Yinson Holdings Bhd - 1HFY23 Buoyed by EPCIC Profits

Date: 
2022-09-23
Firm: 
KENANGA
Stock: 
Price Target: 
3.15
Price Call: 
BUY
Last Price: 
2.45
Upside/Downside: 
+0.70 (28.57%)

YINSON’s 1HFY23 results beat expectations, thanks to stronger engineering, procurement, construction, installation & commissioning (EPCIC) profits with the commencement of works on FPSO Atlanta. Eyeing further growth opportunities, it is reportedly the front-runner for Eni’s Agogo project, offshore Angola. We raise our FY23F/FY24F earnings by 15%/5%, increase TP by 26% to RM3.15 (from RM2.50 previously) and maintain OUTPERFORM.

Its 1HFY23 core PATAMI of RM250m came in above expectations at 60% and 61% of our full-year forecast and full year consensus estimates respectively. The variance against our forecast came largely from stronger EPCIC profits with the commencement of works for FPSO Atlanta during the quarter.

Its 1HFY23 core PATAMI rose 7% YoY, thanks to higher EPCIC profits from commencement of works for FPSO Maria Quiteria and FPSO Atlanta. This was partially offset by lower EPCIC contribution from FPSO Anna Nery as the project progressed closer to sail-away.

YINSON has been reportedly to be the front runner for Eni’s Agogo project, offshore Angola, edging out other rival bids including Bumi Armada and Saipem. With the first oil expected in 2026, we believe an official contract award needs to be finalised within the coming months. Elsewhere, YINSON is also reported to be in exclusive negotiations with BP for its PAJ project in Block 31 offshore Angola, although given the timeline of the project, we see the conclusion of negotiation, if any, later in 2023.

Forecasts. We raise our FY23F/FY24F earnings by 15%/5% to account for stronger EPCIC profit assumptions.

Maintain OUTPERFORM, with a higher SoP-TP of RM3.15 (from RM2.50 previously), as we include a new win assumption into valuation, based on the assumptions of: (i) USD1b project capex, (ii) IRR of 13%, and (iii) WACC of 6%. Note that our valuations have also included a 5% ESG premium, based on our in-house 4-star ESG rating (see page 4).

We continue to like YINSON for: (i) its strong market position, with a fleet of nine FPSOs (including three on order) – making them the fourth largest FPSO player in the world and the largest amongst Malaysia-based players, (ii) its strong management team, given its untainted track record of project deliveries thus far, and (iii) its conscious decision to diversify into non-fossil energy sectors (e.g. solar, battery technology) to future-proof its earnings sustainability.

Risks to our call include: (i) crude oil prices falling below hurdle rates for floating production projects, (ii) counter-party risk for FPSO contracts, (iii) project execution risks including cost overrun, delays and downtimes.

Source: Kenanga Research - 23 Sept 2022

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