YINSON's 1QFY25 results disappointed us due to high overheads. Nonetheless, its 1QFY25 earnings almost tripled YoY thanks to contribution from FPSO Anna Nery. The group will continue to focus on the delivery of two FPSOs in 2HFY25. We cut our FY25-26F earnings forecasts by 16% and 23%, respectively, reduce our TP by 11% to RM3.04 (from RM3.41) but maintain our OUTPERFORM call.

Its 1QFY25 core net profit of RM59m (adjusted for RM151m EPCIC profit and RM7m hedging costs) disappointed us at only 11% of our full- year forecast. Consensus estimate is not meaningful as certain analysts include internal EPCIC profits. The variance against our forecast came largely from higher-than-expected overheads.

YoY, its revenue decreased by 27% due to lower billings for EPCIC work for FPSO Maria Quiteria and FPSO Atlanta, partially cushioned by almost doubling of leasing revenue from FPSO Anna Nery as it achieved its first oil in May 2023.

Its core profit almost tripled, similarly, thanks to the strong performance from FPSO Anna Nery, partially eroded by higher finance cost on loan drawdowns for FPSO Agogo and higher administrative cost.

QoQ, its topline dropped 18% mainly due to lower work recognition in FPSO conversion projects, while revenue from FPSO operations were stable. Its core profit fell by a steeper 45% due to higher finance and administrative costs.

The key takeaways from its results briefing are as follows:

1. YINSON is working towards the first oil from FPSO Maria Quiteria by 4QFY25 and FPSO Atlanta by 3QFY25. Meanwhile, FPSO Agogo is slated to start operations in FY27.

2. The group recently refinanced its 5-year USD1b funding for FPSO Anna Nery with a new debt with a maturity period of 18 years that better matches the cash flow from the asset.

3. YINSON will soon be paying quarterly dividends, vs. bi-annual or annual dividends at present. It hopes to pay out a minimum of 1 sen dividend per quarter (which is consistent with our forecasts of >4sen dividend annually).

Forecasts. We cut our FY25-26F earnings forecasts by 16% and 23%, respectively.

Valuations. Correspondingly, we reduce our SoP-TP by 11% to RM3.04 from RM3.41. Note that our TP reflect a 5% premium given a 4-star ESG rating as appraised by us (see Page 5).

Investment case. We continue to favour YINSON due to: (i) a strong FPSO order book pipeline with multiple major FPSO jobs under the conversion stage which provides significant earnings growth in coming years, (ii) its strong project execution track record which positions the company to benefit from strong structural demand for FPSO contractors anticipated in the coming years, and (iii) it being one of the first local oil & gas company invest in green technology companies (solar, e-mobility, etc) which in our view would help with the company’s long-term energy transition agenda. Maintain OUTPERFORM.

Risks to our call include: (i) crude oil prices falling below hurdle rates for floating production projects, (ii) regulatory risks and uncertain returns for RE investments that are mainly focused in emerging markets (i.e. South America, India) and (iii) project execution risks including cost overrun, delays and downtimes for FPSO assets.

Source: Kenanga Research - 20 Jun 2024