YINSON (7293) - FPSO stake sale a mild positive for Yinson

Yinson Holdings Bhd
(July 4, RM3.62)
Maintain buy with a fair value (FV) of RM3.97: We maintain “buy” on Yinson Holdings Bhd with unchanged forecasts for now and sum-of-parts (SoP)-based FV of RM3.97 per share, which implies a price-earnings ratio (PER) for financial year 2018 (FY18) of 16 times.

Yinson has entered into a heads of agreement to sell a 26% equity stake in its wholly-owned floating production storage and offloading (FPSO) vessel John Agyekum Kufuor (formerly named Yinson Genesis and deployed currently at Ghana’s Offshore Cape Three Points block) to a Japanese consortium for a consideration of between US$104 million (RM447.2 million) and US$117 million. This is 5% to 18% above of our estimate of RM1.6 billion for the while Ghana FPSO, which could marginally increase Yinson’s SoP by 2%. However, we estimate that the minority charge from the sale will reduce Yinson’s FY19 earnings by 10%. Hence, we are mildly positive about the sale as Yinson will be securing upfront cash from this project, which can be redeployed for fresh new jobs without resorting to shareholders. There are still further prospective value enhancements to the group as its 51%-owned FPSO Four Rainbow, currently idle, could be redeployed in the Southeast Asia region.

Additionally, Yinson may now pitch for larger projects by leveraging new equity partners as the consortium comprises Sumitomo Corp, Kawasaki Kisen Keisha Kaisha Ltd, JGC Corp and Development Bank of Japan Inc. Sumitomo is a leading global trading company, Kawasaki Kisen Keisha is among the world’s largest shipping companies while JGC designed and engineered Petroliam Nasional Bhd’s Rotan floating liquefied natural gas (LNG) vessel and the Bintulu LNG train 9. Separately, Yinson’s 49%-owned joint venture with PTSC Asia Pacific Pte Ltd for the FPSO PTSC Lam Son has accepted a letter of intent from PTSC to continue operations within the Lam Son field, off Vietnam.

Recall that the production rate of 7,000 barrels per day for the Lam Son field was below expectations, hence PTSC terminated the original seven-year primary FPSO charter with an estimated fee of US$220 million. This mostly recovered the discounted cash flows of the outstanding bareboat charter and was in line with our own SoP estimate for this project. While the financial details for the new Lam Son charter will be negotiated over six weeks, we understand that Yinson may prefer a short-term charter as the new rate may be significantly lower than the original contract. Hence, we have not incorporated any earnings from this extension as the increment may be minimal until a more profitable job materialises.

Underpinned by locked-in earnings visibility from an order book of US$4.2 billion (25 times FY18 revenue), the stock currently trades at a bargain calendar year 2018 PER of 11 times versus over 20 times for Dialog Group Bhd and Petronas Gas Bhd. — AmInvestment Bank, July 4

YINSON (7293) - FPSO stake sale a mild positive for Yinson