This article first appeared in The Edge Financial Daily on June 21, 2017

Yinson Holdings Bhd
(June 20, RM3.42)
Maintain buy with an unchanged fair value of RM3.97: Our financial year ending Jan 31, 2018 (FY18) to FY20 earnings have been fine-tuned even though Yinson Holdings Bhd’s first quarter ended April 30, 2017 (1QFY18) core net profit of RM78 million appears to be above expectations, accounting for 29% of our FY18 forecast and 32% of consensus. In comparison, 1QFY17 accounted for only 19% of FY17 core net profit.

The strong 1QFY18 performance stemmed largely from the continuation of a lumpy one-off installation job for the group’s wholly-owned floating production, storage and offloading vessel (FPSO) John Agyekum Kufuor (JAK), formerly named Yinson Genesis and deployed currently at Ghana’s Offshore Cape Three Points block.

However, this marine job was completed in May as first oil had already been achieved three months ahead of schedule. Hence, this additional income is unlikely to recur pending the completion of another FPSO.

With the termination of the charter for the group’s 49% stake in FPSO PTSC Lam Son effective on June 30 this year, the group’s FY18 to FY19 earnings growth trajectory will be propelled by the maiden contribution from the Ghana-bound FPSO JAK.

Over the longer term, Yinson’s earnings growth will be further supported by its 49%-owned Ca Rong Do (Red Emperor) FPSO, which is targeted to achieve first oil in September 2019.

Yinson’s 1QFY18 revenue was flat quarter-on-quarter (q-o-q), but surged by 49% year-on-year to RM172 million from a lumpy marine installation work related to the commissioning of the FPSO JAK. With the normalisation of the effective tax rate to 21% in 1QFY18 versus a positive tax charge in 4QFY17, the group’s core net profit declined 6% q-o-q.

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 Asean region. Recall that this is a medium-sized vessel with a storage capacity of 600,000 barrels with a production capacity of 40,000 barrels per day and gas compression facilities of 10mmscfd.

Given Yinson’s locked-in earnings visibility with an order book of US$4.2 billion (RM17.98 billion) (25 times FY18 revenue), the stock currently trades at a bargain calendar year 2018 price-earnings ratio of 11 times versus over 20 times for Dialog Group Bhd and Petronas Gas Bhd. — AmInvestment Bank, June 20