This article first appeared in The Edge Financial Daily on June 29, 2018 - July 5, 2018

Yinson Holdings Bhd
(June 28, RM4.50)
Maintain buy with a lower target price (TP) of RM5.20: Yinson’s first quarter financial year 2019 (1QFY19) core earnings came below our and consensus expectations at 18.9% and 18.8% respectively. This was on an underestimation of the negative earnings impact from floating production storage and offloading (FPSO) Lamson’s premature contract termination in 3QFY18, due to a cessation of the joint venture (JV) that had been chartering the FPSO.

Overall, 1QFY19 earnings declined 12% year-on-year (y-o-y) on this cessation post the contract termination by the client. We note that FPSO Lamson is still operating at the same field, but the renewal rate is significantly lower than the original contract. This does not concern us much, as the group has already received a termination fee of US$209 million (RM844.36 million) from its client as compensation.

Maintain “buy” with a new sum-of-parts (SOP)-based RM5.20 TP from RM5.34, 12% upside. Yinson’s FY19 to FY21 earnings have been cut by 32.6%, 30.9% and 25.1% respectively to account for lower FPSO Lamson contributions and FPSO Ghana earnings post-completion of a 26% stake disposal to Japan Sankofa, a consortium of four companies, on June 6.

Despite the drastic earnings cut, our SOP-driven TP is reduced by a lesser margin, as we factor in the termination fee received for FPSO Lamson’s premature termination and disposal proceeds of a partial stake in FPSO Ghana.

Risks to call are FPSO Layang’s conversion cost overruns and a breakdown of talks on an upcoming Nigerian FPSO. — RHB Research Institute, June 28