  deviation  was attributed to lower recognition  of  cost of goods sold  (COGS)  and certain operational  expenses  due  to  favourable  exchange  rates,  as  these subsidiaries utilise USD as the reporting currency. 

Gearing vs outlook.  Yinson’s net gearing had decreased to 0.3x (from 0.4x in 2QFY15), allowing ~MYR2bn room to gear up to the maximum limit of 2.5x to undertake mega FPSO contracts.  According to Upstream, the FPSO bid for the Sankofa-Gye Nyame’s oil field could be concluded latest by 2015, given the field’s first oil target in 2017. 
  Further  updates  from  management  briefing  today.  We  keep  our earnings  forecast  under  review  and  will  update  after  Yinson’s  briefing today.  However,  we  believe  that  FY16F/FY17F  profit  growth  may  be flattish due to the  9M  absence  of PN’s contribution that was recorded in FY15F. We expect 4Q to be weaker than 3Q without PN’s contributions.  

Maintain NEUTRAL, SOP TP  of MYR2.60. Our TP (at implied 21x P/E and  12x  EV/EBITDA)  is  based  on  SOP  and  DCF  valuations  on  its FPSOs  valued  through  firm  and  optional  periods.  Yinson  is  trading  at premium  valuations  vs  peers  (at  8x  EV/EBITDA),  suggesting  that  the current price levels had factored in decent  chances of it being  a leading bidder.  We  stress  that  earnings  from  new  FPSO  projects  will  only  be material two years after the contract is awarded.

Source: RHB