Yinson offers a defensive haven in a volatile crude oil price environment with its long-term and stable FPSO contracts. Yinson Genesis, which is expected to achieve first oil in mid-FY18, should contribute to earnings growth. All of its other FPSO and FSO assets are recording 100% technical utilisation. Maintain BUY with our revised SOP-based TP of MYR3.37 (from MYR3.71) offering a 23% upside, as we update our currency and net debt assumptions.

Unaffected by oil prices. Yinson’s earnings were unaffected by the movement in oil prices as its floating production, storage and offloading (FPSO) operations are long term and daily charter rates are locked in. Considering that an FPSO is vital in oilfield production, without which a production company would not be able to monetise its oilfield assets, we deem FPSOs a defensive part of the production value chain.

Watertight contracts. Yinson has reiterated that the company emphasises strongly on counterparty risk and would not sign an FPSO contract if the counterparty risk is too high, given that the initial investment for an FPSO is high. Yinson Genesis, which is Yinson’s biggest FPSO contract so far at USD2.54bn, is under conversion and on track to achieve first oil in mid-FY18.

Key risk would be unexpected cancellations of FPSO contracts.

Maintain BUY. We remain positive on Yinson as its defensive FPSO operations offer long-term earnings visibility supported by stable cash flow until 2031. We also believe its FPSO contracts are well-negotiated with low risks of termination. Maintain BUY with a new SOP-based TP of MYR3.37 (from MYR3.71), as we adjust our MYR/USD assumption to 4.17 for FY17 from 4.34.

Financial Exhibits

Full-year impairments of MYR76.6m. Yinson impaired its offshore support vessels (OSV) down by MYR20.9m to reflect the current market value of these vessels, considering the oversupply situation of OSVs in the market. The second-biggest component of its EI is the impairment on available-for-sale financial assets of MYR18.6m. There were also a realised loss on derivatives (MYR8.2m), divestment of its logistics business expenses (MYR2.6m), and bad debts written off of MYR1.6m. These were offset by a realised foreign exchange gain of MYR92m.

SWOT Analysis

Source: RHB Research - 31 Mar 2016