Yinson Holdings - EPCIC Works Bolster Profits

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+1.05 (40.38%)

YINSON’s FY23 results beat expectations, thanks to stronger EPCIC profits. Looking forward, the FPSO market is promising with supply staying tight as most of the well-established contractors’ capacities are almost filled to the brim. We believe YINSON will now focus on project execution and delivery, and the next new contract may only be secured in the later part of the year. We raise our FY24F net profit by 19% but maintain our TP of RM3.65 and OUTPERFORM call

FY23 exceeded expectations. FY23 core PATAMI of RM739m beat our forecast and consensus estimate by a whopping 47% and 41%, respectively. The variance against our forecast came largely from stronger EPCIC profits.

Steady earnings. FY23 core PATAMI jumped 80% YoY, largely thanks to stronger EPCIC profits driven by further progress on FPSO Maria Quiteria and FPSO Atlanta. This was partially offset by lower contribution from FPSO Anna Nery as the project progresses closer to sail-away.

Focused on project delivery. The FPSO market remains promising. Global oil and gas offshore exploration and production capex remain on an up-trending track, while supply for FPSO remains tight as most of the well-established contractors’ capacities are largely filled up. That said, given YINSON’s recent win of the Agogo project, we believe the group will now focus on project delivery of its jobs at hand. As such, we believe the next new contract win may only come during the later part of the year.

Forecasts. We raise our FY24F earnings by 19% and introduce our FY25F numbers.

Maintain OUTPERFORM, with an unchanged SoP-TP of RM3.65. Note that our valuations have also factored in our in-house 4-star ESG rating (refer to page 4 below).

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 excellent 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, and (iii) project execution risks including cost overrun, delays and downtimes.

Source: Kenanga Research - 24 Mar 2023

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