UOB Kay Hian retains ‘buy’ call on Yinson

PETALING JAYA: The near-term prospects look bright for Yinson Holdings Bhd, given the company’s steady earnings momentum and positive event catalysts on the horizon.

UOB Kay Hian, which has maintained a “buy” call on the stock, said in a recent report that the stock’s target price has been upgraded to RM4.80 from RM4.40.

The research house based the sum-of-total-parts-based target price mostly on discounted cash flow on the floating production, storage and offloading vessel (FPSO) divisions and implied a forward 2020 price-to-earnings ratio of 18-times.

“Our valuation factors in event / new contract catalysts, namely 39 sen share estimate for FPSO Layang and option value of 77 sen per share for a mega contract win.

“Even though we have raised our target price as our earlier option value assumed a 40% chance of a mid-sized contract win, we remain conservative on the win chance because of competition from other strong FPSO contenders.”

UOB Kay Hian justified the FPSO provider’s premium valuation based on its track record for excellent delivery.

“We continue to like its long-term potential, with it being a major beneficiary of FPSO project bids globally. A bull-case target (a large FPSO contract win at 100% stake, or multiple contract wins) could lift our valuation to RM6.20 per share.

“However, this bull-case target may only be reached two years after the contract announcement, upon actual earnings recognition. Nevertheless, the longer-term value of Yinson will involve strategic direction with its influential partners, with it becoming an energy solutions consortium from just an FPSO contractor currently.”

Yinson expects to finalise the novation agreement of the Layang field in Block SK10 of Sarawak by mid-February.

UOB Kay Hian said further catalysts would be multiple FPSO contract wins for the company.

“Other catalysts include higher-than-expected profits from existing assets, and room for additional contract value/contract tenure for FPSO Jak beyond its current 15-year firm contract. As part of long-term plans to reward shareholders, the group is contemplating a long-term dividend policy. There is no guidance given for now.”

The research house noted that the company was actively bidding for several large projects in Brazil and Africa, including Hess’ Deepwater Tano-Cape Three Points (Ghana), which could be worth up to US$4bil (RM15.6bil).