The longer-than-expected downturn in the oil and gas (O&G) industry has resulted in many asset-heavy players going belly-up worldwide. In contrast, Yinson Holdings Bhd expanded and gained a firmer foothold in the harsh operating environment.
From just one floating, production, storage and offloading (FPSO) vessel in 2010, Yinson is now the world’s sixth largest FPSO operator with a footprint in several regions — from West Africa to Europe, the Americas and Asean.
The group was the winner of the 2016 The Edge-BRC award for the highest profit before tax growth for the trading and services sector. Yinson is back on the list of winners this year as the joint winner of the award for the highest return on equity in three years in the energy sector.
While Yinson’s ROE declined from a high of 23% in FY2014 to only 10% in FY2017, it was still among the highest in the industry during the period. For the awards, Yinson’s adjusted weighted ROE showed a 14.1% three-year compound annual growth rate during the evaluation period.
In June 2015, Yinson decided to dispose of its logistics unit to fully focus on the FPSO vessel business when oil was trading at US$45 per barrel. It was the right call.
As at July 31, Yinson had total assets of RM7.58 billion, comprising equity of RM3.77 billion against liabilities of RM3.81 billion.
The group has gained the confidence of investors over the years and has been consistently selected by analysts as one of their top picks in the O&G sector. While many O&G stocks on Bursa Malaysia are still experiencing heavy selling pressure, Yinson’s share price has doubled from RM2.766 at end-June 2015 to RM4.518 at end-June 2018.
So, how did Yinson make it? In an interview with The Edge in July last year, group CEO Lim Chern Yuan emphasised pacing growth and the pursuit of contracts. Indeed, the company has delivered projects within budget and on time without fail.
One of its strategies is to focus on robust contract terms, such as fixed charter rates and termination protection, which minimises oil price and reservoir risks. More importantly, it is not greedy about winning many contracts, but it wants the good ones that will benefit the group in the long run.
Yinson is also focused on optimising its capital and funding structure to facilitate its operations and growth in the capital-intensive and high-risk O&G sector, such as through ring-fencing its funding with secured contracts.
“What we have done in the past one to two years is to build up our balance sheet and human resources, and with the oil price being where it is right now, I think we are in a good position to take on [more] projects,” said Lim in July.
Yinson is also critical in establishing its network, emphasising high quality counterparties and strategic partners.
Amid the downturn of the O&G sector of last few years, Yinson managed to maintain its growth tempo, completed the conversion of its vessels and delivered its ships within its contract obligations, thus earning the trust of its clients and partners.
It now owns and operates a fleet comprising three categories of offshore marine vessels with five FPSOs, one floating storage and offloading vessel as well as four offshore support vessels.
As at July, FPSO tenders were at their highest in three years, according to Lim. The company’s order book stood at a healthy US$4.3 billion as at May, which will provide an income stream for the group until 2037.
According to Bloomberg data, Yinson had six “buy” calls and one “hold” from Oct 1 to Nov 16, with target prices ranging from RM4.56 to RM5.53.
Oil prices have risen from their lows to a level many industry players describe as a “sweet spot” of around US$70 per barrel. The upstream O&G industry is poised to return to exploration and production mode with FPSO operators, like Yinson, seen as beneficiaries for more jobs. This bodes well for Yinson.