Charter contract at Lam Son and sale of FPSO unit in Ghana seen as positive for Yinson

PETALING JAYA: Maybank IB Research is maintaining its buy stance on Yinson Holdings Bhd following its securement of the letter of intent (LOI) for the charter of floating production, storage and offloading (FPSO) at the Lam Son oilfield in Vietnam and for the sale of its 26% stake in its FPSO unit in Ghana.

The research house on Tuesday said securing a LOI for the charter of FPSO Lam Son, followed by a letter of award (LOA) by August is a positive. as it eliminates redeployment risk and ensures cash flow continuity. 

“Secondly, the sale of its 26% stake in FPSO John Agyekum Kufuor (FPSO JAK) for US$117mil to a consortium of Japanese companies reflects the company’s ability to monetise assets at a fair price (testament of a quality contract), recycle capital, de-risk investment, and secure new capital partners. These positives more than negate a marginal drop in net present value (NPV),’’ it noted.

Yinson has secured a LOI from PTSC AP, a joint venture between Yinson and PetroVietnam Technical Services Corp,for the immediate charter of FPSO
Lam Son, effective 1 Jul 2017 (zero downtime). 

Finer details of the supplementary contract (i.e. daily charter rates (DCR). tenure) will be included in the LOA, to be announced by Aug 2017. 

This is a positive development according to Maybank IB as it officially reinforces PetroVietnam’s intention to continue the field’s production.

The brokerage estimate a 4-10sen/shr upside to NPV, based on a 49% stake, 4-year firm charter and DCR of US$50,000/100,000, which is 25%/50% of
the old DCR of US$200,000. 

The research house estimate the field to generate US$270,000-300,000 per day in cash, on current production of 6,000 barrels per day (bpd) of oil and oil price of US$45-50/bbl. 

On its disposal of its 26% stake in FPSO JAK to Sumitomo Corp-K Line-JGC Corp-Development Bank of Japan which will be completed by September, the research house said it viewed the price as fair, at a 2% discount to its NPV, on firm charter basis. 

In this deal, it added that Yinson gets to de-risk; recouping part 45% of its equity value on this project and de-gear; lowering its proforma
net debt/gearing by 18%/20 percentage points (ppt). 

This consortium can potentially offer Yinson access to a new pool of strong capital partners, vessels for future conversion bids and options on lower refinancing rates.

The positives gained from FPSO JAK divestment negate the mild impact to target price (TP) (-2%, or 10 sen) and earnings (-11%; RM31mil-35mil per annum) which Mybank IB now revise. 

With its cashflow improved, Yinson’s ability to constantly pay dividend is enhanced, making it a growth and a yield stock in making, it noted.