PETALING JAYA: The anticipated robust global demand for floating production storage and offloading (FPSO) contracts in 2024 is expected to bode well for Yinson Holdings Bhd, offering potential for better returns and favourable contractual terms amid tight supply.

       After discussions with consultants Energy Maritime Associates (EMA), Kenanga Research has expressed confidence in the outlook for the FPSO market.

       The research house said FPSO clients are increasingly favouring asset ownership over leasing due to limited contractor availability and financing challenges.

       “The barriers to entry into the FPSO market have also risen for new entrants. The tight FPSO market remains favourable for existing players,” the research firm noted.

       Similarly, following the talks with EMA, RHB Research remained positive over the outlook for FPSO contractors, noting that they are benefiting from more favourable contractual terms and potentially experiencing better project returns amid the tight supply.

       “Global FPSO demand remains robust and Yinson is comfortably set to secure another project once either of its projects reach the tail-end conversion stage,” RHB Research said, adding that this could present further upside to Yinson’s valuation.

       The research house believes, based on EMA’s guidance, that FPSO contract awards are expected to see an increase compared to last year.

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       Kenanga Research said that easing concerns about inflation in 2024 suggest that the prices of spare parts and labour will not experience the same rapid rise seen in 2023.

       “Consequently, FPSO contract awards may also see a year-on-year increase in 2024, surpassing the six awards recorded in 2023,” the research house noted.

       Meanwhile, RHB Research said global FPSO awards are poised to resume after a slight slowdown in the rollout of new projects, with a base-case assumption of 12 awards a year in the next few years.

       The research house emphasised that Brazil remains a bright spot with an estimated US$38bil in capital expenditure for floating production units over the next five years, followed by Africa at US$22bil and South America at US$16bil.

       “This could offset declining developments in countries within the Organisation for Economic Cooperation and Development, such as Britain, Australia and Canada,” it added.

       RHB Research cited EMA’s Global FPS industry sentiment survey for 2024, which suggested a record level of optimism at 93% with 0% pessimism compared to 2023’s 77% optimism and 5% pessimism in aiming to reach revenue and production targets.

       Regarding financing, the house noted that while conventional financial institutions are imposing higher environmental, social and governance-compliance requirements, contractors are actively exploring alternative avenues, including project bonds, finance leases and export credits.

       “Established FPSO players with proven track records are exploring alternative financing avenues, such as project bonds, private-equity funding and prepayments by clients on their leases and this has led to limited FPSO players bidding for new FPSO jobs,” Kenanga Research noted.

       Kenanga Research, reiterating its “outperform” call on Yinson, has maintained a target price (TP) of RM3.39 per share on the stock.

       RHB Research has maintained its “buy” call with a TP of RM3.06 per share on Yinson.