YINSON is selling four of its OSVs to ICON in exchange for a 15.5% stake in ICON (NOT RATED). The disposal valuation is deemed fair being at the higher range of recent comparables. While the deal is not unexpected given YINSON’s plans to divest its non-core business, the potential stake value in ICON is higher than our existing marine valuation. We maintain our forecast and OUTPERFORM call, and raise our SoP-TP to RM3.19 (from RM3.04).

YINSON has announced that it has entered into a binding term sheet with ICON (NOT RATED) for the disposal of a 100% ownership stake and 25m non-convertible redeemable preference shares in Regulus Offshore Sdn Bhd (ROSB) for RM136m. Additionally, YINSON is disposing of one ordinary share in Yinson Camelia Sdn Bhd (YCSB) for a consideration of RM24m. The proposed disposal will be satisfied through the issuance of 181.8m new ordinary ICON shares at an implied issue price of RM0.88.

In aggregate, the RM160m deal involves the acquisition of four offshore support vessels (OSVs), namely Yinson Hermes (AHTS), PTSC Lam Kinh (AHTS), Yinson Perwira (AHTS), and PTSC Huong Giang (platform supply vessel (PSV)). The implied value per vessel for the deal is RM40m, which at the higher range of comparable observed (the recent anchor handling tug & supply vessel (AHTS) acquired by KEYFIELD (OP; TP: RM3.18) at RM34.6m) given the increasing tightness in the secondary vessel market and that the four vessels are already on charter.

Post-completion of the disposal, YINSON will own 16% of the enlarged ICON, which is acquiring the tugboat business (35 tugboats). Assuming that ICON’s current fleet undergoes repairs and appropriate maintenance in FY24, its PAT could yield up to RM190m in FY25, including contributions from the 35 tugboats it is acquiring from Liannex Marine, as well as the four OSVs from YINSON.

Based on our assumption of USD2/bhp/day for its AHTS, RM100,000/day for accommodation work boats and platform supply vessels, and an estimated RM1m per annum PAT per tugboat, assuming a 10x FY25F PER, this would value YINSON’s stake in ICON at potentially RM304m, higher than our current marine valuation of RM80m.

Forecasts. While typically a 15.5% stake would entitle YINSON to dividends in order to reflect ICON’s profits, we believe that if YINSON treats this stake as an associate, the share of potential profits would allow us to maintain our earnings forecast.

Valuations. We raise our SoP-TP by 5% to RM3.19 (from RM3.04) after accounting for the higher potential value from the stake in ICON. Note that our TP reflects 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) the group could seek to monetise its FPSO assets partially (selling minority stake) to recycle its capital as its new FPSO projects are nearing completion

Risks to our call include: (i) crude oil prices falling below USD70/bb raising required IRR for new floating production projects, (ii) regulatory risks and uncertain returns for RE investments that are mainly focused on emerging markets (i.e. India) and (iii) project execution risks including cost overrun, delays and downtimes for FPSO.

Source: Kenanga Research - 2 Sep 2024