This article first appeared in The Edge Financial Daily, on January 4, 2016.

Yinson Holdings Bhd
(Dec 31, RM2.93)
Reiterate buy and a target price of RM4.35: The third quarter ended Oct 31, 2015 (3QFY16) core earnings were RM56 million, up 51% quarter-on-quarter (q-o-q), and up 28% year-on-year (y-o-y). Nine-month (9MFY16) core net profit came up to RM133 million (+26% y-o-y). This accounted for 82%/89% of our/consensus initial full-year forecasts. 

The better q-o-q performance in 3QFY16 was fuelled by a: (i) lower operating expenditure at its floating production storage and offloading (FPSO), floating, storage and offloading (FSO) and offshore support vessel (OSV) operations, (ii) higher associate contribution (+11%) which offset a RM19 million impairment charge on its 60%-owned OSV SK Line 106, a 10k bhp anchor handling tug supply (AHTS) (off-hire since July 2015). 

Yinson largely benefited from lower staff costs in 3QFY16, following the stronger US dollar against these payroll currencies. Its FPSO’s revenue/charter costs are in US dollars. Its Vietnam FSO/FPSO joint ventures benefited from lower financing costs. 

Yinson will pay up to RM160 million in special dividend once the sale of its non-oil and gas (O&G) business is completed. This translates into a 15 sen dividend per share (DPS), or 5% yield, much better than our initial eight sen to 10 sen special DPS expectation. 

Job markets for the FPSO in 2016 remain commendable with firm prospects in Asia and Africa. Yinson targets to win one to two new jobs in 2016, a realistic target, making it a compelling growth stock with decent dividends. 

Yinson’s proposed 15 sen special DPS from the sale of its non-O&G operations is better than expected. It is an immediate catalyst. Yinson remains a growth stock. It has prospects for three FPSO jobs in 2016. Securing one is a realistic target, a major rerating of its sentiment and earnings. — Maybank IB Research, Dec 29