Maybank Research cautious on Yinson over Vietnam Red Emperor contract

The research house said developments on Yinson

KUALA LUMPUR: Maybank Investment Bank Research is cautious on Yinson Holdings over the latest development in the Red Emperor or Ca Rong Do (CRD) project offshore Vietnam.

It was reported that Vietnam halted the oil drilling project in the Red Emperor block off its southeastern coast licensed to Spanish energy firm Repsol following pressure from China.

Red Emperor, known in Vietnamese as the Ca Rong Do field, is part of Block 07/03 in the Nam Con Son basin, 440 km off the coast of Vietnam's southern city of Vung Tau, according to Reuters.

Hence, Repsol could call off the US$1bil 10+five-year CRD floating production storage and offloading (FPSO) FPSO charter, awarded to Yinson-PTSC last year. 

Maybank Research said should this happen, Yinson will incur: (i) the loss of income from FY21 and (ii) a 24 sen a share impact to the  target price but it is entitled to a full recovery of cost for the FPSO currently under refurbishment. 

“Last Friday’s fall in share price, in our view, has priced in this CRD effect,” it said.   

The research house highlighted that the cancellation of the project could result in Repsol and its partners potentially losing US$200mil on investments already made. If this is true, Yinson will likely receive an official notice of suspension soon. 

“As in most FPSO contracts, Yinson is entitled to a full recovery of costs already sunk in for this impending job. This CRD charter impact is about 24 sen a share to our NPV/TP estimates,” it said. 

Yinson-PTSC secured the FPSO bare-boat contract worth US$1bil (10+five year charter) in April 2017, with operations scheduled from FY21. As such, our FY18-20 earnings estimates are unchanged.     

Maybank Research expects Yinson to report a core net profit range of RM78mil to RM96mil for 4QFY18 (-2-20% on-quarter). 

This would bring FY18 core earnings to RM356mil to RM375mil, in line with its and consensus estimates. 

“The quarter-on-quarter weakness is expected, for it was seasonally driven (i.e. monsoon), notably for its marine operations. The FPSO business remains its key earnings anchor, especially its 100%-owned FPSO JAK, which we estimate to make up 48%-50% of the group’s 4QFY18 core net profit.      

“Estimates and TP unchanged for now While the correction in share price last Friday (-26sen) has largely priced in the CRD shock effect, sentiment will remain fragile for the time being. 

“Pending an official announcement on CRD, our RM4.45 sum-of-parts based TP remains, which includes CRD’s 24 sen a share NPV,” it said.
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Repsol , Red Emperor , Ca Rong Do


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