1QFY23: Core Non-EPCIC Profits In Line
There were generally no surprises in Yinson’s non-EPCIC results, although the profits
surged yoy with good cost control, we conservatively assume cost inflation impact in
subsequent quarters that may hit the non-O&G business. Yinson’s execution remains
solid for FPSO Marlim, and it should be able to repeat the same for FPSO PDB even if
China’s lockdown re-emerges. FPSO bidbook is higher. Maintain BUY, with a diluted
target price of RM3.05.
RESULTS
• 1QFY23 core profit in line at 30%/27% of our/consensus forecasts. Our forecasts
exclude the engineering, construction, procurement, installation and commissioning (EPCC)
finance lease (FL) profit. Non-EPCIC profits gained significantly yoy, with EBITDA also
stronger at RM279m (1QFY22: RM232m), and these more than offset losses in non-O&G
operations. This was partly due to higher variable FPSO income, which may have exercised
the escalation rate to factor in higher oil prices and inflation, although the base FPSO rates
in general do not have provisions that correlate to oil prices. One example being FPSO John
Agyekum Kufuor (JAK), whereby its operation & maintenance (O&M) unit is now classified
as a subsidiary (vs JV previously) due to better operational control, resulting in a RM4m gain
yoy (before minority interests).
• Cash flow and balance sheet. Non-EPCIC operating cash flow improved yoy, similar to
EBITDA. Loan base surged qoq from RM8.7b to RM9.3b, though net gearing normalised
slightly from 1.2x to 1.1x, due to higher cash of RM3.2b. Note that RM1.6b cash is restricted
(1QFY22: RM0.4b) for the purposes of FPSO Marlim (Anna Nery). Including the RM1.8b
perpetual securities, net gearing would be about 2.7x. The adjusted net debt/EBITDA
(including associates) is lower at 2.1x vs 2.9x qoq, for non-EPCIC operations.
STOCK IMPACT
• Renewable energy (RE) update. The solar assets in India recorded RM2m loss and RM1m
EBITDA, vs RM2m loss and RM3m EBITDA yoy, with lower revenue by RM1.3m to RM3.8m
yoy in 1QFY23. The carbon credit that was sold during the quarter is not yet recognised, as
regulatory registration is delayed. Once registration is done, the outstanding carbon credits
since 1QFY23 will be accounted for as potentially lumpy revenue, and most of it will flow
directly to the bottom line. The second solar plant has yet to begin major construction, due to
delays from the client (ie permitted delays). However, with the orders of long-lead items
(solar panel costs had surged by 30%), if the tariffs are not allowed for adjustments, the
second solar plant may have lower returns.
• Other non-EPCIC operations update. On the EBIT level, the other non-O&G operations
saw a loss of RM16m vs RM14m yoy. Part of this is higher opex for GreenTech (the electric
vehicle charger JV) in which we understand amounted to RM2m, or RM8m annualised. For
the O&G EPCIC operations, the lower profit yoy relates to the near-completion of FPSO
Anna Nery’s construction. About 60% of the EPCIC revenue (60%) arises from FPSO
Parque das Baleias (PDB) which started construction in China.
• FPSO Anna Nery is close to sailaway and on track for first oil in early-23. This FPSO
was not affected by China’s lockdown. However, FPSO PDB’s execution could be a concern
if China’s lockdown happens again, as long as zero-COVID policy retains. FPSO contractors
can issue force majeure notices and request for extension of time (EOI). We understand that
Petrobras does not fix clauses for permitted delays (by months). There are clauses for late
delivery charges (LD).
• >60% of total loans are fixed rates. Compared with end-FY22 whereby about 85% of the
total RM8.7b was of floating rate, Yinson had utilised swaps to convert most of the project
loans into fixed rates, amounting to RM5.5b. The remaining project loans that are on floating
rates are hedged. 30% of the remaining floating rate, unhedged loans is corporate debt.
The new loan for FPSO PDB is targeted for 6% IR, vs the RM1b sustainable sukuk (raised
last year) at 5.5% IR, and the RM0.3b Indian rupee loans which was refinanced from 10.5%
to 8.25%. The Indian loan’s IR renewal cycle is five years.
• Higher FPSO bidbook. Previously, Yinson said it was keen on: a) FPSO Cameia (Total,
Angola), b) FPSO Maka (Total, Suriname), and c) FPSO PAJ (BP, Angola). Recently,
Yinson, along with MISC and Bumi Armada, are competing in bids for FPSO Agogo (ENI,
Angola), which was reported at US$1.5b in capex and 20 years firm tenure. Out of the four
projects, Yinson believes Agogo is the closest to an award. Yinson’s strategic review of
either roping in strategic investors, or launching a hive-off initial public offering of its FPSO
unit, could generate the capital for future FPSO projects; but even without this plan, the
group is able to fund at least one more project.
EARNINGS REVISION/RISK
• Retain earnings forecasts. FPSO projects remain on track, and we have assumed higher
finance costs yoy. Although the 1QFY23 profits appear to be ahead of our full-year numbers,
we remain conservative assuming unexpected cost inflation.
VALUATION/RECOMMENDATION
• Maintain BUY with an adjusted SOTP-based target price of RM3.05. This implies 27.8x
FY23F PE, or 14.1x FY25 PE on full Marlim contributions. Our valuation is adjusted for
higher WACC and US$, and with full dilution assuming all RM0.3b warrants are converted
(exercise price: RM2.29). We maintain contract win potential of a mid-sized FPSO and
Enauta. We continue to like Yinson for its execution, and current market price offers value
without pricing in future FPSO projects or the long-term value of the non-O&G ventures.