YINSON Holdings Bhd is the top pick in the floating, production, storage and offloading vessel (FPSO) segment of the oil and gas (O&G) sector, says  CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research).

In a research note released today, it said it expects Yinson to deliver strong earnings growth from the execution of new FPSO projects and new FPSO charters.

Yinson will likely show strong earnings growth in the next five years as new FPSO projects are executed and begin their long-term charter periods. Yinson is also pursuing renewable energy projects, the report said.

It has an ‘Add’ call on the counter, with a 52-week target price (TP) of RM3.50. The shares closed yesterday at RM2.59. Its 52-week high was RM2.77 and low at RM1.83.

It noted that Yinson emphasised the durability and the defensiveness of its FPSO business, which accounts for virtually all of its revenues and profits.

Its ongoing FPSO charter contracts are not sensitive to oil price fluctuations, as Yinson is entitled to receive termination payments should the charterers decide to prematurely end the charter contracts, it said.

It said Yinson is also contractually protected on its ongoing FPSO construction contracts, wherein Yinson is entitled to receive full payment for all the capex sums spent from the E&P company up to the time the E&P company decides to take back control of the project.

Nevertheless, it added that Yinson acknowledged that new FPSO contract awards will definitely be slowed down if crude oil prices fall below US$60/bbl; this recently happened in the aftermath of the oil price collapse at the start of the Covid-19 pandemic in 2020.

“The FPSO market conditions are currently very strong, with many independent FPSO contractors such as Yinson busy with ongoing FPSO construction projects, with many to-be-awarded FPSO projects in the pipeline,” it added. – TMR