By Lawrence Yong
The purchase of Norway’s Fred Olson Production (FOP) may be third time lucky for Malaysia’s family-owned logistics and transport company Yinson Holdings Bhd, which has already struck gold in two previous overseas forays, analysts said.
Reaching beyond its size and shores, Yinson on Monday announced that it has agreed to buy FOP for NOK995.74 million (RM552.34 million) in a move that would significantly upsize the company. Analysts said the deal catapults Yinson into the top ten floating production storage and offloading (FPSO) owners and nearly matches Asian FPSO leader BumiArmada Bhd. They estimated that Yinson has also bought FOP on the cheap.
“Yinson has a track record of getting good deals,” said an equity analyst from a local bank said.
Lim Han Weng
Yinson’s major shareholders are founder and managing director Lim Han Weng, his wife Bah Kim Lian and his brother Lim Han Joeh. Together, they controlled 56.2% of the company’s shareholdings as at May 30. But the FOP deal was preceded by the entrance of a new major shareholder, Kencana Capital Sdn Bhd (KCSB), which is the investment vehicle of Mokhzani Mahathir and his long-time business partner Yeow Kheng Chew. Both are executive directors of SapuraKencana Petroleum (SAKP), Malaysia’s biggest integrated oil and gas service provider by market cap. In the past, KCSB invested in property, including SapuraKencana’s new office tower, analysts said.
Just weeks before the FOP deal, Yinson had said that it was enlarging its share capital with two rights issues amounting to some 59 million new shares at RM2.82 to raise RM166 million. When it was reported that KCSB would own up to 15% of the company’s enlarged capital, Yinson’s share price went flying.
Its shares were traded from under RM3 to RM4.76, an all-time high on Monday before being temporarily suspended as Yinson announced the FOP acquisition. Yinson’s shares hit a new all time high again on Tuesday at RM5.15 before easing to more stable trade at RM4.87 at midday, still up 2.3%.
If approved by shareholders at an EGM, some 38.9 million shares would be placed out to KCSB. Analysts said they see Mokhzani’s hand in the Yinson-FOP deal. Mokhzani is the middle son of Mahathir Mohamad, Malaysia’s longest serving prime minister and advisor to Malaysia’s state oil Petronas. Industry sources said that Mahathir and the Lim family have strong ties. Yinson also helped pre-merger Kencana Petroleum get business in Vietnam, analysts said.
Mokhzani Mahathir
“There are certainly signs that Mokhzani was working together with Yinson closely on this deal,” one bank-backed analyst said.
Yinson’s FOP purchase parallels SAKP’s buy of Norway’s Seadrill’s tender rig division, a deal made last December and recently concluded in April. SAKP had similarly enlarged its capital in the RM8.6 billion deal that made SAKP owner of half the world’s tender rigs supply. SAKP’s share price have risen more than 30% since conclusion of the 13th general elections in May.
“It could seem negative and politically sensitive for SapuraKencana since Mokhzani is putting money into a new, cheaper vehicle but Sapura’s strength is in fabrication and pipelaying and not FPSO. Actually, it’s a missing link in the whole value chain,” analysts said.
Analysts do not rule out possibility that SapuraKencana, a company with market cap of over RM26 billion, may find synergy to acquire Yinson later.
Yeow Kheng Chew
KCSB’s other director Yeow Kheng Chew, also sits on the board of SapuraKencana Petroleum and has been involved in Mokhzani’s past ventures such as Tongkah Holdings, Pantai Holdings and Kencana Petroleum.
Analysts noted that Yinson may still need to borrow RM400 million to finance the acquisition of FOP. AMBank Research estimated that this could raise its gearing from 1.6x currently to over 2.5x. AMBank noted that this deal would also dilute the earnings per share for Yinson.
This may not be a big worry as FOP has leased out three of its FPSOs on long term basis – two expiring in 2022 and one in 2029. “That’s eight to16 years contract earnings guaranteed,” one analyst said. The FPSOs are being used in Gabon and Nigeria.
A Kenanga Research analyst noted that FOP was an attractive buy as it translates to a price-to-book valuation (P/BV)of 0.7x; a discount to Norwegian peers such as Sevan Marine and BW Offshore which had a forward P/BV of 1.1x and Bumi Armada’s 2.5x P/BV.
“We are pleasantly surprised by the acquisition as it is a sizeable undertaking for Yinson,” an analyst from Kenanga Research noted.
Founded in 1984, Johor-based Yinson has emerged as one of Malaysia’s largest fully-integrated transport provider on land and in the sea. It first forayed into Vietnam successfully in 2009 when it was chosen to provide port transportation and logistics at Hongtou Port, about 100km from Ho Chi Minh City. In 2011, Yinson crept into oil and gas business area when it agreed to to work with Petrovietnam Technical Service Corp (PTSC) to supply a South Korea-made floating storage offloading (FSO) vessel to PetroVietnam in a RM1 billion deal. The FSO was completed in March this year and recently deployed ahead of schedule. Analysts booked the FSO in at about RM200 million.
Less than a year later in 2012, Yinson won a RM2 billion job, with PTSC as partner, to supply a floating production storage and offloading (FPSO) facility to Lam Son Oil Management, a Petronas joint venture. The FPSO is being constructed in Singapore and due by end-2013. The FPSO has been booked in at RM315 million by analysts.
Yinson had previously said that it planned to acquire one FPSO a year but with the FOP purchase, the company appears to have leaped ahead and more than doubled its assets.
“In the long run, we are positive on the company as its growth trajectory is accelerating,” Kenanga noted, the company’s strong links to PTSC are a precursor to more Vietnamese opportunities and it is expected to post a three-year net profit compounded average growth rate (CAGR) of 38.8%.
Previously, Yinson’s Lim Han Weng also started Handal Indah Sdn Bhd in 2002. The company was the only Malaysian company to be given permission to provide cross-border bus services between Johor Baru and Singapore, breaking a 30 year monopoly by two Singaporean-owned bus companies.
Dubbed “Causeway Link,” Lim’s company started with only eight buses and has since grown to over 400 buses, making the company one of the largest bus operators in Malaysia.
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