Yinson eyes new markets, bigger projects


Offshore production and support services provider, Yinson Holdings Bhd is set for brighter prospects ahead after starting the year on a strong financial footing with long-term contracts.

The group, which is also one of the better performing oil and gas (O&G) stocks on Bursa Malaysia, has beat consensus expectations after recording 169% jump in profit from the company’s floating, production, storage and offloading solutions (FPSO) contracts.

Yinson posted earnings of RM60.29 million in its first financial quarter ended April 30 (1Q18), almost triple that of RM22.38 million recorded a year earlier.

According to Yinson, the jump in profit was achieved on 49% higher revenue of RM172.41 million.

“The increase came from higher marine business and a stronger US dollar, which resulted in higher revenue on translation into ringgit.

“The higher net profit was due to the absence of a reversal effect in the previous quarter, which resulted in relatively higher other income accrued for reimbursable income tax expenses of RM45.35 million,” it said in its filing to the stock exchange.

“Improved contribution came from joint ventures of RM18 million on the absence of the sharing of the impairment loss in property, plant and equipment,” it added.

Ten-year FPSO Contract

According to AmInvestment Research, Yinson’s 1Q core net profit of RM78 million appeared to be above expectations, accounting for 29% of financial year ending Jan 31, 2018, (FY18) forecast and 32% of consensus.

The research house said over the longer term, Yinson’s earnings growth would be further supported by its 49%-owned Ca Rong Do FPSO (Red Emperor), which is targeted to achieve first oil in September 2019.

Yinson has also secured an FPSO contract with Talisman Vietnam 07/03 BV.

The 10-year contract is for the supply, operation and maintenance of an FPSO for Ca Rong Do field development offshore Vietnam, with five yearly extension options, exercisable by Talisman Vietnam.

The estimated total aggregate value of the bareboat charter is RM4.4 billion (US$1 billion) for the entire 15-year charter, inclusive of five-yearly extension options.

Talisman Vietnam is a wholly owned subsidiary of global integrated oil company Repsol SA, which is listed on the Madrid stock exchange, and the operator of the Ca Rong Do field.

According to Yinson, the deal is expected to contribute positively to the results of the Yinson Group starting from FY20.

The sober outlook for the O&G industry has not stopped Yinson from expanding its presence.

The Malaysian Reserve (TMR) reported last week that the O&G service provider is tendering for three to six FPSO projects for FY18 located in the core markets of Asia and Africa.

Speaking after its AGM, Yinson group CEO Lim Chern Yuan said the company would continue to try winning projects at the right price and best terms.

The group recently welcomed a four-member Japanese consortium as shareholders at its second-biggest FPSO facility to date, believing that the joint venture (JV) would expedite growth.

Lim said the group had the capacity to take on new jobs and was in the process of bidding, but would have to manage project risks.

“So far, we have won a project for the year and are focused on delivering this asset,” he said.

Yinson was awarded a 10-year FPSO contract worth RM4.4 billion by Talisman Vietnam in April.

To date, the company has an orderbook value of RM15.9 billion (US$3.7 billion) lasting for 20 years.

FPSOs are special purpose-built vessels that are used in the production of oil. Its financial viability depends very much on the availability of long-term charters on the vessels.

Disposal of JAK

On July 3, Yinson agreed to dispose of its 26% stake in its Ghana-based FPSO unit, John Agyekum Kufuor (JAK), to a Japanese consortium for US$117 million.

The consortium members include Sumitomo Corp, Kawasaki Kisen Kaisha Ltd, JGC Corp and the Development Bank of Japan Inc.

After the stake sale, Yinson holds 74% stake in JAK making it one of the group’s many future collaborations

According to Yinson, the agreement was entered with an understanding between the group and the consortium in forming a collaboration in relation to the FPSO JAK charter contract at Offshore Cape Three Point Block in Ghana.

The FPSO produced its first oil on May 22.

Yinson said the entry of the shareholders will enable the formation of a long-term relationship. In addition the collaboration would help fortify the group’s footprint in the FPSO industry.

Offer to Redeploy FPSO PTSC Lam Son

Meanwhile, Yinson announced that PTSC AP, a JV between Yinson and PetroVietnam Technical Service Corp (PTSC), had accepted an offer to continue deploying FPSO PTSC Lam Son on the Lam Son field offshore Vietnam.

Yinson and PTSC hold 49% and 51% interest in PTSC AP respectively. Lam Son Joint Operating Co

(LSJOC), a company jointly owned by PetroVietnam and Petroliam Nasional Bhd, in late March sent a termination notice for the FPSO contract to PTSC AP as LSJOC was set to be liquidated on June 30, 2017.

The petroleum operations within the Lam Son field will be taken over by PetroVietnam Exploration Production (PVEP), a subsidiary of PetroVietnam, from the start date.

Yinson noted PTSC AP together with PTSC will commence discussion with PVEP for a new charter contract of the FPSO.

“Our new client has shown interest in continuing the charter of our FPSO vessel at the Lam Son oilfield, but we have yet to arrive at a final rate and settlement,” Lim told reporters after its AGM last week.

“The new charter contract for the redeployment of Yinson’s FPSO in Lam Son will be finalised in six weeks,” he added.

Lim expected the renewed contract value to be substantially lower than the earlier contract value, as the company has been paid termination fees and retrieved its equity.

Lim said the offshore support vessel (OSV) market had remained soft and the company’s OSVs had only been near break-even for the past few years.

“Despite 75% to 100% utilisation rate, the group has only been near break-even for the past couple of years because charter rates have gone down. Hence, the decision to grow or not grow the OSV business will be a strategic one, to be deliberated by the board,” said Lim.

Stock wise, Yinson rose 6.5% in the past month prompting a ‘Buy’ rating from analysts.

Analysts raised their consensus earnings estimate for the 3Q to 24.3 sen per share from 22.6 sen per share and increased sales estimate to RM859.5 million from RM812.8 million in the past four weeks.

According to Bloomberg data, insiders held a 28% stake and in the past six months, they cut their holdings by 22%.

Yinson trades at 16.8 times trailing 12-month earnings per share and 15 times its estimates for the coming year. The stock is 11% below the Bloomberg consensus one-year target price while gaining 33% in the past 52 weeks.

At yesterday’s trading, Yinson was down three sen to RM3.57 with a market capitalisation of RM3.9 billion.