• Stay BUY and SOP-based MYR3.06 TP, 20% upside. We remain positive over FPSO contractors’ outlook as they are benefiting from more favourable contractual terms and potentially better project returns amidst tight supply. Global FPSO demand remains robust and Yinson is comfortable to secure another project once either of its projects reach the tail-end conversion stage. This could present further upside to our valuation.

• Bright outlook. Yesterday, Yinson hosted an industry talk, featuring David Boggs, founder and managing director of Energy Maritime Associate (EMA). Global FPSO awards are set to resume after a slight slowdown in rolling out new jobs, with a base-case assumption of 12 awards pa in the next few years (six awards in CY23 vs CY22’s 13). Brazil remains the bright spot with an estimated USD38bn floating production unit capex over the next five years, followed by the African (c.USD22bn) and South America regions (USD16bn). This could offset declining developments in OECD countries (ie UK, Australia and Canada). EMA’s Global FPS industry sentiment survey 2024 also suggested that a record level of optimism at 93% with 0% pessimism (vs 2023’s 77% optimism and 5% pessimism) to reach the respective revenue and production targets.

• Potentially better project returns amidst tight capacity. Boggs highlighted global contractors remain tight given major players such as SBM Offshore and MODEC still occupied outstanding orders. As such, the clients are expected to continue offering favourable terms (including upfront payments and lower local contents) to contractors. This may result in better project returns in general. Financing wise, although higher ESG compliance requirement is seen in conventional financial institutions, contractors are exploring other alternatives such as project bonds, finance lease and export credits. There is an emerging trend of operators owning the FPSO in the event contractor leasing is not feasible or too expensive.

• Other key visible trends and obstacles. Newbuildings are becoming the norm, particularly for large FPSOs, with standardised hull designs for large topsides and more redeployment jobs expected in the future. FPSOs still present the largest growth opportunities among the floating production system (FPS) types, followed by floating wind and LNG (FLNG). However, access to finance, political issues and industry capacity are the largest obstacles for award of new offshore projects in the next 12-24 months vs the previous concerns ie oil prices and costing. As such, early engagement with supply chain and widening search for new suppliers are needed during the contracting and tendering stage.

• Could still win one job. Yinson targets to deliver FPSO Atlanta and FPSO Maria Quitéria by 2Q-4QCY24 while tendering for several projects and could secure another project this year. It is also exploring avenues to unlock FPSO and renewable operations. We maintain our earnings estimates and MYR3.06 TP (including a 2% ESG premium). Downside risks: Unable to win new jobs and contract terminations. 

Source: RHB Securities Research - 23 Jan 2024