This article first appeared in The Edge Financial Daily on January 24, 2019
Yinson Holdings Bhd
(Jan 23, RM4.06)
Maintain buy with an unchanged fair value of RM5.53: Our forecasts have been marginally adjusted after taking into account lower minority charge assumptions for financial year 2019 forecast (FY19F), which stemmed from losses from one of the group’s four offshore support vessels. Budget 2019’s removal of the RM20,000 Labuan tax ceiling will not result in higher tax rates for Yinson Holdings Bhd as its overseas operations are mainly domiciled in Singapore and the Marshall Islands, which are wholly tax-exempted for charter income.
Our FY20F earnings project a decline of 17% due to the charter expiry of the floating production, storage and offloading (FPSO) vessel Knock Allan by the end of this month, three months earlier than originally contracted, together with the full-year impact of minority charge from the sale of a 26% equity stake from the US$1 billion FPSO John Agyekum Kufuor in June 2018 to a Japanese consortium.
We expect fourth quarter (4QFY19) earnings to be flat quarter-on-quarter, but decline in 1QFY20 due to the loss of Knock Allan’s annual earnings of RM40 million. However, this could be partly mitigated by earlier-than-expected contributions from the FPSO Helang (formerly Layang) in 4QFY20.
We understand that the conversion of FPSO Helang, carried out in Cosco’s Qidong shipyard in China, is expected to be completed in August this year, with contribution potentially by September in the currently producing fields, earlier than its contractual obligations by December 2019. We expect the charter commencement of FPSOs operating in the Helang fields of Sarawak, and Anyala and Madu off Nigeria to stage a 43% rebound in FY21F earnings.
Nevertheless, we understand the caution on the Anyala and Madu charter, which has yet to be officially awarded as negotiations with First Exploration and Production Development Ltd (FEP) for financial guarantees have yet to be resolved. Amid Knock Allan’s idle status by the end of this month, the group remains confident of sourcing for a vessel.
Even if the Nigerian contract fails to materialise, the group remains optimistic of securing a massive FPSO this year as one of the leading contenders for the Marlim I & II and Parque das Baleias projects in Brazil, notwithstanding other bidders such as Modec, Teekay Offshore Partners and Bluewater-Saipem JV.
The capital expenditure for these vessels, with production capacities of over 100,000 barrels per day, could easily exceed US$1 billion (RM4.14 billion), above EMA’s estimates of US$700 million to US$1billion.
Given its gross cash of RM1 billion and low FY20F net debt-to-earnings before interest, taxes, depreciation and amortisation of 2.1 times, we do not expect any equity-raising exercise should the group secure any of these charters. With the completion of the FPSO Helang by end-2019, Yinson’s project management team is comfortable securing another large project this year.
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 13 times of FY21F price-earnings ratio of 13 times versus over 20 times for Dialog Group and Sapura Energy. — AmInvestment Bank, Jan 23