• Yinson gained a controlling stake in RSE as it acquired 57.5% equity in the latter for RM61.4m cash.
   
• Total investment outlay of RM126m implies EV/EBITDA of 11x. We think this is not excessive given the opportunity to leverage on RSE’s expertise to pursue growth in solar market.

• We maintain our earnings forecast at this juncture pending further clarity on RSE’s financial from management.

• Maintain BUY with an unchanged TP of RM7.70. We favor the company on its renewable energy business expansion amidst uncertainties in the conventional oil and gas market.

Gaining controlling stake in Rising Sun Energy

Yinson entered into a conditional SPA with Sunseap International, Charisma Energy Services and Bhadla Solar Investment (BSI) to acquire the latter’s 57.5% stake in Rising Sun Energy (RSE) for cash consideration of RM61.4m. RSE currently has 2 operational solar plants in Bhadla Solar Park, Rajasthan, India with a combined generation capacity of 140MW. The plants were commissioned in 2017 with a 25-year PPA (at 4.35 Rupees/kWh) with NTPC Ltd.

Our thoughts on the transaction

This transaction effectively increases its stake to 95% (from 37.5%) while remaining 5% is held by BSI. Based on total investment outlay of RM125m (Table 1) for 95% stake in the company and annual EBITDA of RM50m, the transaction implies 11x EV/EBITDA (Table 2). We think the price tag is not excessive given the growth potential that it offers.

Target 1GW in 5 years’ time

Yinson plans to expand its operating Renewable Energy generation business to 1GW in 5 years’ time. We are optimistic that this is achievable leveraging on RSE’s track record as well as support received from Indian government’s initiatives to reach 100GW solar capacity by 2022 (from current 30 GW)

No change to earnings forecast

At this juncture, our forecast excludes contribution from RSE pending more clarity on the financial from management. In FY ending Mar 19, RSE recorded net loss of RM24m as it adopted written-down value method on its depreciation policy which is higher in the initial years. The company expects RSE to contribute positively to its bottomline following the alignment to its straight-line depreciation policy.

Maintain BUY with unchanged TP RM7.70

Maintain our BUY call with an unchanged SOP-derived TP of RM7.70 (Table 3) which implies 25x FY21F PE before it drops to 21x FY22F.

Source: BIMB Securities Research - 24 Aug 2020