Yinson Holdings Bhd
(Feb 15, RM4.20)
Maintain buy with a target price (TP) of RM5.42: Yinson Holdings Bhd announced last Thursday that it had accepted a letter of award from JX Nippon to undertake a contract to provide operation and maintenance (O&M) works to FPSO Layang. The contract is for a firm period of eight years, with options for 10-year extensions and a yearly renewal option. The aggregate value of the contract is US$578 million (RM2.36 billion). We regard this as positive, as it provides the company with another recurring earnings base for the long term.

 
Annual revenue contribution is expected to be RM133 million per annum, with impact on earnings estimated at about RM50 million.

We raise financial year 2020 forecast earnings by 15% as we factor in the O&M earnings contribution from FPSO Layang. As a result, our sum-of-parts-based TP rises to RM5.42 from RM5.20. We reiterate our “buy” call as we believe the company is in an optimal position to secure at least one more major floating production storage and offloading (FPSO) contract in 2019 due to the strength of its balance sheet. Adding to that, the only project management risk that it currently faces is only on the FPSO Layang — and based on its track record, we believe Yinson has more than enough capacity to take up another major project this year.

We are maintaining our valuations, despite delays in the finalisation of the contract. This is mainly due to our expectation that Yinson will secure another potential contract from Mexico or Brazil in 2019, as most of its competitors have their hands full with orders in hand.

Downside risks to our call include delays in FPSO Layang commencing works, the cancellation of a potential FPSO Nigeria contract (which could drop our TP by 76 sen), and delays in Brazil and Mexico’s FPSO contract awards in 2019. — RHB Research Institute, Feb 15