YINSON's 1HFY25 came in within expectations. 1HFY25 results were stronger, lifted largely by the commencement of FPSO Anna Nery. The group is expected to get further earnings boost in 4QFY25 as FPSO Maria Quiteria and FPSO Enauta achieve first oil. We increase our TP by 11% to RM3.55 (from RM3.19) after upgrading FY26F earnings and maintain our OUTPERFORM call.

1HFY25 earnings within expectations. The core net profit of RM225m (adjusted for RM33m reversal of impairment of other assets, and RM315m EPCIC PATAMI and RM160m corporate debt interest related to EPCIC) came within our expectation at 48%. We avoid comparing to consensus profit due to the diverse mix of forecasts, with some projecting EPCIC profits while others do not.

Finance costs dragged earnings. Revenue declined by 29% YoY in 1HFY25 due to lower EPCIC revenue recognised for FPSO Maria Quiteria and FPSO Enauta, stemming from slower work progress. However, non-EPCIC revenue increased YoY as FPSO Anna Nery began contributing in May 2023. Net profit surged by 46%, driven by the increased contributions from FPSO Anna Nery. Excluding the RM160m impact on interest costs related to corporate debt tied to EPCIC, the rise in finance costs was more moderate at 11% YoY.

QoQ weakness was due to higher costs. In 2QFY25, revenue and earnings remained relatively stable on a sequential basis, as lower tax expenses offset the increase in operating expenses and slightly higher finance costs.

Key takeaways from YINSON’s results briefing include:

1. YINSON targets first oil from FPSO Maria Quiteria by 4QCY24, with a cumulative completion rate of 96%, while FPSO Enauta is also expected to achieve first oil in 4QCY24, with a completion rate of 88%.
    
2. FPSO Agogo achieved 75% completion rate, with first oil expected in 4QCY25.
    
3. YINSON's two solar power plants in India, Bhadia and Nokh, are operational. The Peru solar project, Matarani, entered into full operations in September 2024 and the renewables division is currently at a slightly profitable position.

Forecasts. We maintain FY25F earnings but increased FY26F earnings by 18% after adjusting for higher margins of the incoming FPSO PDB as we were too conservative with our cost assumptions earlier.

Valuations. Correspondingly, we raise our SoP-TP by 11% to RM3.55 (from RM3.19). Note that our TP reflects a 5% premium given a 4-star ESG rating as appraised by us (see Page 5).

Investment case. We continue to favour YINSON due to: (i) a strong FPSO order book pipeline with multiple major FPSO jobs under the conversion stage which provides significant earnings growth in coming years, (ii) its strong project execution track record which positions the company to benefit from strong structural demand for FPSO contractors anticipated in the coming years, and (iii) it being one of the first local oil & gas company invest in green technology companies (solar, e-mobility, etc) which in our view would help with the company’s long-term energy transition agenda. Maintain OUTPERFORM.

Risks to our call include: (i) cut in capex by major FPSO buyers (i.e. Petrobras and other oil majors operating in Africa), (ii) regulatory risks and uncertain returns for RE investments that are mainly focused in emerging markets (i.e. South America, India) and (iii) project execution risks including cost overrun, delays and downtimes for FPSO assets.

Source: Kenanga Research - 2 Oct 2024