This article first appeared in The Edge Financial Daily, on December 30, 2015.
Yinson Holdings Bhd
(Dec 29, RM2.90)
Maintain outperform with a higher target price (TP) of RM4.04: Yinson’s third quarter results ended Oct 31, 2015 (3QFY16) came above expectations with a core net profit of RM55.5 million, bringing nine-month (9MFY16) net profit to RM131.7 million, accounting for 88.2% and 87.5% of our and consensus full-year forecasts respectively due to the stronger-than-expected US dollar appreciation against the ringgit.
The 3QFY16 core net profit forecast is adjusted for: (i) RM17.2 million impairment on available-for-sale assets, (ii) RM81.6 million unrealised foreign exchange (forex) gain, (iii) RM19 million impairment on offshore support vessel (OSV), and (iv) RM8 million write-down on inventories.
Stripping off RM20 million from the discontinued operations, the oil and gas segment actually booked in 9MFY16 core net profit of RM111.7 million.
On a separate announcement, Yinson proposed to distribute special dividends up to RM160 million from the proceeds of its divestment of non-oil and gas subsidiaries, which would translate into a maximum dividend per share of 15 sen. We are not surprised as this was previously guided by the management on the utilisation of the proceeds.
Sequentially, 3QFY16 core net profit improved by 54.9% to RM55.5 million quarter-on-quarter (q-o-q) from RM35.8 million mainly due to the (i) stronger US dollar performance against our home currency, (ii) better contribution from joint venture (JV) and associates as a result of lower finance cost, and (iii) higher demand for agency transport business (which is included in the discontinued operations segment).
3QFY16 core net profit also strengthened by 31.7% year-on-year due to the abovementioned reasons, but was offset by weaker earnings contribution from the trading and transport segment, which sank into an operating loss of RM3.6 million in 3QFY16 compared to an operating profit of RM7.3 million a year ago.
Year to date, its 9MFY16 core net profit stands at RM131.7 million, 27.5% stronger than in 9MFY15, largely attributable to better forex movements. This in turn was partially offset by the overall weaker transport and trading divisions, no thanks to the weaker overall demand.
Yinson is not expected to secure another mega floating production storage and offloading (FPSO) contract this year to avoid overstressing its balance sheet for capital expenditure.
Notwithstanding this, it could still stand a chance to secure a mid-sized FPSO project through a JV with Four Vanguard Servicos E Navegacao LDA, a subsidiary of Premuda SPA, a major Italian shipping company, of which options are in place in the contract to protect Yinson’s business interest. This could be the next positive catalyst for the group, but it could only be awarded possibly in 2016.
Yinson also does not discount the possibility of securing another mid-sized FPSO contract in end-2016.
The proposed private placement and disposal of its non-core transport and trading business is expected to free up more cash on its balance sheet to prepare the group to take on more FPSO projects in the future to fuel its long-term growth.
We are guided that the conversion of FPSO for the Ghana project has reached 60% of completion, slightly ahead of the initial schedule.
Besides, management also mentioned that Yinson is currently no longer fulfilling the requirement to be syariah-compliant. However, the company is trying to maintain its syariah-compliant status by way of converting its existing borrowings into Islamic loans should it secure competitive rates.
FY16/17 core net profit was revised upwards by 9.3%/14.8% to RM163.1 million and RM140.8 million after (i) the revision of our US dollar/ringgit assumption to 3.90 from 3.40 in FY16/17, and (ii) lower contribution from its OSV. — Kenanga Research, Dec 29
