Investment Highlights

• We maintain our BUY recommendation on Yinson Holdings (Yinson) with an unchanged fair value of RM7.20/share based on an ESG-adjusted sum-of-parts valuation. This reflects a premium of 3% for our ESG rating of 4 stars given that the group is currently the first oil & gas service provider to proactively invest into renewable energy, and implies an FY22F PE of 15x on par with the FBMKLCI currently.

• Our forecasts are largely unchanged as Yinson’s FY21 core net profit of RM637mil (excluding impairments, forex, refinancing charges and acquisition write-offs) is within our expectations, but exceeds street’s by 41% largely due to the lease accounting treatment for the engineering, procurement, construction, installation and commissioning (EPCIC) of new floating production, storage and offloading (FPSO) vessels (Exhibits 1 and 5).

• Recall that our FY21 core net profit forecast was already 36% above street’s RM452mil. However, consensus estimates would be in line if comparison was made against only Yinson’s non-EPCIC core net profit of RM472mil.

• Under the finance lease accounting methodology, the FPSO Abigail-Joseph’s EPCIC revenue and profit was recognised at the point of first oil, similar to an outright sale as with FPSO Helang in December 2019. However, for FPSO Anna Nery, the EPCIC contribution will be recognised over the 3-year construction period until the handover in FY24F (Exhibit 6).

• The group’s 4QFY21 core net profit halved QoQ to RM137mil mainly from the absence of one-off EPCIC contribution of Abigail-Joseph which was registered in 3QFY21. Hence, EPCIC share of group EBIT slid from 63% in 3QFY21 to 39% in 4QFY21, which stemmed from Anna Nery.

• On a YoY comparison, Yinson’s FY21 core net profit surged 2.6x from the commencement of Abigail-Joseph in 3QFY21 together with Anna Nery’s EPCIC contribution. This boosted EPCIC contributions to 42% of Yinson’s FY21 EBIT vs. only 1% in FY20, which recognised a slight gross profit of RM7mil from Helang’s EPCIC revenue.

• The group remains on the prowl for more FPSO projects in Brazil and Africa, as well as additional renewable energy (RE) projects in India. As it could opt to recycle RE capital later at lower interest costs post-development, we remain positive on Yinson’s energy transition strategy that is well ahead of its peers and should garner ESG-supported premium valuations over the longer term against Tesla’s forward PE of over 1,000x.

• The stock currently trades at a bargain FY22F PE of only 11x for a globally recognised FPSO player with a healthy balance sheet and a formidable outstanding order book of RM41bil (US$10bil), translating to a robust 13x FY22F revenue.

Source: AmInvest Research - 26 Mar 2021