KUALA LUMPUR: CGS-CIMB Research has reversed its short-lived downgrade to “hold” recommendation for Yinson Holdings Bhd that it had issued on June 26.
The research house has upgraded the oil and gas services company to “add”.
Yinson is looking to take on three large floating production, storage and offloading (FPSO) projects.
“The incremental upside raises our sum-of-parts (SOP) to RM8.14, against which we apply a new 10% discount for potential dilution to derive our target of RM7.33,” said the research house in its latest report.
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 2015-2017) which has overwhelmed independent FPSO owners and operators.
Securing financing has also become more difficult for FPSO-lease owners who had suffered balance sheet solvency erosion during the downturn.
“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 made a bid for Petrobras’ Marlim one and two projects, and only Yinson and Bluewater/Saipem had bidded for Petrobras’ Parque das Baleias project.
“Meawhile, Yinson is in direct competition with SBM Offshore for the Aker Energy’s Pecan FPSO project,” it said.
CGS-CIMB Research also pointed out that Yinson would likely win the Marlim one project, while Modec may have secured Marlim two.
Modec had bidded US$602,654/day time charter rate (TCR) for Marlim one, 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 its TCR bid reflected very conservative operating cost, taxation and capex assumptions, and very aggressive return expectations.
“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 internal rate of return on an assumed project capex of US$1.3bil and 75% debt financing.
“While Yinson had said that would only consider two large FPSO projects, it is now willing to go for three projects because the 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 2019 or early next year.
“Our SOP upgrade is due mainly to the addition of a third project although we have cut the valuation by 10% to factor in a small potential equity issue of RM500mil, 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$300mil, and raise US$280mil more in new perpetual securities,” CGS-CIMB Research pointed out.
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