Yinson to gain RM79m from sale of FPSO

by **Cals** Fri 01 Aug 2014, 02:04

Business & Markets 2014

Written by UOB Kay Hian

Thursday, 31 July 2014 10:08

Yinson Holdings Bhd
(July 30, RM2.95)
Maintain hold with target price of RM2.85: Yinson announced that it has entered into a share purchase agreement with BW Offshore to dispose of its entire equity interest in its floating production, storage and offloading (FPSO) vessel Petroleo Nautipa for a cash consideration of US$59.3 million (RM188 million).
Recall that Petroleo Nautipa was the FPSO that came with the purchase of Fred Olsen Productions by Yinson. Both BW Offshore and Yinson had the option to purchase the remaining 50% stake in the FPSO they jointly own, but in this case it was BW Offshore that exercised the option.
Petroleo Nautipa contributes roughly RM13 million to RM15 million in net profit per annum to Yinson’s bottom line after taking into consideration interest costs. Hence, the purchase consideration of US$59.3 million translates into a forward price-earnings ratio of about 12.5 times (including interest costs associated with holding the FPSO). We deem the purchase consideration attractive as it is above the acquisition cost of RM109.3 million.
Based on its latest financial statements, we expect Yinson’s net gearing ratio to immediately drop to about 0.3 times from 0.5 times following the disposal of Petroleo Nautipa. Upon completion of the deal, we project Yinson’s net gearing ratio to drop further to 0.2 times by the end of financial year 2015 ending Jan 31 (FY15).
Yinson will recognise a one-off gain of RM78.7 million from the sale of this FPSO. We believe the move makes sense as Yinson could redeploy the capital more efficiently into a new FPSO contract, which could generate more returns in the long run. We believe that this is possible as Yinson practices strict bidding discipline where it recovers its capital expenditure during the firm period of the contract.
Yinson is studying the disposal of all three non-core businesses and targets to complete the divestment next year. We are delighted with this move as: (i) the divestment will improve Yinson’s balance sheet because the trading division has huge borrowings; (ii) the disposal capital can be used to fund potential FPSO projects or be paid out as a special dividend; (iii) Yinson will become a pure oil and gas play which means better valuation; and (iv) overall group margins will improve. While the company has yet to finalise the valuation method for this disposal, we understand the non-core assets’ book value is in the range of RM150 million to RM200 million. — UOB Kay Hian, July 30

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This article first appeared in The Edge Financial Daily, on July 31, 2014.[/size]