Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with an unchanged fair value of RM7.20/share based on an ESGadjusted sum-of-parts valuation. Our valuation incorporates a premium of 3% for our 4-star rating given that the group is currently the first and only O&G company to proactively invest into renewable energy (Exhibits 1 & 5). This valuation implies an FY22F PE of 15x on par with the FBM KLCI currently.

• Yinson’s 80%-owned Rising Sun Energy Pvt Ltd (RSE) has secured an award to develop a 190MW grid-connected solar photovoltaic power project at the Nokh Solar Park in Rajasthan, India from listed NTPC.

• This will boost Yinson’s solar capacity in India by 136% from its existing 140MW solar plant in Bhadla Solar Park II, which is only 30km away. Recall that Yinson has acquired a 95% equity stake in the currently operational Bhadla plant for US$30mil over 2 phases last year.

• Following the award, RSE will enter into a power purchase agreement with NTPC to supply 25 fixed years of solar power generated electricity after the targeted commencement of the plant in April 2022, with options for extensions through mutual agreement. The contract value of INR27.5bil (RM1.5bil or US$377mil) based on a fixed tariff of INR2.25/kWh, translates to half of the Bhadla Park’s INR4.35/kWh.

• Assuming the cost of construction at US$100mil, we estimate that the project could generate an IRR of 13%. However, given high Indian interest rates, a WACC of 10% translates to an NPV of RM78mil, a slight 1% of Yinson’s current SOP.

• Likewise, based on a straight-line depreciation over 25 years and debt-to-equity ratio of 80%, we estimate a mild 3% earnings accretion to FY24F earnings.

• Notwithstanding the slight prospective earnings increase, we are positive on the group’s foresight in moving with the global energy transition agenda ahead of its peers which should garner ESG-supported premium valuations over the longer term given Tesla’s forward PE of over 1,000x.

• Additionally, Yinson plans to further expand its portfolio by 500MW to 1GW from 330MW (including the Nokh and Bhadla solar parks). Meanwhile, the group still have multiple opportunities to further expand its SOP with the robust pipeline of fresh FPSO tenders being offered in Brazil and Africa.

• The stock currently trades at a bargain FY22F PE of only 11x for a globally recognised FPSO player with a healthy balance sheet and a formidable outstanding order book of RM41bil (US$10bil), which translates to a robust 13x FY21F revenue. This is at a 52% discount to its 5-year peak of 23x in February last year. We will provide further updates from the briefing later today.

Source: AmInvest Research - 4 Mar 2021