Highlights

• 1QFY27 Enterprise Reporting (ER) disclosure reveals cost inflation; profit below expectation. Contrary to the IFRS accounts revealed in Jun 26, the ER disclosure of Yinson Production’s (YP) profit was lower than expected, primarily due to higher opex and depreciation. The ER finance costs have remained consistent since 3QFY26 after FPSO Agogo’s first oil. YP attributed the increased opex to higher tender costs, which implies a change in dynamics in the FPSO bidding environment, even though it still remains a contractor market. 
   
• Value remains strong, driven by superb project execution. Although we conservatively assume that the higher costs may be structural, resulting in our FY27F-29 earnings forecasts being cut by 17%/24%/16% respectively, we believe Yinson will be able to adapt with new strategic collaborations, as it is already in the same league (execution-wise) as Brazil FPSO giants such as SBM Offshore and Modec. We remain positive on its long-term FPSO value, as long as its project execution remains better than its peers. Retain BUY, with SOTP-based target price adjusted to RM2.40 (from RM2.75).
   

Analysis

• 1QFY27 ER profit review: Below expectations. 1QFY27 ER revenue was lower qoq at US$309m due to lower non-recurring income, despite FPSO charter revenue being higher qoq at US$291m vs US$286m. FPSO opex, SG&A expenses and depreciation on ER-basis surged beyond normal quarterly run-rates, attributable mainly to higher tendering costs. Although we are unable to confirm, we are more inclined to believe the ER format is clearer in showing potentially a structural cost inflation in the FPSO industry, rather than a one-off impact. In contrast, the IFRS disclosure showed a decline in direct costs due to the absence of EPCIC costs after FPSO Agogo’s first oil, which led to a yoy boost in gross profit.