Yinson Holdings - Another record-high quarterly earnings on accelerated EPCIC progress

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Investment Highlights

  • We reiterate BUY on Yinson Holdings (Yinson) with an unchanged fair value (FV) of RM3.89/share based on an ESGadjusted sum-of-parts (SOP) valuation. Our fair value incorporates a 3% premium for Yinson’s ESG rating of 4- stars. Yinson is the first oil & gas service provider to proactively invest in renewable energy assets.
  • We raise FY23-24F earnings by 5-6% after penciling in higher progress for the floating production, storage and offloading (FPSO) conversion for Maria Quitéria and Atlanta. These were slightly offset by increased finance costs. We also finetune FY25F earnings to reflect the front-loaded project completion assumptions for the 2 vessels.
  • Yinson’s 9MFY23 core net profit (CNP) of RM392mil, after stripping off RM26mil net gains on foreign exchange, was above expectations. The results accounted for 81% of our original FY23F net profit and 97% of street estimates. In comparison, 9M accounted for 63-84% of Yinson’s FY20- FY22 earnings. The group did not declare dividends in 9MFY23, which is in line with our expectations.
  • 9MFY23 revenue soared 52% to RM4.4bil YoY on (i) higher engineering, procurement, construction, installation, and commissioning (EPCIC) progress achieved for FPSO Maria Quitéria and Atlanta; and ii) improved operating & maintenance rates for the existing vessels amid elevated oil prices. Sequentially, 3QFY23 CNP rose by a smaller 18% YoY as increased finance costs and tax expenses negated the higher revenue.
  • QoQ, 3QFY23 CNP (after excluding RM8mil net gains on foreign exchange) grew by 4% to RM147mil in tandem with a 7% growth in revenue. This was on the back of higher EPCIC works for FPSO Maria Quitéria and Atlanta. We gather that as of end of 3QFY23, the EPCIC operations were within schedule with the current projects reaching 25% completion for FPSO Maria (2QFY22: 14%) and 30% for FPSO Atlanta (2QFY23: 18%).
  • In addition, the FPSO Anna Nery completed its final integration & commissioning works recently and is currently on the way to Petrobras’ Marlim field in the Campos basin in Brazil. The vessel is on track to achieve the first oil production in 1QCY23, paving the path for the commencement of charter income.
  • Apart from the final charter contract for the Agogo project, there is a number of projects that are up for grabs. We believe that Yinson stands a good chance of winning some of the projects. These include the Petrobras’ Albacora project in Brazil, TotalEnergies’ Maka project in Suriname and BP’s Block 31 SE-PAJ in Angola.
  • Although still under evaluation due to unfavorable capital market conditions, Yinson’s plan to list its FPSO business in Oslo could unlock the value of the division. The segment has stable recurring revenue and the listing could provide funds for future renewable energy and green tech investments.
  • We continue to like Yinson as it is expected to benefit from the thriving FPSO market. Also, there is a scarcity of global FPSO players as many companies have been affected by the downturn in oil prices.
  • The stock currently trades at a compelling FY23F PE of 14x vs. its 5-year average of 19x. We believe that the discount is unjustified as Yinson is a global FPSO player with a healthy balance sheet. Yinson’s outlook is also bright as it is positioned to expand its outstanding order book of RM66bil (US$15bil) as of 31 October 2022 (11x FY23F revenue).


Source: AmInvest Research - 23 Dec 2022

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