Rights issue done; shares set free to lift off
? Yinson’s shares are trading ex-rights today and we adjust our SOP-based TP
lower to RM3.26, which also reflects the potential dilution from its warrants.
? Reiterate Add as its rights issue is finally out of the way. Re-rating catalysts
include the potential listing of its FPSO business in 2HCY22F.
? Prospects in the FPSO business also look strong, with Yinson likely to secure
one project award in Angola in 2HCY22F, and another in CY23F.
Completion of rights issue; selling momentum to taper off
Yinson’s share price declined by as much as 26% this year after its late-2021
announcement of its rights issue plan. We suspect that this is because fund managers do
not want to breach single-stock investment limits, hence they may have had to sell some
of the mother shares first, in order to reinvest via the rights issue. Fund managers also
want to take advantage of the highly-discounted rights issue price to lower the average
cost of their intended investment size. Residual shariah investors likely sold their holdings
in 1Q22 after Yinson lost its shariah status in Nov 2021. Yinson has also been the subject
of regulated short-selling activity, according to DiBots Bursa; shariah investors do not
have to sell immediately after the loss of shariah status if the holdings are underwater. In
our view, the completion of Yinson’s rights issue has not only cleared out weak
shareholders, but will also lead to a cessation of short-selling activities, which may
liberate Yinson’s share price to finally reflect its underlying intrinsic value.
FPSO business prospects look good; FPSO listing in 4QCY22F?
Yinson expects that the FPSO Anna Nery, which is in its final stages of construction, to
sail away from the Cosco Qidong yard towards Brazil next month, up to six months ahead
of schedule. Meanwhile, we expect the construction earnings contribution from the FPSO
Atlanta (at Dubai’s Drydocks World yard) and the FPSO Maria Quiteria (at the Cosco
Shangxing yard) to commence from 2QFY23F (the May-Jul 2023F quarter), which will
help boost Yinson’s quarterly earnings performance. According to Upstream, Yinson,
MISC and Bumi Armada (BAB) are all bidding for TotalEnergies’s Cameia FPSO project
and Eni’s Agogo FPSO project, both with capex of more than US$1bn. Both projects may
be awarded in 2HCY22F; Yinson will only have the capacity to take on one due to project
management manpower constraints. BAB’s limited balance sheet capacity suggests that
it can only accept one of the two large projects, while MISC is unlikely to be able to
participate as it is likely struggling with Petrobras’s FPSO Mero-3 project, in our view. In
short, we think Yinson and Bumi Armada may each take one prize. Separately, BP’s SEPAJ FPSO project offshore Angola may be awarded in CY23F, with Yinson in pole
position since it is offering a lower-cost redeployment option using BP’s preferred FPSO
Nganhurra. A potential IPO or strategic sale of c.25% of Yinson’s FPSO business,
planned for 4QCY22F, could raise c.RM2.2bn (see our 30 Mar report), reducing its
gearing and increasing its capacity for growth. Together with likely sizeable upfront capex
funding by TotalEnergies and Eni, Yinson is confident it will not need a second rights
issue. Downside risks include execution challenges as Yinson takes on more projects.