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.

• Hot on the heels of an investment of a 20% equity stake in Sterling PBES Energy Solutions Ltd (SPBES), a Vancouver-based energy storage company offering marine and industrial solutions earlier this month, Yinson has further invested into fresh green technology developments.

• The group’s 100%-owned Yinson Green Technologies (M) S/B (YGT) has signed a term sheet involving a joint venture to provide electric vehicle (EV) charging stations nationally with GreenTech Malaysia Alliances (GTMA) which is wholly owned by the government’s Malaysian Green Technology and Climate Change Corporation.

• The term sheet covers YGT initially owning a 70% equity stake in the JV, which will be injected with GTMA’s wholly-owned ChargEV, currently owning over 400 charging stations nationwide (Exhibits 1 & 2) and dominates this segment as other operators ParkEasy, JomCharge and ChargeN’ Go have deployed only 60 at this stage.

• ChargEV charges RM240 annually for unlimited charging on its 9,850 members currently. While no financial details have been disclosed, we expect ChargEV to be loss-making given an estimated annual revenue of RM2.4mil based on the present payment structure.

• Assuming procurement and installation costs at RM30K/unit, we estimate that Yinson’s investment could be below RM10mil – 0.2% of the group’s market cap. Assuming interest costs at 5%, we estimate a minimal earnings reduction of RM1mil–RM2mil, which is 0.4% of FY22F EPS.

• Going forward, management expects the government to introduce more incentives to encourage EV adoption in line with the country’s green agenda. This could escalate the number of fully battery-powered EVs from 200 and hybrid plug-ins from 52K currently. Together with new payment schemes, this is envisioned to turn around ChargEV to profitability.

• Notwithstanding the slight immediate earnings erosion, we are neutral on this development that reaffirms the group’s net-zero carbon ambitions which have led to investments of up to RM60mil into green technologies in addition to its 330MW solar projects in India. This justifies our 4-star ESG rating for the group which still derives most of its earnings from the oil & gas sector.

• 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 are 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 14x 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 - 27 Oct 2021