BUY, new TP of MYR2.91 from MYR2.83, 27% upside with c.1% FY23F (Jan) yield. Removing one-off items and EPCIC gains, 1HFY23 results came below our estimates due to a higher cost base. Yinson expects to secure one more new job this year. We also expect strong earnings growth in FY24-25, once it achieves final acceptance of the three new projects.
1HFY23 core profit of MYR112m (-26% YoY) is below our estimate, and at 37% and 24% of our and Street full-year forecasts due to higher-than- expected operating costs. We believe the Street estimate may not be a good comparison, as other analysts regarded EPCIC earnings as core profit. Management declared interim DPS of 1 sen.
2QFY23 core earnings rose 20% QoQ to MYR61m, on stronger operation and maintenance (O&M) income from the existing FPSO operations (FPSO JAK, FPSO AJ and FPSO Adoon). It comes after stripping off a MYR2m net FX gain and MYR80m in EPCIC gains. Revenue surged by 60% QoQ, mainly due to conversion revenue for project Enauta. Cumulatively, 1HFY23 core earnings fell 26% YoY, no thanks to lower renewable energy contributions, higher finance costs and overhead costs. This was partly cushioned by stronger FPSO operations (favourable FX impact led). The renewable energy segment, which encapsulates the solar asset in India, generated a stable revenue of MYR38m but recorded a segmental loss of MYR2m due to unfavourable FX movements and lower other income.
Outlook. FPSO Anna Nery is expected to reach Brazil to kick-start its hook- up and commissioning work soon, and is on track to achieve first oil by 1QCY23. Both FPSO Maria Quitéria and Atlanta (project Enauta) are on track for conversion, being 14% and 18% completed. In early September, Upstream reported that Yinson was the frontrunner vying for Eni’s Agogo FPSO vessel contract. Yinson is fairly confident about secure one project, and the initial equity outlay may be partially funded by an upfront payment from clients. The exclusivity agreement with BP for the reservation of FPSO Nganhurra until end-2022 may allow Yinson to secure another redeployment project by 2024. On the other hand, we were guided that the investment cost of the recent acquisition of a majority stake in an Indonesia- incorporated turnkey solar company, Inecosolar, is rather insignificant.
We cut FY23-25F earnings by 5-14% to reflect the higher cost base. FY23-24F EPCIC revenue should be maintained, led by contributions from FPSO Maria Quitéria and Atlanta. Despite the earnings cut, our TP rises to MYR2.91 after rolling forward the valuation base year to FY24 (with a 4% ESG premium). We have yet to impute the Agogo project into our valuation, and our estimate conservatively suggests a MYR0.22 increase to our TP if a deal is struck. Downside risks: Further contract terminations and weaker- than-expected operating uptime for existing vessels.
