RHB Research is upbeat on the USD218m preliminary contract for FPSO Agogo, as it is regarded as an upfront payment for Yinson to kickstart its project in Angola. The firm contract value could be worth USD5bn, assuming a capex of USD1.55bn, a 15-year charter period, 10% project IRR with an implied daily charter rate of USD854k/day.
Preliminary contract for FPSO Agogo. Yinson has entered into the agreement for preliminary activities with Eni Angola, with an aggregate value estimated at USD218m for the FPSO to be deployed for the Agogo Integrated West Hub Development Project in Angola (Agogo project).
Following that, both parties will take 60 days to formalise the long-term charter contract. Yinson has already secured a VLCC for this project. The field has a relatively low cash lifting cost of USD6-8/bbl. Contract tenure will be a firm period of 15 years, with another five annual extension options. First oil is targeted for late 2025.
Firm contract value could worth c.USD5bn. Overall, the research house has stated its positive view on this development, as it is regarded as an upfront payment for Yinson to kickstart the Agogo project. Management guided that the total capex for this could be slightly above USD1.5bn, while the total upfront payment by the client may amount to as much as one-third of the total project value.
On funding, Yinson guided that there is no need for a rights issue – at least in 2023 – since management is exploring the capital recycling option to have new investors at the project level. The recent retracement of raw material prices should also provide a breather for overall project costs.
Based on our back-of-envelope calculation and assuming a capex of USD1.55bn, a 15-
year charter period and a 10% project IRR, the firm order could worth USD4.7bn, with an implied daily charter rate of USD854k/day. At a 7.50% WACC and 100% equity stake, we value the project at MYR0.35/share.
The research house’s target price (TP) rises to MYR3.28 from MYR2.91, with the inclusion of the Agogo project into its valuation. Its TP also incorporates a 4% ESG premium, based on Yinson’s ESG score of 3.20.
It is believed Yinson will seal the formal contract in two months, after which the research house will adjust the details accordingly. At a mere 10% IRR, the research house valuation is rather conservative, as every 1% increase in IRR would lift its TP by MYR0.13.
The project will be treated under finance lease accounting whereby construction gains (non-cash items) will be recognised during the conversion period. As Yinson is comfortable to own a project stake of c.70%, hence the research house does not discount the possibility of new equity investors coming in at the project level going forward.
Downside risks identified were further contract terminations and weaker-than-expected operating uptime for existing vessels.
