Yinson's Lam Son floating production, storage and offloading vessel.
KUALA LUMPUR: Kenanga Investment Bank Research is maintaining its Outperform call on oil and gas services provider Yinson Holdings Bhd
with an unchanged sum-of-parts target price of RM3.93 a share.
It issued the report on Tuesday after Yinson received a termination letter for the provision of a bareboat charter contract for an oilfield in Vietnam.
The operating company of the Lam Son oilfield had stated it was terminating the services as the operator of the oilfield itself – Lam Son Joint Operating Company (LSJOC) – was going to be liquidated.
Yinson, together with PetroVietnam Technical Services Corp, set up a joint venture company (PTSC AP) to provide a floating, production, storage and offloading (FPSO) facility for the oilfield.
The FPSO has been operating in the Lam Son field since 2014 and the contract is for seven years. However, PTSC AP would be entitled to compensation for the early termination of the contract and the exact amount has yet to be ascertained.
Kenanga Research said on Tuesday the termination of the FPSO PTSC Lamson should allow Yinson to recoup all its investment and pare down associated debt assuming it receives full compensation.
“Following that, a renegotiation of new contract with PetroVietnam could provide additional upside for Yinson to create additional income on a debt-free vessel. All in, while keeping earnings estimate pending a conference call today, we maintain Outperform call on the stock with unchanged SoP-driven TP of RM3.93 a share,” it said.
Kenanga Research pointed out the fact that Petrovietnam has stated its intention to continue utilising the same FPSO within the same field suggests that FPSO PTSC Lamson has high chances of being redeployed.
“This probably means that there might be a new contract being formed between TSC AP and Petrovietnam,” it said.
Recall that PTSC AP secured the contract amounting to US$737.3mil in 2012 for seven years with a yearly extension option for another three years. Based on our back of envelope calculations, the remaining contract value attributable to Yinson’s 49% stake (for four year firm period and three-year extension is estimated at US$253mil (equivalent to RM1.1b). FPSO PTSC Lam Son produced its first oil in June 2014.
“Take note that removal of FPSO PTSC Lam Son earnings assuming 90 days notice period will result in 8%/13% downgrade in FY18E/FY19E earnings estimates.
“We maintain our Outperform call on the stock with an unchanged SoP-driven TP of RM3.93 a share which implies forward FY18-19E PER of 17.3 times to 12.9 times as we believe Yinson is able to recoup at least all the NPV of the remaining contract value.
“Note that termination of Lam Son contract without compensation would reduce our sum-of-parts by 92 sen a share or 23% of our TP. Risks to our call include: (i) project execution risk, and (ii) weaker-than-expected margins,” it said.
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