AmWatch - Yinson Holdings : Fixed 1-for-1 rights at RM2.20 BUY, 29 Apr 2014

STOCK FOCUS OF THE DAY

Yinson Holdings : Fixed 1-for-1 rights at RM2.20 BUY

We maintain our BUY call on Yinson Holdings with an unchanged fair value of RM10.30/share, based on SOP valuation, which implies a FY15F PE of 23x and EV/EBITD of 14x. Yinson has fixed its proposed 1-for-1 rights issue price at RM2.20/share, slightly lower than our earlier expectation of RM2.30/share. Based on Yinson’s last closing price, this represents a 59% discount to its ex-rights price of RM5.43/share.

After the rights and 1-to-2 share split, we estimate that Yinson’s basic FY15F EPS of 45 sen will drop to 14.6 sen and FY16F EPS from 53 sen to 16.6 sen. Also, our ex-all diluted SOP will drop from RM10.30/share to RM3.12/share. With the rights proceeds, the group’s net gearing of 2x as at end-FY14 will drop to 0.4x as at end-FY15F - significantly lower than Bumi Armada’s 0.9x. All in all, the group will be using 77% of the entire rights proceeds for debt repayment and working capital purposes.

We remain positive on Yinson as its lower gearing positions the group to secure up to 2 prospective projects in 2H2014, which could drive Yinson’s re-rating prospects further. The first involves a potential 49% stake in the charter for the US$150mil Ham Rong floating storage and offloading vessel in Vietnam, besides at least 4 other floater projects in the country that are in the pipeline. The second and more important contract is the much larger US$700mil-US$800mil Offshore Cape Three Points (OCTP) FPSO vessel off Ghana.

The valuation drivers for Yinson stems from its:- (1) strong business connections in Vietnam which offers right of first refusal from PetroVietnam Technical Services Corp to participate in the country’s pipeline of multiple oil & gas projects; and (2) elevated profile in international tenders.

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