• Keep BUY, new TP of MYR2.83 from MYR3.25, 34% upside with c.3% FY23F (Jan) yield. Removing one-off items and engineering, procurement, construction, installation and commissioning (EPCIC) gains, 1QFY23 results came in line with our estimates. Yinson is targeting to secure one more new job this year. We also expect strong earnings growth in FY24-25, once it achieves final acceptance of the three new projects.

• 1QFY23 core profit of MYR75m (+1% YoY) is within our estimate, and at 24% and 18% of our and Street full-year forecasts. We believe Street numbers may not be a good comparison, as some fellow analysts regarded EPCIC earnings as core profit.

• 1QFY23 core earnings remained flat QoQ at MYR75m, as FPSO operations remained fairly stable. It comes after stripping off a MYR16m net FX gain, MYR33m in EPCIC gains, etc. Note that revenue surged by 36% QoQ, mainly due to the conversion of the offshore & marine (O&M) company for FPSO JAK into a subsidiary from a JV previously, as requested by the auditors. The earnings impact remains neutral. 1QFY23 core earnings only inched up by 1% YoY, as lower tax expenses and stronger FPSO operations (favourable FX impact led) masked lower renewables, higher finance costs and overhead costs. Note that the renewables segment, which encapsulates the solar asset in India, has generated stable revenue of MYR20m but recorded a net loss of MYR2m due to unfavourable FX movements and lower other income.

• Outlook. The conversion of FPSO Anna Nery is progressing well (at >90% completion currently). It is scheduled for sailaway in July and to achieve first oil by 1QCY23. The group is currently interested in four projects, including three in Angola and one in Suriname. It highlighted that ENI’s Agogo project, with an estimated capex of >USD1bn, could be awarded in CY22, and the rest in 2023. Yinson is comfortable to secure one project, and the initial equity outlay may be partially funded by an upfront payment from a client. Meanwhile, it also guided that >60% of its MYR9.3bn total borrowings have been hedged with interest rate swaps, to mitigate the exposure to any interest rate fluctuations. As for the renewable energy segment, we do not discount the solar projects in India as well as other jobs seeing some delay, due to elevated material costs amidst supply chain disruptions.

• No change to our earnings estimates. EPCIC revenue should be maintained in FY23F, as the decline of Anna Nery’s EPCIC revenue will be cushioned by EPCIC revenue from FPSO Maria Quitéria (PDB project). Our TP drops to MYR2.83 after adjusting on-going the rights issue exercise with the incorporation of a 4% ESG premium. Downside risks: Further contract terminations and weaker-than-expected operating uptime for existing vessels.

Source: RHB Research - 24 Jun 2022