Yinson eyes RM800m worth of jobs

KUALA LUMPUR: Small-cap company Yinson Holdings Bhd turned heads when it secured an offshore services job worth some RM1 billion — more than eight times its market capitalisation of RM121.93 million as at yesterday. The offshore services and logistics provider is set to bid for more contracts worth RM800 million.

Yinson executive director Lim Chern Yuan told The Edge Financial Daily that it is currently bidding for floating, storage and offloading (FSO) platform supply vessel (PSV) and anchor handling tug supply (AHTS) jobs locally and abroad, particularly in Vietnam.

“We will announce it in due time if we get further awards,” he said in a recent email interview.

Lim expects the outlook of the oil and gas industry to remain favourable given the tighter supply.

“Therefore, the prospects of the FSO and floating, production, storage and offloading (FPSO) industry, which is dependent on the oil and gas industry, are very promising,” he added.

It is worth noting that any successful tenders will add to Yinson’s current order book of over RM1.2 billion, which includes the FSO job from PetroVietnam Technical Services Corp (PTSC) worth some RM1.01 billion, announced last week.

The tenure of the PTSC contract, which will be carried out by PTSC and Yinson, is 10 years with the option to extend for another10 years. PTSC has a 49% interest in the project.

Maybank Investment Bank Research in a recent non-rated note estimated the internal rate of return (IRR) for the PTSC project to be about 17%, which is higher than industry norm.

“The IRR for different projects is different based on the project features, thus it is hard to set a benchmark for future projects. Having an IRR of 12% to 14% is the norm in the industry,” commented Lim.

Given its undemanding valuation, it is not surprising that Maybank IB likes Yinson as an investment proxy for the Vietnam oil and gas (O&G) play.

The research house, which set a preliminary value for the counter at RM1.85, said Yinson shares are undervalued and have undemanding valuation.

“Yinson is an alternative play to Vietnam’s O&G offering. It co-owns a FSO with PetroVietnam and charter out two offshore support vessels, a remarkable feat with a mere three-year track record,” said the research house in a recent note.

Based on Yinson’s numbers for FY11 ended Jan 31, its net assets per share stood at RM1.78 which was the same as its closing price of yesterday.

The house also noted that Yinson’s profits are backed by long-term contracts.

Yinson has a seven-year contract from PetroVietnam to charter a 3,000 dwt (dead-weight tonnage) PSV and 5,000 bhp (brake-horsepower) of AHTS for its offshore venture in Vietnam.

“Yinson is steadily turning from a commodity trader and logistics operator into an O&G play,” said Maybank IB.

It is understood that 70% of Yinson’s earnings still come from the commodity trading and logistics segment.

However, Lim said although the company did not set any targets, the “ideal” net profit contribution from commodity trading and logistics services is about 20% in the coming three to five years, while the remaining 80% is from offshore services.

Meanwhile, Maybank IB expects Yinson’s O&G earnings to overtake those of its trading operations by 2014.

It has projected a tripling of Yinson’s net profit to RM51.4 million by FY15 from its FY11 net profit of RM18.5 million, as the company recognises higher earnings from its FSO charters.

In its first quarter ended April 30, 2011, Yinson posted a net profit of RM7.16 million, up 51% from RM4.73 million last year. Revenue stood at RM196.8 million.

Even more interesting is Maybank IB’s estimated equity value of RM348 million for Yinson, based on a sum-of-parts basis, which is almost three times the company’s current market capitalisation.

Yinson had recently proposed to undertake a renounceable two-call rights issue of up to 131.86 million rights shares at an issue price of 75 sen per rights share, on the basis of three rights for every two existing shares.

“Our executive chairman, being the major shareholder, has committed to subscribe to the rights which is a signal of confidence in this business.

“We have also successfully placed out shares to domestic and international institutional investors for this private placement,” said Lim, adding that most of the funds raised will be utilised for its projects for PTSC.

Based on the closing price of RM1.88 on June 29, Maybank IB said the theoretical ex-rights price is RM1.20.

“This offers a 54% upside to this small-cap stock, virtually unknown until now,” said the research unit. It said at its fair value of RM1.85, the stock will trade at FY13 price to earnings ratio (PER) of 14 times and FY14 PER of 10 times.

Year-to-date, the stock has risen over 70% to yesterday’s closing price of RM1.78.