We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based fair value of RM3.83/share, which implies a FY18F PE of 17x. While our FY18F-FY20F earnings have been reduced by 7%-18% with the cessation of associate contribution from the floating production, storage & offloading (FPSO) PTSC Lam Son, the impact will be

We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts-based fair value of RM3.83/share, which implies a FY18F PE of 17x. While our FY18F-FY20F earnings have been reduced by 7%-18% with the cessation of associate contribution from the floating production, storage & offloading (FPSO) PTSC Lam Son, the impact will be DCF- neutral. Following our update yesterday, Yinson’s 49%-owned PTSC Asia Pacific Pte Ltd (PAP) has announced the receipt of a termination letter for the bareboat charter of FPSO PTSC Lam Son which will be effective 30 June 2017, with the liquidation of Lam Son Joint Operating Company (LSJV). LSJV is jointly owned by PetroVietnam Exploration Product Corp and Petronas Carigali Vietnam. Recall that this charter, signed on 28 December 2012, services the Thang Long – Dong Do field for Blocks 01/97 & 02/97, off Vietnam. Operating in Lam Son Field since June 2014 on a fixed primary term of 7 years, there is only 4 remaining years for the charter.

Currently, this FPSO, which cost US$400mil, contributes an estimated net profit of RM40mil or 18% to Yinson’s earlier FY18F earnings. However, as mentioned in our update, Yinson will be entitled to the discounted cash flows of the remaining time charter, which we estimate at RM460mil in our SOP – 11% of our SOP. We understand that the LSJV JV partner, Petronas Carigali, wishes to discontinue the operations, which currently produce below-capacity daily levels of 8,000 barrels. However, the host country operator, PetroVietnam, still intends to continue operating the Lam Son field and utilise the current FPSO. This is likely to be re-negotiated at a lower charter rate given that there will be no need for capex modification requirement while the termination fee would have erased PAP’s current debt of below US$200mil. Hence, we are mildly positive on this development as the termination itself will be NPV-neutral for Yinson while the high likelihood for a new charter with PetroVietnam, albeit at a lower rate, will provide further DCF and earnings accretion. Given Yinson’s locked-in earnings visibility with an order book of US$3.7bil (23x FY18F revenue), the stock currently trades at a bargain CY18F PE of 12x vs. over 20x for Dialog Group and Petronas Gas.