RHB Research downgrades Yinson to Neutral despite huge FPSO win

KUALA LUMPUR: RHB Research is downgrading Yinson Holdings Bhd to Neutral from Buy despite news that the company had secured a huge 15-year FPSO (floating production storage and offloading) contract in Ghana, saying there's limited upside and that it would spark profit-taking.

The target price has also been lowered to RM3.05 from RM3.19 for the stock, which was trading at RM2.88 at 10.58am on Thursday.

Yinson’s FPSO contract, awarded by Eni Ghana Exploration and Production, is valued at US$2.5bil (RM9.2bil) over 15 years. Including five extension options, it would be worth US$3.3bil.

The FPSO will be 100% held through Yinson Production (West Africa) Pte Ltd, as it converts the very large crude tanker, Yinson Genesis, within the next three years.

According to RHB Research, the contract value and project capex was within its expectations.

“We gather funding is already in place and estimate that a debt of RM2.6bil is within an increase of Yinson’s gearing to a maximum 2.5 times from 0.33 time.

“We view this contract positively, as it will 1) triple its existing firm orderbook of about US$1bil (US$2.1bil including extensions), 2) significantly lengthen Yinson’s average firm contract period of 6.3 years, 3) propel its expertise on the FPSO value chain, and 4) be the first FPSO contract to unlock the acquisition value of Fred Olsen Production.

However, the research house says while the FPSO could provide a long-term catalyst as the contract value does not factor in non-associated gas, it sees limited upside at current levels and expects investors to consider profit-taking since earnings base will only double from financial year 2018.

“While Yinson still has room to secure a small new floater job, we expect flattish earning growth through FY16-17 due to US dollar volatility and a hike in operating cost,” it concludes.