• Stay BUY, with new MYR3.32 from MYR2.96 TP, 43% upside and c.2% FY26F (Jan) yield. Despite 1QFY25 results came in below our expectations dragged by higher finance and overheads costs, we expect earnings to improve driven by maiden earnings contribution from FPSO Maria Quitéria and Atlanta in 2HFY25. 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.

• 1QFY25 core profit of MYR58m (+1.9x YoY; -49% QoQ) missed our expectations, at 9% of FY25F due to higher-than-expected finance and overheads costs. Note, we have stripped off MYR151m EPCIC earnings 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. Frist interim DPS of 1 sen was declared.

• 1QFY25 core earnings improved by 1.9x YoY to MYR58m due to contribution from Anna Nery which achieved first oil in May last year. QoQ wise, core earnings fell 49% mainly on higher finance costs, and operational overheads, as well as weaker green technology division (in the absence of revaluation gain of certain assets that has been recognised in 4QFY24).

• Outlook. FPSO Maria Quitéria, Atlanta (project Enauta) and Agogo are on track for conversion, being 90%, 82% and 68% completed. We expect FPSO earnings to pick up in 2HFY25 driven by maiden earnings contribution from FPSO Maria Quitéria and Atlanta while FPSO Agogo is scheduled for delivery in 4QFY26. Global FPSO demand remains robust and Yinson is still actively bidding for new projects. Given it is currently a vendor’s market, the group will pace up a new project take-up with two new jobs in two years. Some of the upcoming tenders are the Balaine, Paon projects in Ivory Coast, Barracuda Caratinga and Albacora projects in Brazil, WL-400 project in Malaysia and Dorado project in Australia. Management targeted monetisation of the FPSO projects to materialise by this year. This will allow Yinson to fund new projects without equity fund raising. We believe it will be a positive catalyst to unlock its value and further capital recycling. Yinson has also placed USD1bn 18.2-year senior secured notes to refinance FPSO Anna Nery with a fixed coupon rate of 8.94% payable semi-annually starting July. Meanwhile, Yinson has guided to start paying dividend on a quarterly basis on the back of improving free cash flow, which could reach USD300m pa based on nine FPSO projects on charter.

• We cut our FY25F-26F earnings by 7-14% to impute higher finance and operating costs. Despite earnings cut, our SOP-based TP is lifted to MYR3.32 (including a 2% ESG premium) from MYR2.96 after rolling forward our valuation base year to FY26F. Downside risks: Unable to win new jobs and contract terminations.

Source: RHB Research - 20 Jun 2024