This article first appeared in The Edge Financial Daily on February 3, 2020 - February 9, 2020

Yinson Holdings Bhd
(Jan 31, RM6.20)
Maintain buy with an unchanged target price (TP) of RM8.22: We are not overly concerned about the client permitted delay in floating production storage and offloading (FPSO) Abigail-Joseph as Yinson Holdings Bhd is not subjected to any penalties.

Meanwhile, the Marlim 2 vessel has been sent to the Chinese shipyard for phase one conversion. The company, in our view, is still in a good position to win another big FPSO project this year. We see better cost synergies if it is able to seal the Parque Des Baleias (PDB) project in Brazil.

The delivery date for FPSO Abigail-Joseph has been deferred to May or June 2020 from the previous guidance of the first quarter of financial year 2021 (1QFY21). This is mainly due to client permitted delay. which possibly related to other components of the field development.

Assuming maiden earnings contribution from FPSO Abigail-Joseph is delayed for three months, our FY21 forecasted earnings are likely to drop by RM35 million or 9%.

We understand that the vessel is under phase one conversion at the Chinese shipyard as the pricing is more competitive than the Singaporean shipyard even though additional supervisory cost is needed.

Meanwhile, Yinson has yet to finalise the amount of construction gain to be recognised during the conversion period under the finance lease accounting method. Putting things into perspective, if the project were to deliver US$100 million (RM410 million) construction gain, Yinson could potentially recognise about US$20-US$30 million in FY21, which is 19%-32% of our FY21 forecasted earnings.

As there was no news on rebidding of PDB project in Brazil, we believe that Yinson is in the midst of finalising the contract terms with Petrobras whereby the contract could be awarded earliest by May 2020 given that a six-month gap has been requested by Yinson for better management of two mega projects.

Meanwhile, Upstream recently reported that the bid validity for the Limbayong project (a joint venture with MISC Bhd) has been extended to April 2020 possibly due to some re-engineering work. It was reported that MISC-Yinson are the frontrunners against the other two players: Malaysia’s Sabah International Petroleum Sdn Bhd and India’s Shapoorji Pallonji Oil and Gas Pvt Ltd.  

We are keeping our earnings estimate for now pending better guidance on the construction gain recognition on FPSO Marlim 2 as this is likely to outpace the one quarter earnings delay from FPSO Abigail-Joseph to 2QFY20.

Note that the construction gain recognition has no impact on our TP given it is merely an accounting treatment without any cash flow impact. — RHB Research Institute, Jan 31