Yinson Holdings Bhd
(Dec 24, RM2.70)
Maintain “buy” with a target price (TP) of RM3.03: Yinson is a leading contender for its first floating, production, storage and offloading (FPSO) vessel award in West Africa. The Ghana government has approved Italian Eni SpA (Eni)’s US$6 billion (RM21 billion)   Sankofa Gye Nyame oil & gas (O&G) project to develop the deep water Offshore Cape Three Points (OCTP) block. The first oil production is estimated to be in mid-2017, requiring a FPSO and a gas pipeline ashore a year later. Contract charter would likely be on a 15+5-year basis.

Meanwhile, Yinson has placed orders to purchase two units of 5,000 brake horsepower (bhp) anchor handling tug supply (AHTS) for US$24 million, with a mid-2015 delivery date. These vessels would likely be targeted for charters in Africa, on a joint-venture (JV) basis. Yinson also plans to divest its non-core O&G business next year.

Should Yinson secure the contract, which we think is highly possible, it will convert its already purchased Samsung-built tanker Ulriken (bought for US$27 million). 

Total conversion cost is expected to be less than US$1 billion. This job could lift Yinson’s FPSO/floating, storage and offloading (FSO) vessel fleet size to five, further consolidate its top 10 FPSO global league table and propel earnings growth beyond 2016. The OCTP job could add RM160 million per year to its bottom line per year.

The OCTP field is commercially viable. The FPSO contract has good counter-party risk. Ghana National Petroleum Corp has a 15% working interest in the project. 

Recoverable oil reserves of 131 million barrels alone ensure the commercial viability of this job (US$46 per barrel production cost). 

The divestment of its non-O&G business in 2015, valued at RM150 million to RM200 million, to be followed by a placement exercise at a later date, would partly aid the capex funding of its FPSO in Ghana. — Maybank IB Research, Dec 24

This article first appeared in The Edge Financial Daily, on December 29, 2014.