Disposal of logistics arm helps Yinson to build war chest

by **Cals** Wed 01 Jul 2015, 01:09

Disposal of logistics arm helps Yinson to build war chest

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By Azril Annuar / theedgemarkets.com | June 30, 2015 : 5:50 PM MYT

PETALING JAYA (June 30): [size=14]Yinson Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)’s disposal of its logistics arm would enable it to concentrate on oil and gas operation; also the sale proceed would come in handy to reduce its gearing, said analysts who track the company.

AmResearch Sdn Bhd's analyst Wong Joe Vuei believes that the divestment will help to expand Yinson’s “war-chest”.

“Taken together with the placement of 10% of its outstanding share base, which we will estimate will raise RM290 million, this will increase the group’s war chest by a substantial RM520 million and reduce its net gearing in order for the group to take on more projects going forward.

“The group’s net gearing was earlier expected to increase to more than two times over the next two to three years, with the recent Offshore Cape Three Points (OCTP) FPSO (floating production storage and offloading vessel) contract win in Ghana,” said Wong in AmResearch’s company report on Yinson.

To recap, Yinson is divesting its logistics and trading subsidiaries to its major shareholders and executive directors Lim Han Weng and his wife Bah Kim Lian — via Liannex Labuan Ltd (LL) — for RM228 million.

According to AmResearch, Yinson is actively bidding for more FPSO contracts. “One such contract is the Ca Rong Do project in Vietnam by Talisman (now Repsol), according to Upstream. The FPSO will have a production capacity between 25,000 and 30,000 barrels a day, plus 60 million standard cubic feet per day (mmsfcd), with first production targeted in 2QCFY18,” said Wong in his report.

“Overall we remain upbeat on the outlook of the company as the OCTP FPSO is expected to contribute to the bottom line significantly upon its commencement in Sept 2017 with approximately RM150 million full-year accretion to bottom line — effectively double that of FY15,” said Wong.

Maybank Kim Eng Securities analyst Liaw Thong Jung told The Edge Financial Daily that by selling its transportation assets, Yinson will become a “premium pure oil and gas player” once the market recovers.

“By divesting their transportation arm, the margins should overall improve given that the overall oil and gas business margin is higher than non-oil and gas per se.

“I think this is a plan that has been mooted in the past and was highlighted. In terms of pricing it's fair in our view, the offer price is 98% of our valuation. We think it is fair despite being a related party transaction. I think in a way over all, this is a fair deal to both,” said Liaw.

He also pointed out that the RM228 million proceeds from the sale will be helpful for new ventures going forward. “They are probably looking at next year’s placement exercise. The proceeds will come in handy and that will be good for future expansion programmes such as new jobs in the future,” he added.

“We also reckon some of it will act as a sweetener, with some of the proceeds going back to the shareholders,” Liaw said.

Maybank maintained a “Buy” recommendation for the Yinson, the same with AmResearch.

Yinson share price is unchanged at RM3.05 today, with only 670,700 shares changing hands.
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