YINSON has proposed to issue at least USD1b worth of RCPS to several investors for its FPSO business. The deal's implied an EV/EBITDA that is above the peer average, reflecting strong investor confidence in Yinson's ability to secure more FPSO contracts in the coming years. We maintain our forecast and SoP TP of RM3.87 at this juncture as the implied valuation of FPSO assets in the deal aligns with our assumptions. Maintain OUTPERFORM call.

Yinson Production Offshore Holdings Ltd (YPOHL), a subsidiary of Yinson, announced a USD1b redeemable convertible preference share (RCPS) and warrant issuance (with an option to increase to USD1.5b).

Key investors include Platinum Lily (Abu Dhabi Investment Authority), British Columbia Investment Management Corporation, and RRJ Capital. Subject to shareholders' approval, the deal is set to be completed by the end of 1QCY25. Proceeds will be allocated as follows: USD200m for share buybacks and green technology investments, USD700m for new FPSO and expansion capex, and USD100m for general corporate purposes.

The issuer's redemption of RCPS is subject to a 15.75% IRR and a 3- year make-whole period. Holders can convert RCPS into FPSO business shares upon a qualified IPO (within the next 3-5 years), enabling participation in the FPSO business's upside. If USD1b is subscribed, RCPS holders would own 24.5% of the FPSO business equity.

This deal values YPOHL's FPSO business at an EV/EBITDA multiple of 8.5x (including FPSO Agogo's valuation, and as similarly implied by our SoP valuation), higher than the peer average of 6.5x, reflecting investor confidence in Yinson's FPSO expertise and potential future wins. The announced deal values the FPSO business at a post-money valuation of USD3.7b (after injection of the USD1b proceeds from the RCPS) in total and YINSON is expected to own 71.9% of the enlarged company (post IPO if it materialises). This translates into a fair value of RM3.75, which is close to our SoP TP. Hence, we deem the deal as within our assumptions.

Forecasts. Maintained.

Valuations. We maintain our SoP-TP at RM3.87 as we are still uncertain of the timeline and the prospects of the IPO of its FPSO business. 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. Maintain OUTPERFORM.

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 - 15 Jan 2025