Yinson's floating storage and offloading vessel.
Even though the tenure for FOP's Knock Adoon FPSO in Nigeria expires in October next year, the earliest of all its vessels, Chern Yuan says he is confident of the client agreeing to an eight-year extension option, given that production is still at a respectable 50,000 barrels per day. FOP’s firm and option periods run till 2022-2029.
“FPSOs are best suited for marginal fields or fields without pipelines,” he adds. “We bought FOP on the premise that more marginal field tenders are coming onstream. And with oil prices at these levels, it makes sense for oil companies to start production soon. The lead time for FPSO delivery is typically between 20 and 24 months.”
Once FOP is part of the family, more than 90% of Yinson
’s earnings would be O&G-based. Its blended margins are also projected to improve considering FOP enjoys EBITDA (earnings before interest, taxes, depreciation and amortisation) margins in the 50% range, Chern Yuan says.
Industry sources in favour of the marriage believe Yinson is set to emerge as one of the only two genuine FPSO plays in the local market, next to incumbent Bumi Armada. An industry official remarks that TH Heavy Engineering Bhd, despite it having a vessel ready for conversion, is less of a contender because floating solutions are not the fabricator’s core business.
As for Perisai Petroleum Teknologi Bhd, Maybank IB Research thinks the firm is unlikely to embark on another FPSO venture within the next 12 months as it needs to first deploy its first FPSO in the Kamelia gas field.
Meanwhile, Chern Yuan maintains that the investment by Kencana Capital is unrelated to SapuraKencana. The Lim family would retain a 43% stake in Yinson and Kencana Capital 18.5% following the new share issuances, making them the company’s first and second-largest shareholders.
“Mokhzani has been in O&G for a long time now and he likes the industry,” Chern Yuan says. “There is no conflict of interest between SapuraKencana and Yinson. We are in one part of the business that SapuraKencana does not have.”
Sweet deal?
Analysts tracking Yinson generally acknowledge that the acquisition was struck on good terms for the company.
“We deem it an attractive buy given that it was translated to a price-to-book valuation (P/BV) of 0.7 times, a discount to Norwegian peers’ forward P/BV of 1.1 times and the 2.5 times 2014 P/BV level that its nearest Malaysian comparison, Bumi Armada, is trading at,” Kenanga Research analyst Cezzane See writes in a note to clients.
Yinson even has to book RM92.3mil in negative goodwill for the proposed purchase, meaning it is being acquired at below fair value. A local bank-backed analyst says that at this price, Yinson is getting FOP’s branding and expertise, the latter of which is hard to grow organically, for free.
Another analyst reckons that the first item on Yinson’s agenda might be to secure a Petronas license.
Still, not everyone is convinced. “If this was such a fantastic company, then why did the Olsen family sell out?” asks one industry observer.
Kenanga’s See also highlights that FOP had previously been in the red, notwithstanding Yinson’s assurance that this was mostly a result of non-recurring depreciation charges. As at the first quarter, FOP posted improvements in its top and bottom lines. A filing on its website shows that sales rose 9% year-on-year to US$29.3mil (RM91.4mil) and net profit by a multiple of 12 to US$3.5mil (RM10.9mil) from US$302,000 (RM942,240).
An analyst who covers Bumi Armada cautions against the euphoria around Yinson’s shares, saying it has run ahead of fundamentals. At Friday’s close of RM4.72, Yinson was trading at 18.2 times forward earnings and 2.3 times book, versus Bumi Armada’s 20.8 times earnings and 2.6 times book, according to Bloomberg data.
Moreover, it is difficult to look past Yinson’s debts, which market observers opine could lead to funding problems later. With archrival Bumi Armada’s gearing at a relatively sound 0.9 times, it may well be able to stomach more risk and put in a more competitive bid vis-à-vis Yinson, industry insiders explain.
Amid the skepticism, the company is keeping a cool head. “Yinson was able to win jobs even during the low season,” Chern Yuan quips. “We expect to be a strong contender now. There is a lot of pent-up demand for FPSOs because many jobs were not awarded over the past two years.
“In terms of asset size, we are not far behind Bumi Armada. FOP also has a longer history and track record. The acquisition is a strong signal that we want to expand. I don’t think we are satisfied with No. 6. We aim to break No. 5 and keep growing.”
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