Yinson Holdings Bhd
(April 3, RM3.32)
Maintain buy call with a fair value (FV) of RM3.83: Yinson Holdings Bhd’s wholly-owned floating production, storage and offloading (FPSO) unit John Agyekum Kufuor (formerly known as Yinson Genesis) is on track to reach first oil by August this year. 

Currently with a comfortable lead time, which is two months ahead of schedule, the risks for this project lie mostly in client Eni’s ability to finalise the field development tie-ins.

Besides FPSO Allan, currently producing below capacity for Canadian National Resources in the Olowi field in Gabon, the charter for the group’s 49%-owned FPSO PTSC Lam Son, currently working in the Thang Long-Dong Do Field in Vietnam, is also at risk of cancellation.

This FPSO, which produced its first oil in June 2014 on a seven-year charter with a yearly extension option for another three years, contributes an estimated net profit of RM50 million annually. In the event of a discounted cash flow-neutral termination, we expect Yinson to recoup the remaining net present value bareboat charter.

The group may be looking at Hess’ Deepwater Tano-Cape Three Points block, which could require an FPSO with a potential capital expenditure similar to Yinson Genesis’ US$1 billion (RM4.43 billion). Upstream reported that Hess had recently appointed WorleyParsons-owned IntecSea to carry out front-end engineering and design work on a project involving the development of up to seven ultra-deepwater discoveries in Ghana.

The key issue for this project currently is a maritime boundary dispute as the Ivory Coast’s claim runs through the centre of Hess’ block. The dispute, currently before the International Tribunal, is expected to be settled either this year or in 2018.

Yinson has indicated that there is not much progress in Eni’s Zabazaba-Etan project in OPL 245 off Nigeria given the high local content requirement and ongoing legal challenges related to their US$1.1 billion acquisition from Malabu Oil and Gas.

Moving forward, the primary earnings driver for the group will be the maiden contribution from FPSO John Agyekum Kufuor. As first oil is expected by August 2017, we expect the full-year contribution from this new FPSO to underpin the group’s financial year 2019 forecast (FY19F) earnings growth of 38%. 

Meanwhile, Yinson’s 49%-owned FPSO Ca Rong Do, with its charter expected to be finalised this month, could reach first oil in September 2019.

Given Yinson’s locked-in earnings visibility with an order book of US$3.7 billion (23 times FY18F revenue), the stock currently trades at a bargain calendar year 2018 forecast price-earnings ratio (PER) of 12 times versus over 20 times for Dialog Group Bhd and Petronas Gas Bhd.

We maintain “buy” on Yinson with unchanged forecasts and a sum of parts-based FV of RM3.83 per share, which implies an FY18F PER of 17 times. — AmInvestment Bank, April 3