by NURUL SUHAIDI / pic credit: yinson.com

CGS-CIMB Securities Sdn Bhd reiterated an ‘Add’ call on Yinson Holdings Bhd following the completion of its bonus issue in order to raise funds for its FPSO Maria Quiteria project, which will be deployed in the Parque das Baleias fields offshore Brazil by late 2024.

The broker raised its target price on Yinson to RM3.95 a share as it expects the company’s share price to rerate once its right issue is completed by mid-2022.

Yinson also announced its intention to undertake a one-for-one bonus issue while raising RM1.1 billion-RM1.22 billion in proceeds from a rights issue to fund the equity portion of the FPSO MQ capital expenditure (capex) and issue warrants to raise RM800 million-RM850 million.

Yinson’s capital raising is expected to be completed by mid-2022 with other aspects of the capital raising exercise still in the works but Yinson anticipates everything to be finished by late June or early July 2022F.

The issue price of the rights will be at a 25%-45% discount to the theoretical ex-rights price based on the five-day volume-weighted average market price of Yinson shares, up to and including the date prior to the price-fixing date.

“The exercise price of the warrants will be set at a 10% premium over the TERP and valid for Yinson ordinary shares over three years,” the report stated.

All bonus, rights and warrants issues were already approved by shareholders via an EGM on March 29.

The Lim family, which holds a combined 27.53% of Yinson’s equity, has given irrevocable promises to subscribe to their individual rights issue entitlements.

The remaining 72.47% of the rights will be fully underwritten by investment banks. Yinson’s share price has been weak since it first announced on Dec 20, 2021, its intention to execute a rights issue.

“We believe investors in Yinson have had to reduce their holdings in the company in the past few months in order to make room to participate in the upcoming rights issue.

“Once the rights issue is completed, we think Yinson’s share price could recover as the rationale for selling is no longer present,” CGS-CIMB noted.

Other recurring catalyst includes several FPSO contracts that are likely to be awarded in the second half of the year, three of which

Yinson is gunning for, such as TotalEnergies SE’s Cameia, BP plc’s SE-PAJ, and Eni SpA’s Agogo, all offshore Angola.

A projected IPO or strategic sale of 25% of its FPSO holding company in the fourth quarter of this year could unlock value for Yinson’s FPSO business and raise about RM2.2 billion, the broker noted.

“This, combined with the RM1.1 billion-RM1.22 billion rights issue, can significantly reduce Yinson’s gearing, which we think will reduce investors’ fear over this matter,” the report noted.

Downside risks can be execution slip-ups on multiple ongoing and upcoming projects.

CGS-CIMB’s SOP-based target price has been halved to RM3.95 from RM7.91 as Yinson’s share price traded ex-bonus on Tuesday (one-for-one bonus issue). The new target price includes the value of the potential FPSO Atlanta contract worth 30 sen per share on the assumption that Yinson ultimately exercises the purchase option to take a 100% stake in the FPSO and its 15+5 years charter contract.

“We factored our SOP valuation in 75% of the value of the option periods for the FPSO contracts, which exclude the Yinson’s target of RM1.1 billion-RM1.22 billion proceeds from an impending rights issue nor does it enlarge the outstanding number of shares from that rights issue,” report noted.

The proceeds from the rights issue will be mainly used to fund the equity portion of the FPSO Maria Quiteria capex.