KUALA LUMPUR (July 1): Yinson Holdings Bhd's share price was volatile this morning, even after analysts said they are positive on the group's prospect after its profit jumped 2.14 times in its first quarter ended April 30, 2016 (1QFY17).

After the noon break, the counter, which slid 1 sen to RM2.72 earlier before jumping to as high as RM2.78, had pared most of its gains and was trading at RM2.74, up 1 sen or 0.37%, after 690,600 shares were traded.

The counter, which stood at RM2.93 on Dec 31 last year, has declined about 7% since.

The group's 1QFY17 net profit surged to RM22.38 million from RM10.45 million a year ago, as gross profit margin improved, while fair value loss on derivatives declined.

Revenue, however, fell 17.62% to RM211.38 million from RM256.6 million, largely because revenue from its discontinued operations for the period under review declined 39.1% due to lower sales volume.

The results were within analyst expectations, and earnings upside are expected.

RHB Research's analyst Wan Mohd Zahidi, who recommends a 'buy' with a target price (TP) of RM3.37 on Yinson, said in a note today that the group's potential earnings upside may come from a possible contract win for a Vietnamese project.

Citing a report by website Upstream, Wan said the operators of the Ca Rong Do project in Vietnam (Repsol, Mubadala Petroleum, PetroVietnam E&P Corp and Pan Pacific Petroleum) are finalising negotiations for a floating production, storage and offloading (FPSO).

This FPSO is expected to have a processing capacity of 25,000 to 30,000 barrels/day of oil plus 60m std cu ft/day (mmscfd).

Yinson, Petrofac and Bumi Armada Bhd are the frontrunners for this project. Yinson Genesis, the company's sixth FPSO, is currently under conversion, with first oil expected in FY18 (January).

"We continue to like Yinson for its long-term contracts, earnings growth in FY18 from the start-up of Yinson Genesis, stable cash flow," he said.

It is also worth noting that all five of the group's currently operational FPSOs are recording a 100% technical utilisation.

"We understand that its FPSO contracts are carefully negotiated and it emphasises strongly on counter-party risk," Wan added.

Wan expects Yinson's earnings to be unaffected by oil price movements, and opined that it offers a defensive proposition in an otherwise volatile oil market.

Yinson's current orderbook for its FPSOs stands at US$5.6 billion (RM22.37 billion), with firm contract periods until 2034.

Meanwhile, though AmResearch's analyst Alex Goh believes the group's earnings are expected to remain flat in FY17, he expects growth to begin accelerating in FY18 onwards from the completion of the Ghana-based FPSO Yinson Genesis, with first oil expected by August 2017.

"We understand that there are still many FPSO opportunities despite the current weak sector outlook. This is driven by the need to extract natural gas for electricity generation, especially in Vietnam and West Africa," he added.

In the event of an FPSO termination, Yinson is confident of securing a fresh charter for the vessel, said AmResearch.

Since July last year, the group holds a 51% stake in the FPSO Four Rainbow, with the balance held by the seller, Italy's Premuda.

The vessel, which has a storage capacity of 604,000 barrels of oil, was acquired at only €60 million (RM265.93 million) by the joint venture partners.

Meanwhile, given Yinson's locked-in earnings visibility, the stock currently trades at an attractive 2017 forecast price-earnings of 15 times versus over 20 times for Dialog Group Bhd and Petronas Gas Bhd.

Though Goh, who has a higher TP of RM3.60 for Yinson, noted that the group did not declare any interim dividend in 1QFY17 nor a final dividend in 4QFY16, he said there will be a special dividend windfall of RM160 million or 15 sen (additional 5.5% yield).

He said this is because payment for the RM228 million sale of its non-oil and gas division is expected in October this year.