We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts based fair value of RM3.60/share, which implies a FY17 PE of 22x.

We maintain BUY on Yinson Holdings (Yinson) with an unchanged sum-of-parts based fair value of RM3.60/share, which implies a FY17 PE of 22x. We maintain FY17F-19F earnings as the group’s 1QFY17 results came in within our expectations and slightly below street estimates.

Excluding unrealised forex loss of RM16mil, Yinson’s core net profit of RM37mil accounted for 26% of our FY17F earnings, which do not include contributions from the group’s non-oil & gas business that had been disposed to related party Liannex Labuan Ltd. Excluding the RM1mil profit for the discontinued business, Yinson’s 1QFY17 core continuing business profit of RM36mil would have accounted for 25% of our FY17F earnings. As a comparison, the group’s 1QFY16 also accounted for 25% of FY16 net profit.

The group did not declare any interim dividend in 1QFY17 nor a final dividend in 4QFY16 as there will be a special dividend of RM160mil or 15 sen (additional 5.5% yield). This is because the payment for the RM228mil sale of its non oil & gas division is expected in October this year.

QoQ, Yinson’s 1QFY1F revenue slid by 1% due to the 6% depreciation of the US$ vs. RM on the group’s recurring FPSO and FSO charter income, largely offset by higher shipping services. Core net profit declined QoQ further by 22% due to lower offshore support vessel charter income from dry-docking, absence of one-off RM10mil cost savings which materialised in 4QFY16, lower associate contribution and RM4mil realised forex loss. The group’s earnings are expected to remain flat in FY17F but growth will begin to accelerate in FY18F onwards from the completion of the Ghana-based FPSO Yinson Genesis, with first oil expected by August 2017. We understand that there are still many FPSO opportunities despite the current weak sector outlook. This is driven by the need to extract natural gas for electricity generation, especially in Vietnam and West Africa.

Hence, in the event of an FPSO termination, Yinson is confident of securing a fresh charter for the vessel. Since July last year, the group holds a 51% stake in the FPSO Four Rainbow and the balance held by the seller, Italy’s Premuda. The vessel, which has a storage capacity of 604,000 barrels of oil, was acquired at only EUR60mil by the joint venture partners. Given Yinson’s locked-in earnings visibility, the stock currently trades at an attractive CY17F PE of 15x vs. over 20x for Dialog Group and Petronas Gas.