Yinson  received the green light to develop a USD2.5bn,  15-year FPSO contract for the OCTP project, off Ghana.  Downgrade to NEUTRAL  with a lower MYR3.05 TP (5% upside). The FPSO will triple firm orderbook to USD3.5bn,  boosting  the  overall  firm  contract  period  and  track  record. However,  we  see  limited  upside  and  anticipate  profit-taking  upon contract win. It will take three years for material earnings contribution.

Mega FPSO deal. Yinson secured a mega floating production, offloading and storage (FPSO) contract yesterday from Eni Ghana  Exploration and Production Ltd. The contract is valued at USD2.5bn (MYR9.2bn) with 15 firm  years,  or  USD3.3bn  (MYR11.7m)  including  five  extension  options. Yinson  will  be  a  full  charterer  and  part  operations  and  maintenance (O&M)  manager.  The  FPSO  will  be  100%  held  through  Yinson Production  (West  Africa)  Pte  Ltd,  as  it  converts  the  very  large  crude tanker  “Yinson Genesis”  within the next three  years.  Another subsidiary, Yinson  Production  West  Africa  Limited,  which  takes  on  the  O&M contract,  is 49%-owned by  Yinson while the remainder via  Oil & Marine Agencies  Ghana  Ltd.  According  to  Upstream,  the  FPSO  will  have storage  capacity  of  1.7m  barrels,  oil  processing  capacity  of  58,000 barrels  per  day  (bopd)  and  gas injection capacity  of  150  million  metric standard cubic feet  per day (MMscf/d).  It will work on the Offshore Cape Three Points (OCTP) deepwater project, which has 1.45 trillion cubic feet of gas and 500m barrels  of oil in place. First oil target is late 2017 (first gas 2018), with peak production estimated at 80,000 bopd by 2019.

No changes to forecasts.  The firm contract value and project capex of USD1bn fall  within our DCF expectations. We gather  funding is already in place and estimate that a debt of ~MYR2.6bn  is within an increase of its gearing to max 2.5x from 0.33x. We view this contract positively, as it will:  i)  triple  its  existing  firm  orderbook  of  about  USD1bn  (USD2.1bn including  extensions),  ii)  significantly  lengthen  Yinson’s  average  firm contract period of 6.3 years, iii) propel its expertise on the FPSO value chain, and iv)  be  the first FPSO contract to unlock the acquisition value of Fred Olsen Production.

Downgrade to NEUTRAL  (from Trading Buy)  with a lower  MYR3.05TP  (from MYR3.19),  following  a  9%  rise  in  share  price  since  end-Dec 2014, and as we update the FPSO’s extension options. While the FPSO could provide  a  long-term catalyst as the contract value does not factor in  non-associated  gas,  we  see  limited  upside  at  current  levels  and expect  investors  to  consider  profit-taking  as  earnings  base  will  only double from FY18, ie three  years from now. While Yinson still has room to  secure  a  small  new  floater  job,  we  expect  flattis h  earning  growth through FY16-17 due to USD volatility and a hike in operating cost.

Source: RHB