YINSON's 9MFY25 earnings came above our expectations due to the rate increase for FPSO Abigail Joseph. Maiden contribution from FPSO Maria Quiteria helped to lift core earnings and we expect FPSO Atlanta to hit first oil by 4QFY25F. We raise FY25/26F earnings to account for the rate escalations and increase our TP by 8% to RM3.87 (from RM3.60) after. Maintain our OUTPERFORM call.

9MFY25 earnings above expectations. The group reported a 9MFY25 core profit of RM384m, excluding exceptional items (RM145m gain on disposal of PPE, RM33m EPCIC cumulative profit, and RM39m deferred tax gain), slightly surpassing our expectations at 82% of our full-year forecast. Consensus estimates are not comparable due to differing treatment of EPCIC profits. The outperformance was primarily driven by rate escalation from FPSO Abigail Joseph. The group also announced a single interim dividend of RM0.01/share.

Completed job lifted earnings. Revenue fell 31% YoY due to lower EPCIC contributions, primarily from the completion of FPSO Maria Quiteria and FPSO Atlanta nearing the end of conversion by 4QFY25F.

This was partially offset by lease income from FPSO Maria Quiteria (which achieved first oil on 15 October 2024), and additional lease income from FPSO Abigail Joseph following additional EPC works.

Core profit jumped 40% YoY despite higher finance and administrative costs.

QoQ profitability improved as well. Top line declined further in 3QFY25, mainly from lower EPCIC revenue following FPSO Maria Quiteria's maiden contribution. Nevertheless, core earnings surged 46% YoY, reflecting the offsetting impact of stronger lease income contributions.

Key takeaways from YINSON's results briefing include:

1. FPSO Enauta is also expected to achieve first oil in 4QFY25F, with a completion rate of 98% in the reported quarter.
2. FPSO Agogo to be delivered in 4CY25, which is roughly in line with our earlier expectations. Its project completion rate is currently at 80% compared to 75% in the previous quarter.
3. Its Peru solar project has already commenced operations in September 2024. Its green technology division continues to make progress with its driveEV fleet size (EV leasing arm) expanding by 273% to 231 units and 86 battery swapping stations already deployed for its rydeEV business.

Forecasts. We lifted our FY25/26F earnings by 14% to reflect higher lease income from FPSO Maria Quiteria (due to additional clauses to adjust for inflation) and FPSO Abigail Joseph.

Valuations. Correspondingly, we raise our SoP-TP by 8% to RM3.87 (from RM3.60). 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) 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) cut in capex by major FPSO buyers (i.e. Petrobras and other oil majors operating in Africa), (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 - 16 Dec 2024