Oil and gas sector
Maintain positive: Demand for floating production storage and offloading (FPSO) is exceptionally strong this year. Up to 19 new jobs with US$17 billion (RM70.55 billion) capital expenditure (capex) are up for grabs among key FPSO operators. Should this materialise, it will surpass the high of 17 units awarded in 2010. Established FPSO contractors with a strong track record and financials to boot could realistically win two to four jobs each. Yinson Holdings Bhd (target price: RM9.45) is our key “buy” in this space.

We expect a solid order intake over the next 12 months. Of the 19 FPSO jobs that could possibly be awarded this year, two or three will be for leased units and nine awards will comprise large-size FPSO (with a capex size of over US$1 billion). Brazil is a key market, accounting for six of the identified large or complex prospects.

While the demand side is booming, realistically there are only about eight active and experienced FPSO operators left in the market and a select few with the financial and execution capability to meet this request. SBM Offshore, Modec and Yinson are three key FPSO players with strategic partnerships (with Mitsui, Mitsubishi and Sumitomo) that are constantly participating for tenders. Expectations are for them to be disciplined in bidding and execution, winning two to three new jobs this year, a realistic target in our view, without triggering operational risk.

Yinson is the most leveraged to ride the entrenched recovery of the FPSO segment. With two projects (FPSO Helang and FPSO Abigail-Joseph) on track for delivery in the fourth quarter of calendar year 2019, Yinson has the capacity to take on new projects. Yinson could realistically win two to three jobs from the five firm tenders (with a capex size of US$4 billion to US$5 billion) that it is currently bidding for. Based on back-of-the-envelope estimates, one US$1 billion capex job would add about RM2 per share to our net present value estimate. With that, we raise our TP for Yinson to RM9.45, incorporating two FPSO wins with a capex of US$2 billion. — Maybank IB Research, June 20