Yinson 9M profit above expectations
15 Dec 2017, 09:24 am
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This article first appeared in The Edge Financial Daily on December 15, 2017 - December 21, 2017

Yinson Holdings Bhd
(Dec 14, RM3.86)
Maintain outperform with a higher target price (TP) of RM4.30:
At 91% and 89% of our and consensus’ full-year estimates, Yinson Holdings Bhd’s cumulative core net profit for the first nine months of financial year 2018 (9MFY18) of RM273.3 million surpassed expectations due to higher-than-expected earnings contribution from floating production storage and offloading (FPSO) John Agyekum Kufuor (JAK) and additional variation orders. Our core net profit is adjusted for: i) RM11.7 million unrealised foreign exchange loss; ii) RM26.1 million impairment loss on PPE; iii) RM2.9 million fair value (FV) loss on investment properties; and iv) RM700,000 impairment loss on receivables. No dividend was declared as expected.

Sequentially, the core net profit for the third quarter of FY18 (3QFY18) decreased by 21% to RM86.6 million from RM109.3 million, no thanks to lower joint-venture and associate contribution (-95%) as a result of lower charter rate from Bien Dong and Lamson coupled with higher finance cost (+82%). This was despite higher contribution from FPSO JAK, which started operations in early June as evident by the revenue expansion of 21% quarter-on-quarter.

On a year-on-year (y-o-y) basis, 3QFY18 core net profit jumped by 70% y-o-y from RM50.8 million in 3QFY17, in tandem with a 106% increase in revenue backed by maiden contribution from FPSO JAK.  9MFY18 earnings also improved by 83% to RM273.3 million from RM149.2 million in 9MFY17 thanks to: i) higher contribution from the FPSO segment arising from the charter income contributed by FPSO JAK; ii) additional revenue from shipping services and variation orders; and iii) the stronger US dollar (average rate 9MFY18: RM4.3215 vs 9MFY17: RM4.0659).

Recently, Yinson has affirmed affidavits and extended copies to the High Court of Malaya in Kuala Lumpur with regard to the application made by TH Heavy Engineering Bhd (THHE) for leave to enter into and complete a proposed novation of the contract for the provision of engineering, procurement, construction, installation & commissioning (EPCIC) and leasing of Layang FPSO facilities dated Nov 27, 2014 made between JX Nippon Oil & Gas Exploration (Malaysia) Ltd (JX Nippon) and THHE, to Yinson Energy, its associate company.

Pending further details, we estimate such a contract would add about 20 sen per share to our sum of parts assuming: i) US$400 million (RM1.63 billion) capital expenditure; ii) seven-year firm period; and iii) 10% internal rate of return (IRR) with additional US$10 million per annum (about 14% of FY19) to its bottom line starting from FY21.

FY19 earnings are adjusted upward marginally (<1%) to RM297.3 million after accounting for higher margins from FPSO JAK but a lower stake of 74% (from 100% previously) for FPSO JAK starting from 2QFY18 upon completion of sale of 26% stake to a Japanese consortium. — Kenanga Research, Dec 14
 

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