This article first appeared in The Edge Financial Daily on December 27, 2018
Yinson Holdings Bhd
(Dec 26, RM4.35)
Maintain buy with an unchanged fair value of RM5.53: Our forecasts are maintained as Yinson Holdings Bhd’s cumulative nine months of financial year 2019 (9MFY19) core net profit of RM249 million (excluding impairments) came in within our expectations but above consensus, accounting for 87% of our FY19 forecast (FY19F) earnings and 97% of street’s versus 74% to 80% for the past three comparative periods.
The group did not declare any interim dividend as expected.
We expect a softer fourth quarter of FY19 (4QFY19) as the group benefited from a stronger US dollar in 3QFY19. Our FY19F and FY20F earnings project a decline of 17% and 24% due to the full impact of the JAK minority charge together with the expected cessation of the floating production storage and offloading (FPSO) vessel Knock Allan in April 2019. However, Yinson’s FY21F net profit is expected to stage a rebound from the maiden contributions of FPSO Helang as well as Anyala-Madu, notwithstanding protracted contract negotiations.
Excluding provisions of impairments for the group’s wholly-owned FPSO vessel Knock Allan, which will have its charter terminated three months earlier on Jan 31, 2019 by Canadian National Resources, together with Yinson’s four offshore support vessels, Yinson’s 3QFY19 core net profit rose 28% quarter-on-quarter to RM129 million, driven mainly by the stronger US dollar versus the ringgit.
On a year-on-year comparison, Yinson’s core net profit slid 5% mainly due to the termination of the group’s 49%-owned Lam Son FPSO charter. The vessel is still being deployed in the field on an interim charter until Dec 31, 2018, and is likely to be extended pending the completion of contract negotiations.
The group remains optimistic about securing another US$1 billion (RM4.18 billion) FPSO early next year with multiple roll-outs of projects in Brazil, West Africa and the Gulf of Mexico amid a limited pool of contenders with the necessary expertise and financial capability following project scarcities over the past three years. The more immediate bid submissions next year could be the Marlim I & II and Parque das Baleias projects in Brazil.
Given its low FY20F net debt-to-earnings before interest, taxes, depreciation and amortisation of three 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 two Suezmax-sized FPSOs by the end of next year, Yinson’s project management team is comfortable securing another large project towards early 2019.
Underpinned by locked-in earnings visibility from an outstanding order book of US$4.1 billion (25 times FY18F revenue), the stock currently trades at a bargain FY19F price-earnings of 16 times versus over 20 times for Dialog Group and Sapura Energy. — AmInvestment Bank, Dec 21