PETALING JAYA: Analysts are positive of Yinson Holdings Bhd’s latest contract win from Enauta Energia SA for the Atlanta Field floating production storage and offloading (FPSO) project.
On Monday, Yinson announced that it had entered into a letter of intent (LoI) with Enauta to provide and operate an FPSO via a redeployment of OSX-2 for the Atlanta Field located in Santos Basin, offshore Brazil.
The LoI is for an engineering, procurement, construction and installation (EPCI) contract with a call option to acquire the asset-owning company of the project with a 15-year time charter agreement, extendable by a further five years
The estimated value of the project (including a two-year operation and maintenance agreement) is US$505mil (RM2.1bil). The value of the project will be further increased to US$2bil (RM8.4bil), including the option, should Yinson exercise the call option.
“The unique contract structure – a sale-and-lease-back of the FPSO from Enauta as compared to a conventional straight-up charter contract – gives more flexibility for Yinson to better allocate capital and resources for its project management, given that Yinson already has several other Brazilian projects progressing on hand.
“Essentially, from Yinson’s perspective, the majority of the project’s equity capex only needs to be forked out two years later after the completed conversion of the FPSO and upon the exercising of the call option in order to undertake the charter contract,” said Kenanga Research.
RHB Research said the call option is a positive. It allows Yinson to only execute the EPCI work and opt not to proceed to own the vessel if Yinson is able to obtain a better job to allocate its resources or if it deems the future prospect unfavourable.
Assuming 8% net margins, RHB said Yinson could lock in an amount of US$40mil (RM164mil) EPCI gain over the 2.5 year conversion period. The yard conversion has yet to be decided and the FPSO is slated to kick-start by mid-2024.
It values the project at RM0.73 per share, assuming a US$400mil (RM840mil) capex, 13% project internal rate of return, 7% weighted average cost of capital, 80% debt funding, and 100% equity stake.
Meanwhile, CGS-CIMB is also supportive of Yinson’s announcement on its rights issue, noting that the funds raised will be used for high-quality growth projects.
The research house pointed out that the Lim family has also committed to its portion of the rights.
Apart from the contract win, Yinson had, on Monday, announced that it intends to undertake a one-for-one bonus issue and issue warrants numbering not more than 18% of the enlarged share base after the rights issue to raise RM1.1bil-RM1.22bil in proceeds to fund the equity portion of the FPSO Parque das Baleias (PDB) capex.“This rights issue is well anticipated as Yinson has been guiding for equity raising for more than one year. The pricing has not been fixed, but Yinson gave a preliminary indication of RM1.31 for the rights issue price (RM2.62 pre-bonus), and RM2.58 as the warrant exercise price (RM5.16 pre-bonus).
“The proceeds will be primarily used to fund the US$300mil (RM1.26bil) equity portion of the FPSO PDB capex, representing 30% of the overall capex,” the research house said in a report yesterday.
The equity raising exercise should be completed by the second quarter of next year.
The Lim family, which owns a combined 27.8% stake in Yinson’s equity, has given irrevocable undertakings to subscribe for their respective entitlements to the rights issue. The remaining 72.2% of the rights will be fully underwritten by investment banks.
CGS-CIMB reiterated its “add’’ stand on the stock as it forecast core earnings per share to almost double between financial year 2021 (FY21) and FY24, with several other potential FPSO projects coming up in 2022-23.
On the other hand, Maybank IB Research said it has cut its FY22-23 earnings by 22% and 8% mainly to reflect lower EPCI profits.
However, it said Yinson’s outlook remains promising and has the capacity to take on these jobs without straining its balance sheet. It retains its “buy’’ call on the company with a target price of RM11.55 a share.