YINSON HOLDINGS BHD
By CIMB Research Add (initiated) Target price: RM4.88
FLOATING production, storage and offloading (FPSO) service provider Yinson Holdings Bhd deserves to trade above the value of its current portfolio, according to CIMB Research.
The research house, which has just initiated its coverage on Yinson, said the market is undervaluing Yinson’s strong management team. It believes that Yinson is well positioned to win additional contracts, given its low gearing level and its perpetual securities programme that is already in place.
“We initiate on Yinson with an “add” call, and a target price of RM4.88. We value Yinson’s existing assets at RM4.09, and attach another 79 sen for its potentially-successful bids for two new contracts over the next three to five years.
“Investors in Yinson can take heart in its low-risk business philosophy, high-quality counterparties, excellent project execution to date, and tight family-run operations,” the research house said in a note.
CIMB Research said Yinson may bid for two projects that may be awarded in the next 12-18 months, namely Hess Ghana’s TCTP development, which requires a US$1bil capital expenditure FPSO, and Vietnam’s Block B, which requires a FSO solution.
Beyond these, Yinson is on the prowl for more projects. It has a US$500mil perpetual securities programme, which can fund up to US$2bil in capital expenditure, and a net gearing ratio of only 0.88 times at end-FY18.
“Our forecasts for Yinson’s core net profit suggest that its core earnings will step up from RM166.9mil in FY17 to RM267.3mil in FY18, mainly due to the contribution from FPSO JAK that commenced on June this year. We expect the full-year impact from FPSO JAK to drive up core net profit to RM282.3mil in FY19,” said CIMB Research.
Yinson had won the FPSO JAK contract from Eni Ghana in early 2015. The company is now looking at divesting 26% stake in FPSO JAK to a Japanese consortium for a cash consideration of between US$104mil and US$117mil.
CIMB Research expects the divestment to be a very profitable exercise for Yinson, with a possible gain of US$76mil.