This article first appeared in The Edge Financial Daily on October 17, 2019

KUALA LUMPUR: Yinson Holdings Bhd has secured a 25-year floating, production, storage and offloading (FPSO) contract in Brazil that is worth US$5.4 billion (RM22.7 billion) from Petróleo Brasileiro SA (Petrobras).

With the new contract win, analysts are positive on Yinson’s prospect — as the new contract will double its order book — as its earnings visibility is expected to improve further.

“This new contract win is positive news to the company and it is a confirmation on the market’s expectation. Look at Yinson’s shares price for the past six months which has moved up a lot.

“I think the market has already priced in Yinson to secure new contracts going forward,” said an analyst when contacted.

Year to date, Yinson share price has gained 66.95% from RM4.18.

However, in terms of earnings contribution, analysts said there are no immediate earnings generated from the Marlim 2 FPSO contract, but it should provide a huge boost for the group’s earnings when the FPSO commenced operation in 2023.

Notwithstanding that, analysts concured that the new job win will provide long term earning visibility for the group.

Yinson announced to Bursa Malaysia yesterday morning that it received two Letters of Intent by Petrobras for the charter, operations and maintenance of FPSO Marlim 2 — an FPSO vessel for the Marlim revitalisation project in Brazil.

Yinson said FPSO Marlim 2 will be its largest project to date as well as its first vessel to operate in Brazilian waters.

The FPSO Marlim 2 will be doubled Yinson’s order book to about US$10.34 billion, from US$4.94 billion as of Sept 1, 2019.

The news lifted Yinson’s share price. The stock leapt as much as 6.9% after it resumed trading at 10am yesterday, soared to an intraday high of RM7.31 before paring some of its gains at close yesterday at RM6.99.

The counter gained 15 sen or 2.2% with 5.73 million shares changing hands. Its market capitalisation expanded to RM7.55 billion yesterday.

According to Bloomberg, of the analysts who track the company, 10 of them have “buy” calls and one “hold” with the target prices ranging from RM6.66 to RM9.45.

Analysts are recommending the stock as they expect more contract wins.

One analyst told The Edge Financial Daily that the Yinson competitors, such as Modec and SBM Offshore are hitting their maximum capacity, coupled with a rising demand of FPSO in the market which gives Yinson an upper hand to win more jobs going forward.

He added that at least six FPSO will be required from Petrobras for the next one year, hence, he sees Yinson highly likely to at least secure another FPSO job from Petrobras. The group is currently bidding for the Parque das Baleias FPSO job.

Another potential contract win could come from Aker Energy’s Pecan FPSO in Ghana, he stated.

It is understood that the Parque das Baleias FPSO is scheduled to enter into production in 2022 and will have the capacity to produce 100,000 barrels per day (bpd), and five million cubic metres per day of natural gas over a charter period of 22 years.

Meanwhile, the Pecan FPSO is located in the Pecan field, in Ghana’s offshore Deepwater Tano Cape Three Points block, and will have an oil processing capacity of 110,000 bpd and be able to store 1.6 million barrels of crude in its hull.

CGS-CIMB Reseach said on note dated June 4, Yinson is facing competition with a joint venture between Italy’s Saipem and Netherlands’ Bluewater for the Parque das Baleias FPSO, while for the Pecan FPSO contract, Yinson is competing with SBM Offshore.