Investment Highlights

• We maintain BUY on Yinson Holdings (Yinson) with a slightly higher SOP-based fair value (FV) of RM4.02/share (from RM4.00) (Exhibit 1) which also incorporates a premium of 3% for our unchanged ESG rating of 4-star (Exhibit 4) given its market leading position in renewable energy investments as an oil & gas contractor. Our FV implies a FY25 PE of 13 which is 1SD below the 5-year average of 18x.

• Yinson acquired a 97-megawatt peak (MWp) Matarani Solar Project in Peru from Grenergy Renewables (Grenergy), which is set to be the third largest renewable energy facility in the country according to Energy Central.

• The total purchase consideration of US$90mil consists of: (a) equity value of US$25mil; and (b) potential further earnouts of US$65mil from a successful completion of the plant on-time/ahead of the commercial operations date (COD).

• The Matarani project is currently under construction with Grenergy providing the engineering, procurement, and construction (EPC) works on a full turnkey basis and is expected to begin commercial operations by 3Q2024. Grenergy will also provide operation and maintenance services for the first 2 years.

• We see minimal operational risk as the plant is located within the Mollendo desert in the Arequipa region which is one of the world’s highest solar irradiation areas, according to the group’s statement.

• As for the offtake, capacity has already been contracted through a 15-year power purchase (PPA) agreement with Enel Generación Peru, the largest private electric power generation company in the country, for 182 gigawatt hours (GWh) or 70% of its total annual power production estimate at a tariff price of US$32-33/MWh (with annual inflation adjustments when necessary).

• Assuming the total purchase consideration as the capex amount (US$90mil), a project IRR of 12%, a WACC of 10% and an 80:20 debt-to-equity structure, we estimate this could accrete a slight +0.4% to Yinson’s SOP. This raises our FY5F-26F earnings by 2.5%-3%.

• Despite the marginal impact, we believe the development is a testament to our ongoing ESG conviction on Yinson, as the group continues to reallocate capital into bankable renewable energy projects relative to its peers. We believe this is crucial in preparing the company to address the possible long-term risk of peak oil demand.

• Additionally, the group has expressed strong growth ambitions in Latin America and is currently reviewing further opportunities within Peru. In the near term, Yinson is looking at commencing construction of Project Majes, a 100MW solar power plant project also in Arequipa, Peru as early as mid-2024. Our channel checks indicate that the project has secured environmental approvals and conducted the pre-operability study for the grid connection back in February 2023. The solar farm will be divided into 2 phases of 50MW each. We believe the key milestone is the signing of a power purchase agreement, which is expected to see the project taking off.

• Yinson currently trades at a compelling FY25F PE of 7x vs. its 5-year average of 19x. We believe that the discount in unjustified as Yinson is a globally recognised FPSO player with a healthy balance sheet and bright prospects of a prolific project pipeline.

Source: AmInvest Research - 31 Jan 2024