Reiterate BUY and MYR2.83 TP, 38% upside. We are positive on the agreement with BP Exploration (Angola) Ltd (BP) to reserve FPSO Nganhurra as Yinson stands a good chance to secure another redeployment project. The company would have to provide sufficient contingency in order to price in the elevated materials cost. It may be too preliminary to price in the project, but our ballpark estimate suggests a MYR0.12/share increase to our TP if a deal is struck.
Reserving FPSO Nganhurra for BP. Yinson has entered into an exclusivity agreement with BP for the reservation of FPSO Nganhurra till end 2022, with 6-month extension option for use in BP’s proposed 10 well subsea Palas, Astrea and Juno Oil Fields (PAJ Project) based in Block 31, Angola. Both parties are currently negotiating a contract to convert, operate, maintain, and lease the FPSO for a 10-year fixed term. The project is expected to be executed by the end of 2024, subsequent to BP reaching the final investment decision. Yinson holds an exclusive purchase option for FPSO Nganhurra until 30 Jun 2023, with another 6-month extension option with its owners, Woodside Energy and Mitsui E&P Australia Pty Ltd. FPSO Nganhurra, which has a production capacity of 100,000 bbls/day and was built by Samsung in 2006, operated at the Enfield field in Australia until autumn 2018 – it is currently laid up outside Labuan, Malaysia.
Another redeployment opportunity. We are positive on the agreement as Yinson stands a good chance to secure another redeployment project following the completion of FPSO Abigial-Jospeh and FPSO Helang. We are guided that the total capex for this project could be in the range of USD400-700m and Yinson is expecting certain upfront payment from the client (ie to cover vessel cost) as part of the terms. If Yinson manages to seal the deal by 2024, it will take about 18 months to convert the vessel and the first oil could be achieved soonest by end-2025, or early 2026. This is rather timely as FPSO Maria Quitéria (PDB project) is expected to start operating by 4Q24.
Keep BUY. Our SOP-derived TP is kept at MYR2.83, with the incorporation of a 4% ESG premium to reflect its aggressive venture in renewables and green tech businesses. We believe Yinson would have to provide sufficient contingency in order to price in the elevated materials cost. Based on our back of envelope calculation, we value the project at MYR0.12/share, assuming a USD550m capex, 10% project IRR, 7% WACC, 80% debt funding, and 100% equity stake. Downside risks: Further contract terminations and weaker-than-expected operating uptime for existing vessels.
