• Stay BUY, with new MYR2.96 from MYR3.06 TP, 21% upside. FY24 (Jan) results came in below our expectations on higher finance costs but FY24 core earnings still grew 17% on stronger FPSO operations. Global FPSO demand remains robust and Yinson is comfortable to secure another project once either of the projects reach the tail-end conversion stage. We also see potential monetisation of its FPSO units as potential near-term catalyst for capital recycling.

• FY24 core profit of MYR395m (+17% YoY) missed our expectations, at 91% of FY24F due to higher-than-expected finance costs. Note, we have stripped off MYR648m EPCIC earnings and the MYR112m deferred tax charge in arriving at our core profit. We believe Street estimates may not be a good comparison as other analysts regard Yinson’s EPCIC earnings as core profit.

• 4QFY24 core earnings dropped 6% QoQ to MYR114m, due to weaker FPSO operations and higher finance costs. Cumulatively, FY24 core earnings improved by 17% YoY on the back of stronger FPSO operations (Anna Nery earnings and rate escalation for operating FPSOs), masking higher finance costs, and operational overheads, primarily personnel costs.

• Outlook. FPSO Maria Quitéria, Atlanta (project Enauta) and Agogo are on track for conversion, being <90%, >70% and 60% completed. Management highlighted that global FPSO demand remains robust where there is a USD96bn cumulative addressable market over the next five years. Brazil remains the bright spot (USD36bn capex), followed by the African region (c.USD17bn). Given there are three projects in the conversion/construction stage, the company will focus on the mid-sized FPSO market, and is comfortable to secure another project once either of the projects reach the tail-end conversion stage. Some of the upcoming tenders are Balaine, Paon projects in Ivory Coast, Barracuda Caratinga and Albacora projects in Brazil, WL-400 project in Malaysia and Dorado project in Australia. Bloomberg reported that Yinson is looking to raise USD1bn prior to the IPO of its FPSO units in the US as soon as 2026. It was also stated that RRJ Capital which financed USD300m in Agogo project plans to commit another USD320m in this funding round. Management guided that such exercise is still in progress and this may involve monetisation of up to one-third of its FPSO projects. We believe it will be a positive catalyst to unlock its value and further capital recycling. Meanwhile, bulk of the proceeds from the recently proposed private placement will be used for the expansion of its renewable energy or RE and green technology division.

• We cut our FY25F-26F earnings by 12% to impute higher finance and operating costs. Our SOP-based TP is lowered to MYR2.96 (including a 2% ESG premium) post latest net debt update and earnings adjustments. Downside risks: Unable to win new jobs and contract terminations.

Source: RHB Research - 25 Mar 2024