Yinson rises on Brazil contract win

Analysts raise target price by 10% to 40%

PETALING JAYA: Yinson Holdings Bhd’s share price has continued its uptrend following the group’s first Brazil contract win.

Yinson closed nine sen, or 1.3% higher at RM7.08, traded on volume of 51,194 shares.

Analysts are positive on the contract win and have raised Yinson’s valuations with target price upsides of 10% to 40%.

According to Maybank Investment Bank Research, the Marlim 2 contract secured will raise Yinson’s weighted average lease expiry period from 10 years to 16 years (on a firm basis) and 19 years to 21 years (with extension).

“The contract will also contribute an average net profit of Rm200mil per annum and add RM2.40 per share to its net present value (NPV).

“This is based on assumptions that there is a 75% equity ownership, 7.5% weighted average cost of capital (WACC), 75:25 debt-to-equity financing for 14 years at a 5% interest rate, 25-year depreciation period, 10% residual value and a Rm1bil capital expenditure.

“This translates to a 13% project internal rate of return (IRR),” said Maybank IB Research.

On Wednesday, Yinson had secured a Us$5.4bil (Rm22.65bil) floating production, storage and offloading (FPSO) Marlim 2 project for the Marlim revitalisation project in Brazil by Petróleo Brasileiro SA (Petrobras).

The contract period is for 25 years from the date of the final acceptance.

Kenanga Research explained that the Marlim 2 contract could adopt a “finance lease” accounting treatment, in contrast with “operating lease” for Yinson’s existing order book.

This would result in frontloading of some profit recognition, even during the asset’s construction phase, as opposed to profit only being recognised upon project commencement.

However, cash flow and project NPV will remain unchanged regardless of the accounting treatment.

Yinson has two more bids on the cards, namely Parque Des Baleias (PDB) in Brazil and Aker Energy’s Greater Pecan in Ghana.

In a research report yesterday, UOB Kayhian opined that the value of the PDB contract will likely have a higher capex as compared to Marlim 2, given its capacity.

“As such, PDB’S contract value will be more lucrative as Yinson will negotiate for at least a similar IRR.

“While the market has already priced in two contract wins, and may price in Ghana (the third known contract), we received confirmation from management that it has more appetite to bid for contracts.

“Qatar is in need to replace two floating storage and offloading (FSO) Asia and FSO Africa in the Al Shaheen field, after their 12-year contracts expire in end-2022.

“Yinson is actively bidding for both FSOS,” said UOB Kayhian.

FSOS only store oil and are smaller vessels as compared to FPSOS, which are directly connected with the oil drilling and process oil.

According to Energy Maritime Associates, the existing FSOS are earning a daily rate of US$99,000, excluding reimbursement for operating expenditure of Us$360mil over five years.

For comparison purposes, the daily charter rate of Marlim 2 FPSO is estimated at US$592,000.