This article first appeared in The Edge Malaysia Weekly on November 7, 2022 - November 13, 2022
The share prices of a number of local oil and gas (O&G) service providers are stuck in the doldrums despite the oil price hovering above US$90 per barrel, but Yinson Holdings Bhd is bucking the trend. Aiding sentiment is the size of its order book of RM70 billion, which is almost 10 times its market capitalisation.
Over the last three years, Yinson has outdone its Bursa Malaysia-listed peers in the energy sector in terms of return on equity (ROE).
According to The Edge Billion Ringgit Club (BRC) awards methodology, Yinson’s adjusted weighted ROE over three years between the financial year ended Jan 31, 2019 (FY2019), and FY2021 was 15.3% — bagging it the BRC award for highest ROE over three years. Its ROE went from 12.5% in 2019 to 12.4% in 2020 and 18.1% in 2021.
The company, which is mainly involved in the floating production storage and offloading (FPSO) business, has also been making a slew of announcements about its foray into renewable energy. This is in line with the overall global trend to expedite investment in the renewable energy space.
At present, it has six floating assets in operation and three more FPSOs to be delivered — FPSO Anna Nery (early next year), FPSO Maria Quitéria (mid-2024), and a contract for the provision, operation and maintenance of about US$500 million (RM2.4 billion) for FPSO Atlanta (mid-2024), with an option to acquire a stake in the vessel.
In its latest annual report, Yinson founder and executive chairman Lim Han Weng says the company’s renewables pipeline is now between 3gw and 5gw across Latin America, Europe and Asia-Pacific.
On the green technologies front, he points out that under Yinson GreenTech, the group is making good inroads into building a green energy ecosystem in the areas of marine, mobility and energy. He adds that Yinson had recently become the majority shareholder of Malaysia’s largest electric vehicle (EV) charging station network, ChargEV. It had launched an EV leasing business in Singapore and invested in e-bikes through Oyika.
It is noteworthy that Yinson has bought back shares since February 2016, which may partly explain the robustness of its share price movement. As at Aug 11, the company had bought back 4.61% of the enlarged share capital, or 140.99 million shares, lifting buybacks from the 3.2% it had accumulated between 2016 and 2021.
Yinson also recently raised RM1.19 billion from a two-for-five rights issue that was priced at RM1.41 per share. About 64%, or RM760 million, from the proceeds has been earmarked for the FPSO Maria Quitéria project awarded by Brazil state-owned Petróleo Brasileiro SA (Petrobras) in November 2021. The rest of the proceeds will be used for repayment of bank borrowings (26.7%), working capital (4.6%) and expansion into renewable energy and green technology businesses (3.7%).
Some of the money may have already gone into redeeming a portion of the RM1.85 billion perpetual bonds it had issued, including a US$100 million tranche in October to avoid a steep rise in coupon rates from 7.85% to 12.85%.
Investors’ sentiment may be further boosted if Yinson improves its margins, just as its revenue has grown by leaps and bounds.
The company’s revenue grew at a compound annual growth rate (CAGR) of more than 67% from RM1.03 billion in FY2019 to RM4.85 billion in FY2021. Its net profit grew at a CAGR of 10% from RM235 million in FY2019 to RM315 million in FY2021.
Over the same period, its net asset per share increased to RM3.66 from RM3.31. Meanwhile, the group’s borrowings rose from RM870 million in FY2019 to RM1.52 billion in FY2021.
In FY2022, Yinson posted a 27% year-on-year jump in net profit to RM401 million, despite a 25.6% decline in revenue to RM3.61 billion — putting its net profit margin around 11%, back-of-the-envelope calculations show.
For the six-month period ended July 31, 2022, its net profit was up 10.5% y-o-y to RM263 million while revenue grew 28.3% to RM2.63 billion — which works out to a net profit margin of 11.6%. Its unaudited accounts show cash balance at RM3.85 billion as at July 31 while its short- and long-term debt was RM1.4 billion and RM8.6 billion respectively.
CGS-CIMB Research said Yinson could win two FPSO-related projects in Angola and another FPSO project in Brazil. With that in mind, the research house reiterated its target price of RM3.20, but said unexpected project execution hiccups would be a downside risk on the counter.
At the time of writing, analysts remained bullish on Yinson, with Bloomberg data showing 11 analysts with a “buy” call and an average target price of RM3.25.
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