This article first appeared in The Edge Financial Daily on April 4, 2018 - April 10, 2018

Yinson Holdings Bhd
(April 2, RM3.95)
Maintain buy with a target price (TP) of RM4.50: We affirmed our positive view on Yinson Holdings Bhd as the company is competitive enough to win more projects globally with its strengthening balance sheet. We believe the market has priced in the potential termination risk for the Ca Rong Do project as all costs incurred are expected to be recoverable in a worst-case scenario. We like Yinson for its recurring cash flow and ability to secure contracts with oil majors amid a competitive global floating production storage and offloading (FPSO) market. We maintain our “buy” call with a TP of RM4.50, implying forward financial year 2019 (FY19) and FY20 price-earnings ratios of 16.5 times to 18.1 times.

Management reiterated that it is neither a suspension nor a termination for the Ca Rong Do project and the situation would probably last until the long-stop date (estimated to be two to three months later) when Talisman Vietnam must make a decision on the contract.

Management guided that its net debt to adjusted earnings before interest, taxes, depreciation and amortisation ratio will be reduced to two times by year end from 2.89 times upon repayment of borrowings related to FPSO John Agyekum Kufuor with proceeds received (US$117 million or RM451.62 million) from the disposal of a 26% equity interest in Yinson Production (West Africa) Pte Ltd to the Japanese consortium. This will allow Yinson to build a war chest, in preparation for future projects.

Demand for FPSO is picking up as the oil majors are gradually reviving some of these shelved projects during the industry downturn. There are currently multiple potential projects in countries such as Mexico, Nigeria, Brazil and Ghana, and Yinson is likely to submit three commercial bids (two of them are of a project size of about US$1 billion) by June and any contract award could be expected earliest by year end. — Rakuten Trade Research, April 2