This article first appeared in The Edge Financial Daily on January 4, 2018

Yinson Holdings Bhd
(Jan 3, RM4.04)
Maintain buy with an unchanged target price (TP) of RM4.45: Developments on Yinson Holding Bhd’s three floating production storage and offloadings (FPSOs) (Lam Son, Four Rainbow and JAK) are progressing well with minor hiccups.

Our estimates are unchanged. Yinson remains our preferred Malaysia oil and gas play — steady financials, lean/focused management team with strong growth prospects and undemanding valuations. Our TP is sum-of-parts-based.

Yinson has finalised the settlement and amendment agreement with PetroVietnam Technical Services Corp (PTSC) regarding the termination notice for FPSO Lam Son. Yinson will receive a termination fee of US$213.6 million (RM871 million) by Jan 26, 2018.

However, we understand that the net compensation (less outstanding loan fees) is about US$31 million. This is 1/3 below our initial estimate of US$47 million.

That said, the shortfall (that is 6 sen to net present value [NPV]) should be covered by the finalisation of the new letter of award (LoA) for FPSO Lam Son (currently on letter of intent [LoI]), due anytime soon.

The FPSO has been on an immediate redeployment since July 1, 2017. We estimate the LoA would add between 4 sen and 10 sen (on three-year firm) and from 6 sen to 13 sen (three-year extension) respectively, based on daily charter rates of US$50,000 to US$100,000 (previous charter US$200,000). We exclude the earnings impact of the new LoA in our model for now.

Yinson has acquired the remaining 49% of FPSO Four Rainbow from Four Vanguard Servicos E Navegacao for US$9 million. We see this as a strong sign of deploying this asset for JX Nippon oil and gas’s Layang project.

Recall that TH Heavy Engineering Bhd has agreed to novate this job to Yinson. Both parties are in advanced talks with further details due soon.

There is a one- to three-month delay to Yinson’s sale of the 26% stake in FPSO JAK to Sumitomo Corp, K-Line and Development Bank of Japan for US$117 million.

We now expect the deal to be concluded by first quarter ending April 30, 2019. Layang job aside, there are two to three firm tenders that Yinson is prospecting. Winning any of these could lead to further potential upside to earnings and NPV. — Maybank IB Research, Jan 3