Yinson Holdings - OUTPERFORM - 27 June 2012

We rate Yinson Holdings (“Yinson”) as one of the Top 10 Picks for our 3QCY12 Investment Strategy. Yinson was previously a logistics and trading company but is now focused on growing its oil and gas and port businesses. Its projects are mainly in Vietnam, largely attributable to the close working relationship it has with Petrovietnam Technical Services Corporation (PTSC), a subsidiary of Vietnam’s National Oil Company (Petrovietnam). In our view, this makes it a proxy for the opportunities from the burgeoning Vietnamese market. We estimate a significant 3-year net profit CAGR of 38.3% for the company on the back of the commencement of its FSO  and FPSO projects by FY14-15. Given the 28.1% upside potential, we have an Outperform call on the stock. Our Sum-of-Parts (SOP) based target price is RM2.68/share based on our FY14 numbers.

From transportation to oil and gas, then port.  Yinson began as a transportation company in 1983. It then expanded into one of the premier transportation and logistics providers in Malaysia and got listed on the Second Board of Bursa Malaysia in 1996. In 2007, the company moved its focus to oil and gas, and in 2011, it acquired a port.

Accelerated growth with latest FPSO win.  The company’s first offshore supply vessels (OSV) were classic textbook examples of assets for smaller oil and gas companies, and we were fairly impressed that the company managed to secure a FSO project thereafter. However, its latest Lam Son FPSO win (awarded in June 2012) was a pleasant surprise for  us given that project winners are typically those with prior execution track records. Nonetheless, we believe the successful completion of this project will not only accelerate the financial growth of the company. It will also enhance its skill sets, and more importantly, the branding of the company.

Strong links to PTSC are a precursor to more Vietnamese opportunities.  All of Yinson’s main oil and gas projects (2 Offshore Support Vessels (OSV), 1 Floating Storage Offloading (FSO)  Vessel and1 Floating Production) have been with PTSC. In our view, this  success rate speaks volumes of Yinson’s relationship with PTSC. There could be four more potential production projects in Vietnam that are up for bids, and given both parties’ close involvement; it is highly probable that Yinson will have a definite edge in their tenders. In the near term, we believe the company will focus on successfully delivering its existing projects.

3-year net profit CAGR of 38.3%. We estimate a 73% increase in FY14 net earnings when Yinson first delivers its FSO project. Thereafter, we are looking at a further 52% growth in FY15 as it commissions its FPSO project. Our estimates also include two OSV contracts at per day charter rates of US$1.7 per bhp by mid FY14-15.

Corporate exercise for the equity portion of FPSO within CY12. Yinson is likely to call for another corporate exercise to fund its equity portion of the FPSO contract. As such, there is a potential for earnings dilution in an early stage, which is something investors should note as well. 

Maintain OUTPERFORM. We are positive on the company’s prospects given its significant growth trajectory. We have an  Outperform call on the stock with a target price of RM2.68 based on FY14 Sum-Of-Parts valuation.  

Source: Kenanga