Yinson a buy, with target price of RM5.50 a share

PETALING JAYA: AmInvestment Bank maintained its buy call on Yinson Holdings Bhd and raised its target price for the group to RM5.05 a share on its novation agreement with TH Heavy Engineering Bhd for the Layang Development floating, storage production and offloading (FPSO) job.
The stock closed unchanged at RM4.20, with some 161,500 shares changing hands.
It has not changed its forecasts for the group and has a sum-of-parts (SOP) fair value of RM5.05/share (from an earlier RM4.50/share), which implies an FY19F price to earnings (PE) of 17x.
It also expects further re-rating possibilities with the extension of the group's 49%-owned Lam Son FPSO charter.
The Lam Son FPSO vessel is still being deployed in the field after the charter termination in June last year.
In its note today AmInvestment said Yinson is expected to deploy its currently idle Four Rainbow FPSO, acquired at a cost of US$44mil, which has better specifications to the field requirements.
Together with conversion costs likely below US$200mil, its assumption of a capex of US$350mil for the Layang FPSO is
achievable. Hence, it maintained the Layang FPSO’s net present value (NPV) of RM395mil in Yinson’s unchanged sums-of-part valuation.
"There is a possibility that Yinson may revise some of the charter terms in Yinson’s favour, including a potential award of the operation and maintenance contract, which could support our assumed project IRR of 12%," AmInvestment said.
The firm added that the excess cash of US$35mil post-full settlement of the Lam Son FPSO debt which was paid off with the termination fee, coupled with US$117mil proceeds from selling a 26% stake in the JAK FPSO to a formidable Japanese consortium, the group has a massive cash pile of RM1.3bil (30% of market cap) to secure new FPSO projects.
If Yinson secures the charter for the US$1bil FPSO for Hess’ Tano-Cape Three Points project off Ghana by the end of the
year, Yinson’s SOP can be raised further by 35% or RM1.79/share.
Underpinned with locked-in earnings visibility from an order book of US$4.2bil (25x FY18F revenue), the stock currently trades at a bargain current year 2018 forecast PE of 14x vs. over 20x for Dialog Group and Sapura Energy.