Following  management  updates,  we  upgrade  our  earnings  forecasts and call to TRADING BUY with our new TP at MYR3.19 (16% upside). We expect the  short-term positive sentiment to  outweigh longer-term  risksof lower  earnings growth given the  lack of new contracts and upside to opex,  as  forex  rates  may  turn  unfavourable.  We  envision  a  sizable contract to lift its track record/expertise higher in the value chain.

3QFY15  updates.  Despite  being  a  festive  season,  Yinson’s  briefing yesterday  was  well  attended  by  >20  analysts/fund  managers.  Key updates were:  i) By Feb 2015, orderbook  will  likely be USD2.1bn (firm: USD1bn);  ii)  Floating,  production,  storage  and  offloading  (FPSO)  had 100% uptime, save for FPSO Lam Son  (97.6%),  which we think is  within industry  benchmark  of  >98%;  iii)  100%-owned  Knock  Adoon’s  1-year extension had additional charter rate of USD10,000/day - we estimate an additional MYR10m profit per year (starting from 4Q) which should offset the  loss  of  Petroleo  Nautipa’s  (PN)  MYR15m-20m  per  year;  iv)  lower opex  (by  MYR6m)  was  due  to  a  combination  of  stronger  USD,  timing differences and lower repair and maintenance costs on its vessels. 

Ghana  FPSO  outcome  to  be  known  soon.  We  estimate  a  USD1bn capex  and  >USD2.4bn  firm  contract  value  (at  14%  project  IRR  >  min 10%)  judging  by  the size of  the  very large crude carrier (VLCC)  tankerYinson  Genesis.  We  understand  material  earnings  will  flow  after  threeyears of conversion (FY19, or early 2018  ie  the first oil target of the field).We  gather  funding is  in  place  and  estimate  that  a  ~MYR2.6bn  debt  is within an increase of its gearing to max 2.5x from 0.33x. If this contract is secured, Yinson could have room for an additional small contract. 

Forecast  changes.  We  upgrade  FY15F/FY16F/FY17F  earnings  by 34%/17%/6%  as  we  input  9-month  contribution  of  PN  in  FY15,  higher revenue from  Knock Adoon  and lower costs estimates. Although FY16F would  see  full  contributions  from  Lam  Son  (vs  eight  months  currently) and higher  Knock Adoon  revenue, we  expect  earnings growth  to  taper off due to a reversal of 3Q’s situation  –  our  in-house  assumption of oil price recovery from 2H15 may weaken the USD rate, raising costs. 

Raise to TRADING BUY (vs Neutral), TP to MYR3.19 (from MYR2.60).Yinson  had  proven  to  be  a  contrarian  performer  in  a  low  oil  price environment,  despite  trading at  a premium (19x P/E;  12x EV/EBITDA vs peers’  8x  EV/EBITDA).  We  see  short-term   sentiment  outweighing  the aforementioned  longer-term  risks  on  costs  (ie  USD  volatility  should  oil prices  recover)  and  flattish  earnings  growth  prospects,  as  we  expect Yinson to have a reasonable chance of securing  an impending contract that could boost its earnings base three years after.

Source: RHB