Is Yinson's valuation justified?

The Star

16-06-2025

PETALING JAYA: Yinson Holdings Bhd has once again found itself in the limelight.
A recent Bloomberg report claiming that US-based infrastructure investment giant Stonepeak Partners was in exclusive talks to acquire the Malaysian energy infrastructure player sent its shares surging by nearly 14%.
Though Yinson has denied any direct involvement in buyout talks, it did admit that major shareholders – including the Lim family, who hold a 26.6% stake – are exploring options with 'various parties'.
But as the dust settles, a deeper question emerges: is Yinson truly worth the RM9bil valuation implied in the reported talks?
At the time of the report, Yinson was trading at RM2.33 per share, giving it a market capitalisation of about RM7.17bil.
The implied RM9bil buyout price suggests potentially up to a 32% upside.
Such premiums aren't unusual in strategic merger and acquisition deals, but do the fundamentals justify this leap?
The purported talks have brought to light the supposedly low valuations of the company.
Yinson's price-earnings ratio (PER) of 6.5 times trails peers Bumi Armada Bhd 's five times and MISC Bhd 's 30 times.
But looking at its forward price-earning of about 15 times, this is higher than that of MISC Bhd of 14.3 times forward PER and Bumi Armada Bhd's five times.
According to analysts, while Yinson's price-earnings is among the lowest in the sector, this often reflects perceived risks.
'Its high leverage and ongoing capital expenditures for its floating, production, storage and offloading (FPSO) builds are the main culprits,' an analyst tells StarBiz.
The company has a total borrowing of RM16.32bil or net gearing (including perpetual securities of RM1.94bil) of 1.8 times in the financial year ended Jan 31, 2025.
'Yet, return metrics like return on equity and net margins remain strong, hinting at robust underlying performance,' he adds.
Yinson has positioned itself as more than just an oil and gas contractor. It boasts long-term FPSO contracts, offering stable cash flows.
With over US$20bil in contract backlog, the company has visibility well into the next decade.
Meanwhile, CGS International Research is not surprised by the news of a potential privatisation as this would mean the shareholders of Yinson should reap significant gains from the potential listing of its subsidiary Yinson Production (YP).
The research house says Yinson's plans for the listing of YP in the United States equity markets in five years' time, which would be the key exit plan for Abu Dhabi Investment Authority, British Columbia Investment Management Corporation and RRJ Capital.
'We believe that the listing of YP could yield significant capital gains for Yinson, as it could also do an offer for sale of YP during the initial public offering.
'This is probably the rationale for the potential privatisation of Yinson,' the research house explained.
The research house believes that the Lim family would likely at least maintain its 27% equity stake in Yinson if Stonepeak Partners comes in as an equity partner.
Alternatively, Stonepeak Partners may provide a loan to the Lim family to privatise Yinson, in which case the Lim family may ultimately hold 100% of Yinson.
Generally, analysts are positive on Yinson with 'buy' calls but some have lowered its 12-month target price from RM3.62 to RM3.41 due to short-term engineering, procurement, construction, installation, and commissioning weakness.
However, consensus still sees substantial upside with target prices for Yinson ranging from RM3.12 (bearish) to RM5.05 (bullish), with a consensus of RM3.78 – implying a 62% upside from current levels.
Maybank Investment Bank Research (Maybank IB) is positive on Yinson, backed by its robust prospects and to benefit from FPSO bids in FY26.
'We believe the FPSO market is currently in the 'Golden Age' due to a robust global tender pipeline with an expected 13 awards over the next 12 months.
'Yinson may be looking for one new job next year (FY26) in the mid-sized segment for bankable projects with high upfront payment from end-clients,' Maybank IB notes.
As such, the RM9bil figure with hefty premium appears justifiable for a strategic asset with strong recurring cash flows, particularly in today's market of yield-hungry infrastructure investors.
Yinson's valuation, at first glance, seems to reflect investor caution: high debt, negative free cash flow, and macro headwinds.
But deeper analysis reveals a fundamentally solid business with long-term income visibility and expansion into renewables.
If leveraged effectively, these factors could drive a significant re-rating.