KUCHING: Yinson Holdings Bhd (Yinson) has entered into a heads of agreement (HoA) to sell a 26 per cent equity stake in its wholly-owned West African asset, Yinson Production West Africa Pte Ltd (YPWA), to a Japanese consortium of companies for a consideration between US$104 million to US$117 million.
In a filing on Bursa Malaysia, Yinson said the HoA signing took place on Monday and that its ultimate purpose was to form collaboration with the consortium through the asset in relation to the contract for the chartering, operation and maintenance of a floating production, storage and offloading (FPSO) facility – FPSO John Agyekum Kufuor who has produced its first oil on May 22, 2017.
The companies comprising the consortium are Sumitomo Corporation (Sumitomo), Kawasaki Kisen Kaisha Ltd (K Line) and JGC Corporation (JGC) and the Development Bank of Japan Inc (DBJ).
Sumitomo is a leading global trading company, K Line is among the world’s largest shipping companies, JGC designed and engineered Petronas’ Rotan floating LNG vessel and the Bintulu LNG Train 9, and the DBJ is a wholly-owned and controlled Japanese government asset.
Together the consortium offers a plethora of experience and resources for the collaboration at hand but besides that, AmInvestment Bank Bhd (AmInvestment Bank) is also positive on the deal as its guided consideration between US$104 million and US$117 million is also higher than expected.
“This is five to 18 per cent above our estimate of RM1.6 billion for the FPSO, which could marginally increase Yinson’s SOP by two per cent,” said the bank in a company report.
The bank added that the minority charge from the deal would however reduce the group’s FY19F earnings by 10 per cent as well.
“Hence, we are mildly positive on the sales as Yinson will be securing upfront cash from this project which can be redeployed for fresh new jobs without resorting to shareholders.”
Looking forward, Yinson’s current order book of US$4.2 billion has locked-in its earnings visibility in the near to medium-term and has further prospects of plying it as its 51 per cent owned FPSO Rainbow which is currently idle could be redeployed to the Southeast Asia region.
Besides that, Yinson’s 49 per cent owned JV with Lam Son Joint Operating Company (PTSC AP) for the FPSO PTSC Lam Son has accepted a letter of intent to continue operation within the Lam Son Field, off Vietnam from July 1, 2017.
While the financial details for the new Lam Son charter has not yet been ironed out, it is understood that Yinson may prefer a short-term charter as the new rate may be significantly lower than the original contract guided the bank.
“Hence we have not incorporated any earnings from this extension as the increment may be minimal until a more profitable job materialises.”
All factors considered, the bank believes that the stock is currently trading at a bargain CY18F PE of 11 fold versus over 20 fold for the Dialog Group and Petronas Gas.
Hence, the bank will be maintaining its ‘Buy’ stance on the stock with a fair value of RM3.97 per share.