• Maintaining BUY and TP of MYR2.91, 29% upside, with c.1% FY23F (Jan) yield. Post results briefing, we remain positive on Yinson’s outlook backed by its solid and growing pipeline from both FPSO and renewables. Apart from strong earnings growth from the upcoming three new projects, Yinson is comfortable to take on one more big project without any equity cash call.

• Potential extension. FPSO Adoon’s contract with Addax Petroleum is due in October this year. Given that Yinson has not received any demobilisation notification from the client, Yinson is confident to secure another extension under the current oil price environment. Similarly, FPSO Lamson has been granted a 12-month extension till Jun 2023 and management see potential extension beyond that. That said, Yinosn is also exploring two potential deployment projects for this vessel in Vietnam and Malaysia.

• More projects to come. Yinson is comfortable to execute up to three projects at any point of time. Following the sailaway of FPSO Anna Nery, Eni’s Agogo project appears to be another potential win that could fill up the slot amidst the on-going conversion of FPSO Maria Quitéria and Atlanta. Given that contractors are mostly tied up with multiple projects, some clients are even booking contractors’ slots in advance, as evident by the exclusivity agreement with BP for the reservation of FPSO Nganhurra. As such, we believe new projects pipeline for FPSO will remain robust in the medium term. Funding wise, client upfront payment will be top priority and followed by other options such as capital recycling and FPSO spin off.

• Renewables. Yinson currently has 1.5 GW of renewable energy projects under development and consent stage, with a 63:37 split between wind and solar as well as another 285 MW under construction. Yinson targets another 200 MW in wind projects to start construction next year. Funding can be done via free cash flow, green funding facilities or potential partnerships.

• Balance sheet. Yinson’s net gearing stood at 0.95x as of 2QFY23, improved from 1.15x in 1QFY23, following the completion of rights issue. If the amount of MYR1.8bn in perpetual securities is treated as debt instead, net gearing would be 1.72x. The amount of USD100m perpetual securities that is due in October this year will be redeemed.

• Keep BUY. With no changes to our estimates, our SOP-based TP is kept at MYR2.91 with a 4% ESG premium. We have yet to impute the Agogo project into our valuation. Energy Maritime Associates estimated Agogo’s capex at USD1.5bn and that would bring the valuation to MYR0.32/share (vs our previous estimate of MYR0.22 at USD1.0bn capex) assuming a 15- year charter period, 10% project IRR, 7.5% WACC, 80% debt funding, and 100% equity stake. Downside risks: Further contract terminations and weaker-than-expected operating uptime for existing vessels.

Source: RHB Research - 26 Sep 2022