News     Last week, YINSON announced that it had entered into an agreement with Kencana Capital Sdn Bhd (“KCSB”) for a proposed issue and allotment of new ordinary shares (not exceeding 15% of the final enlarged share capital of YINSON) for an issue price of RM2.82/share.

Assuming the maximum scenario, where the new shares will represent around 15% of the final issued share capital of the company, around 38.9m shares will be issued, lifting YINSON’s share base to 259.3m shares (from 220.4m previously). 

The proposed issue will raise cash proceeds of around RM109.7m, which YINSON said is expected to be utilised for any upcoming acquisitions that it is still in the midst of identifying. 

Comments    We are pleasantly surprised by the announcement as  it came very soon after the previous private placement that was announced on the 22 nd of May. Cumulatively, the two fund raising exercises will raise around RM165.5m,  just enough to fund YINSON’s equity portion for another floating production project. To recap, YINSON’s Lam Son FPSO has not been launched as yet.

We believe this share issue could be a game changer for YINSON as the involvement of KCSB could hint at a Malaysian project. Thus far, YINSON’s business is mainly in Vietnam. We highlight that the utilisation of the proceeds is subject to the approval of KCSB.

 We estimate the share issue will lead to potential interest cost savings of RM3.1m per annum but it will cause quite a fair bit of dilutions in our FY13-14 EPS numbers  of 10.3% and 11.7% respectively. However, we believe that any new project will likely more than compensate for these dilutions.

Outlook    In the long run, we are positive on the company as its earnings growth trajectory is accelerating.

The company is looking to kick start its FPSO operations in FY15.

Its strong links to PTSC are a precursor to more Vietnamese opportunities.

Forecast      We are increasing our share base to 259.3m shares (from 220.4m) and our FY13-14 net profit estimates by 5.5% and 3.9% respectively. However, the new shares will dilute our FY13-14 EPS numbers by 10.3% and 11.7% as highlighted above.

Rating     Maintain OUTPERFORM

Valuation     As such, we have reduced our FY15 SOP-based target price to RM3.78 (from RM3.83 previously).

Risks    1) Significant reliance on Petrovietnam poses an earnings risk to Yinson, 2) high capex requirements and 3) contractual and project execution risks in new projects due to its inexperience.

Source: Kenanga