YINSON has secured a 25-year solar power purchase agreement (PPA) in Nokh Solar Park in Rajasthan, India, with a contract value of INR27.5b (~RM1.5b) based on INR2.25/kWh. We are positive on this PPA, reaffirming YINSON’s commitment to its renewable energy expansions, with this being its second solar project in India. Maintain OUTPERFORM, with TP of RM6.95.

190MW solar project in India. Yinson’s 80%-owned subsidiary, Rising Sun Energy (K) Pvt Ltd has accepted a letter of award from NTPC Limited for the development of 190MW grid-connected solar photovoltaic power project at the Nokh Solar Park in Rajasthan, India. The power plant will be located approximately 30km away from Yinson’s existing 140MV Bhadla projects, which are operated by its 95%-owned subsidiary, Rising Sun Energy Pvt Ltd.

The PPA is to supply solar power for 25 years at a contract value of INR27.5b (~RM1.5b), based on a fixed tariff of INR2.25/kWh. Commercial operations of the plant are scheduled to commence in April 2022.

Further in-roads into renewable energy. We are positive on the PPA, indicating YINSON’s increasing commitments to expanding into renewable energy. This will also be another step towards the group’s mid-term ambitions of reaching 1GW of renewable energy in two years, and long-term target of 5GW in five years. The plant is also YINSON’s second project in renewable energy, after the first aforementioned 140MV plant, also in India, giving YINSON a total of 330MV solar production capacity to-date.

Comparatively, it is notable that the tariffs would be actually significantly lower than its first solar project (recall that the first solar project was done at a tariff of INR4.35/kWh, versus this one at INR2.25/kWh), although bear in mind that that project was initially awarded 4-5 years ago. In fact, based on media reports, YINSON managed to outbid eight other tenders ranging between INR2.47 to INR2.75/kWh in the Nokh Solar Park. Nonetheless, we gathered that land costs will be very minimal, with infrastructures (e.g. connection to the grid) already provided for. Based on our back-of-envelope calculations, assuming capex of ~USD100m, and EBITDA margins of ~80%, we arrived at an IRR of ~11% - indicating similar level of returns between the two projects.

Maintain OUTPERFORM, with unchanged SoP-TP of RM6.95 – implying 13x PER on FY22E EPS. No changes to our valuations and FY21-22E earnings for now, as based on our assumptions, impact from the project will be relatively small (i.e. <5% of earnings and ~1% of valuations). Note that our valuation has also priced in one new FPSO project in at ~RM1.15/share.

Risks to our call include: (i) project execution risk, (ii) weaker-than- expected margins, (iii) unexpected termination of contracts, and (iv) failure to land new contracts.

Source: Kenanga Research - 4 Mar 2021