It said on Thursday Yinson is looking to take on three large FPSO projects (vs. two previously), with limited new ordinary share funding, if any, it said at last week’s briefing.
“The incremental upside raises our sum-of-parts to RM8.14, against which we apply a new 10% discount for potential dilution to derive our target of RM7.33,” it said.
Yinson noted the list of bidders for new FPSO projects has shrunk, due to the surge in new FPSO requirements from 2018 onwards (after three years of slack in 2015-17) which has overwhelmed independent FPSO owners and operators with too much work at the same time.
Securing financing has also become more difficult for FPSO-lease owners who had suffered balance sheet solvency erosion during the 2015-17 downturn and who had executed poorly on past projects.
“Yinson, however, had executed well, and is now appearing alongside the big boys in several major global FPSO bids. For instance, only Yinson and Modec had bid for Petrobras’ Marlim-1 and -2 projects, and only Yinson and Bluewater/Saipem had bid for Petrobras’ Parque das Baleias project.
“Meawhile, Yinson is in direct competition with SBM Offshore for Aker Energy’s Pecan FPSO project,” it said.
CGS-CIMB Research also pointed out Upstream reported that Yinson will likely win the Marlim-1 project, while Modec may have secured Marlim-2.
Modec had bid US$602,654/day time charter rate (TCR) for Marlim-1, but the contract is likely to go to Yinson despite bidding US$709,870/day, as Modec has declined to take on both Marlim FPSOs.
“Yinson said that its TCR bid reflected very conservative operating cost, taxation and capex assumptions, and very aggressive return expectations, leaving plenty of room for error.
“However, Yinson has commenced price negotiations with Petrobras, and we have assumed that the time charter rate will settle at US$650,000/day, placing Yinson in a position to secure a 13% project IRR on an assumed project capex of US$1.3bn, and 75% debt financing.
“While Yinson had earlier said that it will only consider two large FPSO projects, it is now willing to go for three projects because financial returns are currently too good to ignore,” it said.
The project teams for the Helang and Abigail-Joseph FPSOs are expected to be released by October 2019F and early-CY20F, and can be deployed to two potential new projects, while the execution team for a potential third project is being built up now.
“Our SOP upgrade is due mainly to the addition of a third project into our SOP, although we have cut the valuation by 10% to factor in a small potential equity issue of c.RM500m, as indicated by Yinson.
“The issue of new ordinary shares is fairly small, because Yinson can borrow against the currently-unencumbered Abigail-Joseph FPSO, refinance JAK for an additional US$300m, and raise another US$280m in new perpetual securities,” CGS-CIMB Research pointed out.
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