Yinson Holdings Bhd (7293.KL)
AN OIL & GAS PLAYER THAT IS IMMUNE TO SHORT-TERM OIL PRICE MOVEMENT AND ABOUT TO ACHIEVE RECORD PROFITS
This article is about Yinson Holdings Berhad (7293.KL) that is listed in Malaysia – an oil and gas player that is immune to short-term oil price movement, which is about to achieve record profits based on recurring lease revenues.
I was inspired to take a closer look at Yinson after reading several analyses on Valaris—particularly this article by Deep Value Capital, which is well worth your time. While Valaris is focused on exploration and offshore drilling, Yinson stands out for its strategic position in offshore oil production through FPSOs. What truly caught my attention is how Yinson has weathered industry storms—demonstrating remarkable stability during the 2016 oil glut and the historic subzero oil prices seen during Covid-19.
This is a long write - up, be sure to expand email to see the full article.
Disclaimer: DYODD. I have initiated a position in Yinson. Not investment advice. Educational only.
Thesis
The thesis here is simple.
Yinson has 3 FPSOs that recently achieved first oil: 2 in the second half of 2024 and 1 in July 2025. The recurring lease revenues from these 3 FPSOs are very significant, as they will drive the company to record earnings. However, this has not yet attracted the market’s attention. My estimate of the company trading at a forward PE of approximately 4.5 is based on projected earnings for the financial year ending January 2027.
Yinson has also recently received a capital injection (from a consortium of SWF, pension fund, private equity) that values the company at twice its current market capitalization.
Additionally, the company is still bidding for new FPSO projects, aiming to win 1 or 2 each year. FPSO projects are capital-intensive and complex, but Yinson has demonstrated its capability by going from 0 to 9 FPSOs to date.
My view is that the company should easily be worth 30–40% more than current levels when it publishes improved earnings moving forward. We might also enjoy further upside when there’s significant project wins.
What is a FPSO?
FPSO stands for “Floating Production Storage and Offloading”. It is an offshore vessel for oil production and temporary storage. Hydrocarbon is offloaded onto tankers for transportation to the next destination.
Schematic Diagram of a FPSO in Operation
FPSO can be a new built ship or can also be readily converted from existing oil tankers. A FPSO consists of several critical components such as mooring systems (to stick it to the seabed), turret (a rotating structure to keep the ship align with wind and wave), risers (flexible steel pipes that extract hydrocarbon), storage tanks (located within the hull), offloading systems, accommodation facilities etc. Due to its niche nature and complexity, I believe there are probably around 10 players with the scale to engineer an FPSO, while there might be another 5-10 builders who could construct and deliver an FPSO.
FPSO is typically used at challenging seas where jack-up rigs and semi submersibles are uneconomical. There are currently about 200 active FPSOs in operation. Nearly half of it are in South America with Brazil taking the biggest share, followed by Africa (Angola, Nigeria), the North Sea, and Asia Pac.
FPSO charter rates are the highest among the various offshore vessels that support the oil and gas industry. A large FPSO lease contract typically ranges 2-3bil USD and lasts 15 years. That translate to about 550k USD – 600k USD a day. This is comparable to day rates of 7th generation drill ships that also earns about 500-600k USD.
There are about 60 FPSO projects to be awarded between 2025 and 2029 (11 a year), with a total contract value up to 91b USD. 1.5bil USD per FPSO on average. Yinson’s outlook indicates that offshore projects (of which 20% of new global production is expected to be in deepwater) are still competitive, with numerous deepwater developments able to achieve break-even costs at prices as low as USD 30 per barrel. FPSOs remain competitive, representing 50% of all floating production units deployed globally from 2010 to 2023.
Competition
There are about 200 active FPSOs currently worldwide. The 4 larger players ie SBM, Modec, Yinson and BW operate a total of about 45-50 FPSOs (before considering effective ownership) among them. Yinson is currently the 2nd/ 3rd largest FPSO player in the world, behind SBM and Modec. A quick comparison can be seen from the table below.
The FPSO construction and lease industry appears to be quite fragmented, with the major players controlling only 25% of market share. Furthermore, it is a game of economies of scale, where FPSOs are very expensive to build. Coupled with the technical know-how and funding capability required, I wouldn’t be surprised if future FPSO finance/operating lease contract awards become concentrated among Yinson, MODEC, and SBM (BW might struggle due to its relatively smaller size).
However, over the last 2 years, there have been about 7 FPSO contract awards, of which only 1 is on an operating/finance lease contract. The other 6 are based on EPC/direct ownership structures where the oil majors own the FPSO outright. Oil majors sometime prefer direct ownership to maximize control, reduce constraints, negotiate better financing terms, and adapt to the dynamic industry.
This can pose a challenge to FPSO finance/operating lease companies like Yinson as they are being bypassed by the oil majors.
Oil Prices and Impact on Yinson
I’m not an oil expert (all I did was had a glance at this Oil 101 and it is a good book). And I don’t attempt to form an opinion about oil’s short term price movement. Typically, offshore deep water oil projects have breakeven oil prices that range between 50-60 USD/ barrel, with the exception of Brazil where breakeven price ranges between 25-40 USD/ barrel.
Fortunately, Yinson is somewhat insulated from the carnage of oil price volatility. In fact, the correlation between prices of WTI Crude Oil futures (CL) and Yinson’s stock price is merely 0.20 (p-value = 0.000277, sample size = 344, study period = 2020- 2025 including Covid times). The correlation between the two is weak in statistical sense. Of course, in the grand scheme of things, Yinson relies on long term demand for deepwater oil extraction projects. Yinson’s 2020 earnings was not affected despite covid-19 and oil prices went negative.
The reason why Yinson is insulated from short term price movement lies within the business model. The company operate on a leasing model where FPSOs are only built when contracted by oil producing majors and upon construction completion the FPSOs are then leased to oil producing majors for 10-20 years at a fixed rate. On the other hand, Yinson does not build FPSOs themselves, these projects are subcontracted to players like Seatrium, Keppel etc. Long story short, Yinson wins FPSO projects from oil producers like Petrobras to build and lease the FPSO to Petrobras; Yinson turns around to award the construction of such FPSO to offshore construction companies like Seatrium; Yinson then deploy the FPSO to the designated oilfield for oil extraction and continues to provide operating & maintenance services for the contracted period (typically 10-25 years).
However, let’s examine the risks that may lead to early termination of an FPSO lease. The most cited reasons for early termination are:
Poor field performance or unfavorable economics due to reserve depletion (e.g., FPSO Knock Allan, Yinson)
Counterparty risks such as bankruptcy of the charterer (e.g., FPSO Lam Son, Yinson)
Geopolitical disruptions
Technical problems or failures (e.g., Armada Claire FPSO)
FPSO lessors typically receive substantial termination fees to cover costs, unless they are at fault. Interestingly, my research reveals no cases where an FPSO lease was terminated solely due to weak oil prices. It seems more sensible to continue extraction and wait out the downturn, since the majority of costs are sunk.
Yinson’s Story
Lim Han Weng is a veteran in the business world. He started Yinson as a trucking company in the 1980s. This news article provides a brief introduction to Lim’s entrepreneurial past. Yinson became a public company in 1996, right before the 1997 Asian Financial Crisis. In 2008–2009, the company decided to expand into the marine sector by purchasing offshore support vessels and chartering them to oil & gas players to diversify income streams.
It struck a deal with PTSC Vietnam—a state-owned oilfield services company and subsidiary of the national oil company PetroVietnam—in 2011 to build an FSO. This chapter remains mysterious and miraculous to me, as I still scratch my head trying to understand why PTSC Vietnam decided to enter into a JV with a company that lacked relevant experience in building FSOs. There wasn’t a public tender; rather, it appears to have been direct negotiations between the parties.
Anyway, since building the very first vessel for PTSC, Yinson has raised equity and debt through multiple rounds to increase its financial firepower for further expansion. In 2013, Yinson bought Norwegian FPSO firm Fred. Olsen Production AS to gain control of three FPSOs and leverage the firm’s engineering know-how. Yinson continued to raise financing, built more FPSOs, and navigated the 2016 oil supply glut and the 2020 COVID-19 crisis. The company now owns 9 FPSOs and remains profitable with a sustainable debt level. Five years ago, Yinson decided to expand into renewables and green technologies (this segment remains in its early phase, and I would rather not elaborate on it). Yinson is currently bidding for seven FPSOs, according to a recent disclosure.
Today, the founding family still owns 27% of the company.
Finance Lease Accounting
Yinson charters vessels to charterers under either operating lease or finance lease agreements. The key difference between the two lies in which party reflects the vessels on their balance sheet. Under an operating lease agreement, Yinson remains the vessel owner and continues to carry the vessel as an asset. Under a finance lease agreement, ownership of the vessel is transferred to the counterparty—this is the arrangement Yinson has adopted for the majority of its vessels.
Salient points regarding the finance lease arrangement:
The contract qualifies as a finance lease if it transfers substantially all the risks and rewards associated with ownership of the underlying vessel to the charterer.
Under such an arrangement, Yinson delivers the vessel and treats it as an outright sale, recognizing revenue accordingly.
Revenue is measured at the fair value of the vessel or at the present value of the lease payments.
Yinson records a profit if the recognized revenue exceeds the cost to construct the vessel.
The recognized revenue accrues as receivables on the balance sheet.
The lease period typically lasts from 10 to 15 years, during which lease payments are made to Yinson and receivables reduced accordingly.
Debt – Non recourse loan
As of 31 January 2025, RM 9.3 billion of total loans and borrowings were project financing (non-recourse) facilities for FPSO John Agyekum Kufuor, FPSO Helang, FPSO Maria Quitéria, Agogo FPSO, Rising Bhadla 1 & 2 Solar Parks, Nokh Solar Park, and Matarani Solar Park. This figure increased to RM 10.6 billion (vs total borrowings of RM 17.25 billion) as of 31 July 2025. The non-recourse loans limit the lenders’ ability to seek compensation beyond the collateralized vessel or project assets.
Total borrowings of RM 17.25 billion may appear disproportionately large compared to the company’s total equity of only RM 8.9 billion, of which about RM 4.26 billion is cash. However, the revenue backlog currently stands at RM 80 billion and covers the debt by nearly five times. Therefore, it is primarily a matter of refinancing this debt to match the cash flows from the revenue backlog, and Yinson should be fine.
Enhanced Profitability
Yinson’s recurring revenue from lease payments has become the key source of income as the company’s fleet expansion is transitioning to a less rapid pace. The company now has 9 income-generating FPSOs and only 1 under construction.
As construction activity dwindles, so does revenue contribution from Engineering, Procurement, Construction, Installation, and Commissioning (EPCIC). Yinson typically recognizes EPCIC revenues in line with the vessels’ construction progress. At the same time, construction costs are so substantial that the company does not usually make a profit from EPCIC activities. The real value comes after the commencement of the lease contracts.
The projection for revenues/ NPAT and free cash flow for the coming years can be seen from the tables below.
Notes:
(1) EPCIC – assumed as zero for projection purpose. Only 1 vessel under construction at the moment but suspecting it would not have much bearing on NPAT.
(2) Yinson does not provide clear breakdown of this item, however, I’m assuming that it comprises 20% of the total annualized FPSO contract value. Item would see increases due to Maria, Atlanta, Agogo.
(3) Contributed by FPSO on operating leases (no recent award of operating leases, hence assumed zero growth). Yinson sold offshore support vessel chartering business that consists of 4 tugboats in FY2025. But impact should be negligible due to low day rates vs those of FPSOs.
(4) Deconsolidation of FPSO Anna Nervy into a JV resulted in reduction of about RM 924 mil. Figure considers revenue contribution from FPSO Maria Quiteria (RM 0.8 bil), FPSO Atlanta (RM 0.4 bil), and FPSO Agogo (RM 0.3 bil for a 3 mth period only)
(5) Considers full year contribution from FPSO Agogo
(6) COGS includes:
depreciation of PPE
salary increases due to delivery of O&M services
assumes EPCIC construction cost to go to zero due to no contract win (conservative case)
Opex of vessels – assumes no new operating lease contract, hence no increase
(7) Effective tax rate for last 4 yrs = 12% -- perhaps there has been concession from local government. However, use 20% for modelling
Notes:
* These are assumed figures
# Item should not increase by large as the 3 newly delivered FPSOs are 100% owned by Yinson
^ According to AR2025, RM 12b will due in 5 yrs’ time vs rev backlog of USD 20b over 20 yrs, Yinson needs to refinance.
` Projection based on data from AR 2025
My cash flow projection is conservative as it assumes that Yinson would attempt to pay off debt as much as it could, with just enough new loans to balance out free cash flow. This potentially will result in faster debt reduction. Meanwhile, as the company positions itself to win 2 FPSO contracts in CY 2025, large dividend/ capital return is probably not on the horizon. However, it is nice to see that Yinson returned RM 509 million (which translated to 7% yield) to shareholder for FY2025 (118m in div, 392m in buy back).
Other Businesses
Yinson Renewables operates 500MW of solar farms with an additional 500MW under construction, while Yinson GreenTech manages an EV fleet of 400 cars, 2 electric vessels, and 3,600 charging points. Since these ventures are still in their early stages, I will not focus on them in this analysis.
New Capital Raised through a Consortium
A consortium consisting of Platinum (funds from Abu Dhabi government), BCI (pension funds from British Columbia, Canada) and RRJ (private equity) has recently stroked a deal with Yinson to inject USD 1 billion of additional capital to cater for future growth needs, with an option for another USD 0.5 billion if required.
The disclosure can be found here (this is by far one of the most difficult document that I have come across to understand – I blame it on the investment bankers for long and windy paragraphs). There are some golden nuggets here to extract – as it touches on business fundamentals, structure of the deal, valuation of the business etc.
The salient points are as follows:
1. The capital will be injected into YPOHL, a 100% owned subsidiary of Yinson Holdings Bhd (YHB), which also happens to generate all of the group’s profits. YPOHL will issue up to 1 million Redeemable Convertible Preference Shares and 1 million warrants for USD 1 billion of capital injection. With an option for another USD 0.5b in 2 years.
2. Utilization of proceeds
80% will be earmarked for general purpose of YPOHL ie funds for construction projects of new FPSOs
20% to be utilized by YHB, the parent company to: expand renewable energy & green technology business, repay bank loans, contribute towards working capital, and 30mil USD (125m MYR) – for dividend or share buy-back.
3. RCPS terms:
The deal does not prescribe a maturity date and are not callable by the consortium. A subsequent IPO of the subsidiary – YPOHL, appears to be the exit strategy for the consortium. A ‘Target Exit Date’ – around June 2030 is prescribed where the following could happen:
If IPO is consummated, the RCPS holder could convert the RCPS into common stocks and exit their position accordingly; or if the IPO is not consummated, the RCPS holder could convert the RCPS into perpetual bond that attracts higher rates.
Early redemption by Yinson (any time) - redemption price would be set such that RCPS holders would realise an IRR of 15.75% pa. However, Yinson would have to redeem up to USD 280m of RCPS if Yinson commences on the construction of a 3rd FPSO after this capital raise – the consortium intents to recoup investment rather than getting swallowed into a perpetual capital sucker.
Preferred distributions aka dividends aka interest payments
YPOHL could elect to pay preferred distributions in 100% cash (Option A), or a combination of cash and payment in kind (Option B). Option B would automatically be triggered if YPOHL declares dividend which is lesser than 12.95% pa. Payment in kind (PIK) – in human language, can be understood as deferred payment. For example if the company does not pay any dividends to RCPS holders, the dividend of 13.5% would accrue to the principal, and compound at 6.25% pa. Option B is costlier.
IPO and Perpetual Bond
The company targets to list YPOHL in an IPO between 2028-2030. This would facilitate the exit of the RCPS holders as they would convert to common stocks and sell them. If IPO is not consummated, the RCPS holders would have the right to convert the RCPS into perpetual bond that carries a higher interest rate starting at 14.5% and increasing by 1% per year to 17.5%.
Max dilution
Common stockholders will face dilution if RCPS holders decide to convert into common stocks during IPO consummation of YPOHL. The maximum dilution common stockholders would experience is 42.4% in the USD 1.5b capital raise scenario. This includes the conversion from warrant holders (I would rather not expand the warrant discussion here – as dilution is the only implication).
4. Rationale of the deal
YHB explains that financing of this quantum is difficult to achieve via conventional financing pathways such as bank borrowings, mezzanine financing etc. This financing would raise USD 800m – the required equity contribution to build up to 2 FPSO vessels. The management also explains that the preferred dividend rate is comparable to YHB’s 2023 FPSO mezzanine financing rate which ranged between 12.5 – 13.5% pa. The step-up rate from 12.95 to 17.5% is also comparable to YHB’s existing perpetual securities if not redeemed on time.
My take is that – although the RCPS has many characteristics of a bond, it offers the company flexibility in payment and does not burden the balance sheet as much. It also does not dilute existing shareholder immediately, or maybe not at all, if YHB fails to secure new FPSO projects and the capital is returned to the RCPS holders. Of course, all these comes at a price – high dividend rate, IRR guarantees for early redemption, mandatory early redemption, conversion to perpetual bond, and step-up rate etc.
5. Valuation by the consortium
The deal values Yinson at 15.62b MYR, vs the company’s market cap of 7b MYR ++ as of October 2025 (based on 1.5b USD/ max 42% dilution).
Valuation and Catalyst
At TTM earnings, Yinson currently trades at about 11 times PE. However, the market doesn’t seem to sufficiently acknowledge the fact that lease income from FPSO Maria Quiteria and FPSO Atlanta was not fully reflected in FY2025, and FPSO Agogo only achieved first oil in 3Q 2026. When these are fully reflected in FY2027 (financial year ends January 2027), Yinson will have achieved record NPAT of RM 1.6 billion, or a forward PE of 4.5 times. Comparable peers such as Modec and SBM currently trade at 12–15 times PE.
Yinson would also generate more earnings from recurring revenue that is highly predictable and profitable. During the period 2022 to 2025, PBT margin averaged about 15%. For FY2027, when all FPSOs contribute lease income, PBT margin is expected to hit 40%. At that rate, ROE should be around 17–19%. My gut feeling is that the stock should trade at a P/BV of 1.5–1.8, translating to a market cap of RM 13.5–16.2 billion. Basically, a two-bagger. However, it is also very possible that the market continues to misunderstand Yinson, viewing it as exposed to the cyclicality of the oil & gas industry (which is not true), and as focused on heavy capex/low-margin FPSO EPCIC business (EPCIC will continue to play a significant part but is no longer the only thing Yinson does). Therefore, a market cap of RM 10–13 billion might be more probable (vs RM 7.3 bil as of Sep 2025).
Additionally, the recent capital raise sees the consortium valuing Yinson’s FPSO business at RM 15.6 billion (vs RM 7.3 bil as of Sep 2025). As part of the deal to facilitate the consortium’s exit, Yinson plans to list the FPSO business in an IPO by 2030. This could also be a catalyst for the stock price if the company manages to price the IPO attractively. To do so, Yinson may have to list in the EU/ US market.
Note that the thesis so far has not relied on new FPSO contract wins or refinancing of debt to more favourable terms (especially for FPSO Maria Quiteria, Atlanta, and Agogo), both of which I believe are within Yinson’s grasp.
Considering the points above, I believe that Yinson will be worth more than it is today when the financial reports start to show improving bottom line and margins. I am comfortable projecting a 30–40% increase in stock price from now until 2027, but beyond that, it is anybody’s guess.
Thanks for the write-up. Do you have any thoughts on the rumored buyout?