Yinson Holdings Bhd - Shinning bright

Date: 04/03/2021

Source  :  Rakuten
Stock  :  YINSON       Price Target  :  6.95      |      Price Call  :  BUY
        Last Price  :  4.77      |      Upside/Downside  :  +2.18 (45.70%)

YINSON has secured a 25-year solar power purchase agreement (PPA) in Nokh Solar Park in Rajasthan, India, with a contract value of INR27.5bn (~RM1.5bn) based on INR2.25/kWh. We are positive on this PPA, reaffirming YINSON’s commitment to its renewable energy expansions, with this being its second solar project in India. BUY with TP of RM6.95 implying 13x PER on FY22 EPS.

Yinson’s 80%-owned subsidiary, Rising Sun Energy (K) Pvt Ltd has accepted a letter of award from NTPC Limited for the development of 190MW grid-connected solar photovoltaic power project at the Nokh Solar Park in Rajasthan, India. The power plant will be located approximately 30km away from Yinson’s existing 140MV Bhadla projects, which are operated by its 95%- owned subsidiary, Rising Sun Energy Pvt Ltd. The PPA is to supply solar power for 25 years at a contract value of INR27.5bn (~RM1.5bn), based on a fixed tariff of INR2.25/kWh. Commercial operations of the plant are scheduled by April 2022.

We are positive on the PPA, indicating YINSON’s increasing commitments to expanding into renewable energy. This will also be another step towards the group’s mid-term ambitions of reaching 1GW of renewable energy in two years, and long-term target of 5GW in five years. The plant is also YINSON’s second project in renewable energy, after the first aforementioned 140MV plant, also in India, giving YINSON a total of 330MV solar production capacity to-date.

It is worth noting that the tariffs for the latest project is actually significantly lower than its first solar project (recall that the first solar project was done at a tariff of INR4.35/kWh, versus this one at INR2.25/kWh), even though that the first project was awarded 4-5 years ago.

Based on media reports, YINSON managed to outbid eight other tenders ranging between INR2.47 to INR2.75/kWh in the Nokh Solar Park. Nonetheless, we gathered that land costs will be very minimal, with infrastructures (e.g. connection to the grid) already provided for. Based on our estimates, assuming capex of ~USD100m, and EBITDA margin of ~80%, we arrived at an IRR of ~11% - indicating similar level of returns between the two projects.

Source: Rakuten Research - 04 Mar 2021

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