This article first appeared in The Edge Financial Daily on July 2, 2018
Yinson Holdings Bhd
(June 29, RM4.58)
Maintain buy with a fair value (FV) of RM5.53: We maintain a buy on Yinson Holdings (Yinson) with a slightly higher sum-of-parts-based (SOP) fair value of RM5.53/share (from an earlier RM5.51/share), which implies 14 times price-earnings for the financial year ending Jan 31 2021 forecast (FY21F).
Following an analyst briefing yesterday, we have cut FY19F-FY20F earnings by 14%-33% due to an upcoming minority charge from the completion sale of a 26% equity interest in the US$1bil (RM4.04 billion) floating production storage and offloading (FPSO) John Agyekum Kufour to the Japanese consortium on 6 June this year together with the likely cessation of FPSO Knock Allan, currently operating off Gabon, in April 2019.
However, we have raised FY21F earnings by 29% due to the inclusion of contributions of FPSO Helang (formerly Layang) and the second Nigerian FPSO in the Anyala and Madu fields, off Nigeria. These two FPSOs, which require minimal modifications, are scheduled to commence operations on a fast-track basis towards the end of 2019. Meanwhile, we maintain our assumption that the charter for FPSO Adoon, currently operating in Nigeria, will be extended for another four years after October this year under Addax Petroleum at a 20% charter reduction as the field remains commercially viable.
Currently, the Four Rainbow FPSO, which will be deployed in the Helang field, is being refurbished in a China-based yard. Recall that Yinson has completed the novation of the former Layang FSPO charter from TH Heavy Engineering on June 1 this year. Including the cost of novation, we have raised the all-in cost of the vessel by US$50 million to US$400 million in our net present value (NPV) assumption.
Yinson, which is expected to complete the charter arrangement with First Exploration and Production Development Ltd (FEP) and Nigerian National Petroleum Corporation, is currently sourcing for an existing FPSO for the Anyala and Madu fields. Recall that Yinson has entered into a memorandum of understanding (MoU) with FEP to secure a 100% equity stake in the bareboat charter and 40% in the operation and maintenance services.
The group remains optimistic of securing another US$1billion FPSO early next year with multiple rollouts of projects in Brazil, West Africa and Gulf of Mexico amid a limited pool of contenders with the necessary expertise and financial capability following project scarcities over the past three years.
Given its low FY20F net debt-to-earnings before interest, taxes, depreciation and amortisation (Ebitda) of 3 times which should enable the group to easily secure external project financing, we do not expect any equity raising exercise. With the completion of the 2 Suezmax-sized FPSOs by the end of next year, Yinson’s project management capacity appears comfortable securing another large project towards early 2019.
Underpinned with locked-in earnings visibility from an outstanding order book of US$4.3bil (25 times of FY18F revenue), the stock currently trades at a bargain of 15 times calendar year 2018 price-earnings (P/E) versus 20 times for Dialog Group Bhd and Sapura Energy Bhd. — AmInvestment Bank, June 29