Investment Highlights

• We maintain our BUY on Yinson Holdings (Yinson) with unchanged forecasts and fair value of RM7.20/share based on an ESG-adjusted sum-of-parts valuation. This reflects a premium of 3% for our ESG rating of 4 stars given that the group is the first oil & gas service provider to proactively invest into renewable energy, and implies an FY22F PE of 15x, on par with the FBMKLCI currently.

• Yinson’s wholly-owned Yinson Green Technologies Pte Ltd has invested an undisclosed amount for a 20% equity stake in Sterling PBES Energy Solutions Ltd (SPBES), a Vancouver-based energy storage company offering marine and industrial solutions in 10 locations globally with installation partners in 26 countries.

• SPBES founders Brent Perry and Paul Hughes both own a minority equity stake of 30% in SPBES via TTB Holdings Co while India-based Sharpoorji Pallonji International and Sterling & Wilson have a combined share of 50%.

• In addition to the investment, Yinson and SPBES have also entered into a binding memorandum of understanding (MoU) to form a joint venture to accelerate the large-scale rollout of SPBES’ solutions in selected countries in Southeast Asia and beyond.

• SPBES offers standardised energy storage modules for lowcost customised systems, patented liquid cooled cell carriers, gas venting, battery maintenance systems and thermal runaway prevention as well as plug-and-play recyclable cellswap subscriptions.

• These technologies are being deployed on short-range ferries, fishing boats, tugs and passenger/offshore support vessels involving hybrid and full battery propulsion systems (Exhibit 6). Based on Market Insights Reports, the marine and boat batteries market size is projected to grow by a 2021–2027 CAGR of 6.1% to US$2.4bil.

• The company’s current order book of US$31mil for 50 vessels is expected to accelerate on a pipeline of battery systems for over 400 vessels worth US$576mil (Exhibit 7), in which the sector revenue could reach US$1.4bil over 5 years.

• The business model of SPBES, currently debt-free, involves combining initial battery sale and long-term service contracts which involve annual maintenance and cell swaps over 30 years.

• From these 2 segments, management is projecting an exponential FY21F–FY25F revenue CAGR growth of 171% to US$864mil while an FY21F EBITDA of -US$0.5mil could turn around and accelerate to US$20mil in FY22F, US$85mil in FY23F, US$180mil in FY24F and US$288mil in FY25F.

• We understand that the SPBES investment could have caused Yinson’s earlier budget of US$20mil for green technology start-ups to exceed by 50% to US$30mil (still a minimal 2% of market cap) together with the group’s earlier minority stakes into Lift Ocean, Oyika and Movita.

• Assuming Yinson’s maximum threshold of US$20mil per investment, SPBES’ valuation translates to a bargain FY22F EV/EBITDA 5x vs. energy storage players LG Chem (7.3x), Wartsila Corp (10.2x), Samsung SDI (15.7x) and Contemporary Amperex Technology Co (38.5x).

• Assuming interest cost of 4% and 10-year depreciation cycles for capex of US$70mil, we estimate that the investment could increase Yinson’s earnings by 2% FY22F and more substantively by 10% by FY23F. Hence, we are positive on this development which also reaffirms Yinson’s commitment to achieve carbon neutrality by 2030 and its 4-star ESG rating.

• Separately, Yinson’s MoU with Brazil-based Enauta Participacoes S.A. for a direct and exclusive negotiation to supply an FPSO is expected to reach a firm contract by January next year, with potential conversion costs of up to US$500mil to the Atlanta field in the Santos Basin, offshore Brazil.

• With Yinson’s purchase option for Woodside's Nganhurra FPSO, the group is separately competing with offers by MISC and Aker’s 62%-owned Ocean Yield for Limbayong and Pecan FPSO charters respectively. For the Pecan project, the charterer, Ghana National Petroleum Corporation, may be willing to partly finance the FPSO conversion costs.

• Assuming Yinson secures the Enauta and Pecan FPSO jobs, the lower capital requirements could postpone the need to undertake a rights issue. Hence, securing these 2 FPSOs could directly raise Yinson’s SOP by 14% to RM8.24/share. However, the Limbayong FPSO conversion terms do not have Enauta's upfront payment structure. Hence, if the Enauta and Limbayong charters were secured, the group may need to raise equity in the second half of next year. At the current share price, we estimate that a RM1bil rights issue with a 30% discount to largely fund the Enauta and Limbayong FPSOs could dilute Yinson’s diluted SOP by 2% or 16 sen.

• Meanwhile, Yinson together with Technip Energies are undertaking pre-front-end engineering and design (FEED) services for Total Energies for two large FPSOs to be deployed in Cameia, Block 20/21, Angola and Maka, Block 58, Suriname. Hence, we believe the group is still well positioned to secure new projects over the longer term given the limited number of FPSO players currently amid rising demand for such vessels globally. Still owning the 300,000mt VLCC Hawk (formerly Apollonia), Yinson has not given up on the FPSO charter of the Parque das Beleias field in Brazil that has been cancelled twice over the past year.

• The stock currently trades at a bargain FY23F PE of 15x vs. its 5-year average of 21x for a globally recognised FPSO player with a healthy balance sheet and strong prospects of substantively expanding its already formidable outstanding order book of RM40bil (US$9.7bil), which translates to a robust 13x FY22F revenue.

Source: AmInvest Research - 7 Oct 2021