Investment Highlights

• We maintain our BUY recommendation on Yinson Holdings (Yinson) with an unchanged sum-of-parts based fair value of RM7.20/share, which implies a FY22F PE of 18x.

• Our forecasts are unchanged following an analyst briefing today. These are the highlights of the briefing:
   
  • While the group expects future charters for floating production, storage and offloading (FPSO) vessels to be classified under finance lease accounting, the earlier contracts currently recognised as operating leases for John Agyekum Kufour (JAK) and Knock Adoon are unlikely to be redesignated retrospectively.
    
    Recall that finance lease is classified if the lease term accounts for at least 80% of the FPSO’s useful economic life, present value of future lease payment reaches at least 80% of asset’s fair value and specialisation involving substantial conversion cost for redeployment. Currently, all FPSOs would generally fall under this classification.
  • Amid the postponement of Petrobras’ FPSO bids for Buzios 6 and Itapu, management remain hopeful that a decision will be made by the end of this year for the Parque das Baleias (PDB or Whale Park) revitalisation field off Brazil. Management does not expect a rebidding exercise in the tender for PDB in which Yinson emerged as the only bidder.
    
    Recall that a successful bid for PDB could add RM1.65/share to our SOP to RM8.85/share, assuming a 65% equity stake in the project, capex of US$1bil and project IRR of 15%.
     
  • Management is unlikely to proceed with a perpetual securities issuance even under the current low interest rate environment as the huge FPSO projects would require more equity amid the global transition of investors and lenders from fossil fuels towards renewable energy. Yinson’s RM1.8bil perpetual securities is equal to its shareholders’ funds. Including its net debt, Yinson’s net gearing of 2.7x rivals Bumi Armada’s.
     
  • As we have highlighted in our update on 22 September, management will likely proceed with a rights issue only upon Yinson securing the second huge FPSO charter from Petrobras. Assuming a RM700mil rights issue to fund this substantive capex and a 40% discount to the current market price, we estimate that the theoretical ex-SOP price could translate to a still compelling and value-accretive RM7.80/share.
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• Underpinned by a strong outstanding order book of RM42bil (US$10.3bil), which translates to 16x FY21F revenue, the stock currently trades at an attractive FY22F PE of 13x. This is at a 43% discount to its 5-year peak of 23x in February this year.

Source: AmInvest Research - 29 Sept 2020