YINSON HOLDINGS BHD

By RHB Research Buy Target price: RM5.20

YINSON’S first quarter FY19’s core net earnings were below our and consensus expectations on an underestimation of floating production storage and offloading (FPSO) Lamson’s negative earnings impact, following the premature termination if its contract in the third quarter of FY18.

Overall, 1QFY19 earnings declined 12% year-on-year on this cessation post the contract termination by the client.

“We note that FPSO Lamson is still operating at the same field, but the renewal rate is significantly lower than the original contract. This does not concern us much, as the group has already received a termination fee of US$209mil from its client as compensation,” it said.

RHB Research maintained its “buy” call on Yinson with a new sum of parts-based RM5.20 target price from RM5.34, a 12% upside.

“Yinson’s FY19 forecast -21 earnings have been cut by 32.6%, 30.9% and 25.1% respectively to account for lower FPSO Lamson contributions and FPSO Ghana earnings post completion of a 26% stake disposal to Japan Sankofa – a consortium of four companies – on June 6,” it said.

“Despite the drastic earnings cut, our SOPdriven target price is reduced by a lesser margin, as we factor in the termination fee received for FPSO Lamson’s premature termination and disposal proceeds of a partial stake in FPSO Ghana,” it added.

RHB Research said that risks to its call are FPSO Layang’s conversion cost overruns and a breakdown of talks on an upcoming Nigerian FPSO.