This article first appeared in The Edge Financial Daily on January 15, 2018

Yinson Holdings Bhd
(Jan 12, RM4.04)
Maintain buy with an unchanged fair value of RM4.50: The Layang floating production, storage and offloading vessel (FPSO) charter award to Yinson Holdings Bhd may take a longer time to materialise given that the former contract recipient, TH Heavy Engineering (THHE), under Practice Note 17 (PN17) status since April last year, has to work through its financial regularisation scheme with its creditors and court proceedings. 

The Court of Appeal has allowed an application by Global Mariner Offshore Services Sdn Bhd to stay the validation of THHE’s proposed novation of the contract to provide engineering, procurement, construction, installation and commissioning (EPCIC) and leasing of the Layang FPSO, earlier contracted between JX Nippon Oil & Gas Exploration (Malaysia) Limited and THHE on Nov 27, 2014, to Yinson. 

Global Mariner, one of THHE’s multiple creditors, is claiming US$3 million (RM11.91 million) for technical services provided in the conversion of the Layang FPSO. THHE has also applied a winding-up order and claim of RM18 million from Global Mariner. 

Recall that THHE, which is in the process of converting the FPSO for US$230 million, acquired the Deep Producer 1 FPSO for US$82.5 million back in 2011. However, THHE has not been able to deliver the FPSO as contracted given its current financial distress. 

We understand that Yinson, should it secure the Layang field in Block SK10 off Sarawak, may not employ the Deep Producer 1 FPSO given that it now wholly owns the currently idle FPSO Four Rainbow. 

The group has recently acquired the remaining 49% stake in Four Rainbow from Four Vanguard Service E Navegacao for US$9 million, which means that the current vessel costs only US$44 million. 

Besides this potential project in Malaysia, Yinson may also be eyeing a Hess-related FPSO project in Ghana, which could cost over US$1 billion, similar to the group’s earlier vessel for Eni. 

Underpinned with locked-in earnings visibility from an order book of US$4.2 billion (25 times financial year ending Jan 31, 2018 (FY18) revenue), the stock currently trades at a bargain 2018 price-earnings ratio of 13 times versus over 20 times for Dialog Group Bhd and Sapura Energy Bhd. — AmInvestment Bank research, Jan 12