Investment Highlights

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

• Our forecasts are maintained following the analyst briefing today which included the following salient highlights:

• Based on Yinson’s existing floating production, storage and offloading projects including the Anna Nery vessel expected to commence operation off Brazil by early 2023, management estimates that the group’s carbon footprint can achieve net neutrality if its renewable capacity reaches a gross capacity of 1GW.

• However, it has an even more ambitious target to structurally increase its renewable energy capacity to 3GW–5GW, a tremendous scale-up from an earlier target of 500MW–1GW.

• This represents a 9x–15x increase from the group’s current gross capacity of 330MW, including the recently secured 190MW Nokh solar project in Rajasthan, India, scheduled to begin operation in April 2022.

• India, which added 3,239MW of solar capacity in 2020, continues to attract multiple overseas investors, including Petronas. With a target for solar to increase solar generation power by 2.9x to 100GW by 2022 from 35GW in 2020, multiple attractive solar projects are being open for tender.

• Yinson is also eyeing other renewable projects in Europe, Vietnam, Latin America, Australia and New Zealand. Among them is 100MW of onshore wind and solar projects in Italy, which has substantively lower euro financing costs of 4% vs. India’s 8%–9.5%.

• Even though renewable projects in Europe currently offer only high single-digit equity IRRs, Yinson plans to recycle the capital by leveraging lower borrowing costs. Assuming a project IRR of 8% and WACC of 5%, this could secure an attractive NPV/capex ratio of 31% vs. our estimate of 24% for the Nokh solar plant.

• Based on the Nokh plant’s capex of RM0.7mil/MW, equity-todebt ratio of 25:75 and capacity expansion to 3GW, we estimate that Yinson could need equity of up to US$500mil (RM2bil) – 35% of Yinson’s market cap currently, depending on the pace of project acquisitions.

• As Yinson could opt to recycle capital later at lower interest costs post-development, we remain positive on its energy transition strategy that is well ahead of its peers and should garner ESG-supported premium valuations over the longer term against the backdrop of Tesla’s forward PE of over 1,000x.

• 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.

Source: AmInvest Research - 4 Mar 2021