Yinson (YNS MK; BUY; TP: MYR3.03; Upside: 14%): FPSO Adoon’s contract extended

Yinson (YNS MK; BUY; TP: MYR3.03; Upside: 14%): FPSO Adoon’s contract extended

• What's New? Addax Petroleum Development (Nigeria) Limited, a subsidiary of Sinopec Group, has extended the contract of FPSO Adoon by one year, effective 17 Oct 2014. The one-year charter extension is valued at USD39m. FPSO Adoon has been operating at the Antan field, offshore Nigeria for Addax since Oct 2006 (on an 8-year firm charter).
• What’s Our View? We are positive on this development. The contract extension is favourable to Yinson for it has successfully negotiated for a higher all-in dayrate of USD107k (+USD10k) when compared against its previous firm contract period. While this extension is for a year, we reckon subsequent seven extensions (of up to Oct 2022) will likely be exercised, considering the field’s high reserves and production levels (50k bpd). 

This contract extension as well as the sale of Yinson’s 50%-owned Petroleo Nautipa validates Yinson’s purchase of Fred Olsen Production (FOP) as it has created values along the way. While the contract extension is on improved terms, the latter was sold to BW Offshore at a higher value than Yinson’s initial cost.  

Winning an FPSO contract outside Vietnam would fully endorse the M&A of FOP. The outcome of the Ghana FPSO project would likely be known by end-2014. Bagging the Ghana job would significantly be earnings accretive (NP: MYR150m p.a.) and lift our MYR3.03 TP.