FPSO Agogo contract win around the corner
- We deem 1HFY1/23 core net profit (41% of our FY23F forecast) as broadly in line as we think 2HFY23F profit could pick up on faster EPCIC progress.
- Reiterate Add with a slightly lower SOP-based TP of RM3.20, as we raise the risk-free rate assumption from 4.05% to 4.25% to reflect current rates.
- Yinson is the preferred contractor for Eni’s FPSO Agogo project and is likely to win the award soon, in our view, which could re-rate the stock.
EPCIC profits helped boost Yinson’s 2QFY1/23 (May-Jul 2022)
2QFY23 core net profit of RM109m was above 1QFY23’s RM86m profit, due mainly to the increase in EPCIC EBIT contribution (1Q: RM110m; 2Q: RM218m), and higher O&M day rates due to revenue sharing from higher oil prices, partially offset by greater FPSO repair costs for several FPSOs, increased interest expense, and higher tax expense. In terms of EPCIC contribution, recall that Yinson Holdings started constructing or converting both the FPSO Maria Quiteria project for Petrobras and the FPSO Atlanta project for Enauta at the start of this year. For FPSO Maria Quiteria, Yinson achieved 9% completion in 1QFY23 and 14% in 2QFY23, and recognised EPCIC revenue and profits in both quarters. For FPSO Atlanta, Yinson achieved 5% completion in 1QFY23 and 18% in 2QFY23; cumulative EPCIC revenue and profit was only recognised in 2QFY23. To recognise EPCIC contributions into the P&L, accountants typically require the project to be at least 20% completed, or for the project to have signed firm contractual commitments to purchase the majority of its capex. For the FPSO Atlanta project, Yinson signed 75-80% of the capex commitments only in 2QFY23 and hence could only book in EPCIC contributions in 2QFY23. Separately, O&M rates for the FPSO JAK, FPSO AJ and FPSO Adoon enjoyed an uplift in 2QFY23 due to formulaic revenue sharing from higher crude oil selling prices. On the cost side, the increased qoq interest expense in 2QFY23 was due to the 4.5% qoq rise of the US$ vs. the ringgit and higher interest rates on about 30% of Yinson’s debt that is floating in nature (mostly corporate debt). Finally, the higher tax expense qoq was mainly due to greater deferred tax expense provisions against the EPCIC profits.
Potential FPSO Agogo contract win could be re-rating catalyst
Despite the large sequential jump in EPCIC EBIT from 1QFY23 to 2QFY23, the EPCIC revenue in 3QFY23 will not likely decline qoq due to the fast pickup in FPSO Maria Quiteria’s construction progress in the quarter, according to Yinson. This means that the strong EPCIC profits in 2QFY23 could be sustained into this current quarter. Furthermore, the US$ has strengthened further from an average of RM4.41 in 2QFY23 to the current rate of RM4.57, which could boost Yinson’s US$-denominated revenue in ringgit terms in 2HFY23F. Industry paper Upstream reported that Yinson is the preferred contractor for Eni’s FPSO Agogo project offshore Angola. We expect the lease contract to be awarded before the year’s end, and with a capex of more than US$1bn, this could be Yinson’s largest project ever.