YINSON has acquired the 97MW Matarani Solar project in Peru, secured with a 15-year Power Purchase Agreement (PPA). Anticipated annual contribution is around RM16m, with an expected IRR of 8%. We maintain our forecasts, raised TP by 1% to RM3.47 (from RM3.39). Maintain OUTPERFORM call.

YINSON has successfully concluded the acquisition of the Matarani Solar project in Peru, with a capacity of 97MW, from Grenergy Renewables (Grenergy) for a consideration of USD90m (including acquisition of stake and further earnouts payable to Grenergy). The majority of the project's energy is under a 15-year PPA with an undisclosed off-taker, set to commence in 3QCY24.

This is a positive announcement as the project is expected to contribute approximately RM16m annually at full operational capacity, with an estimated tariff of USD0.03/kWh, yielding an 8% (IRR). Grenergy will handle the Engineering, Procurement, Construction, and Commissioning (EPCC) and provide operation and maintenance services for the initial two years upon full commencement, ensuring a smooth and timely project completion.

Forecasts. Maintained. Despite the commencement of the Matarani Solar project in 3QFY25, we expect contributions from the project to be largely offset by startup costs.

Valuations. We increase SoP-TP by 1% (RM0.07/share) following the inclusion of the Matarani Solar project, assuming 10% (WACC) and 80% EBITDA margin. Note that our TP reflects a 5% premium accorded by a 4-star ESG rating as appraised by us (see Page 5).

Investment case. We continue to favour YINSON due to: (i) a strong FPSO order book pipeline with multiple major FPSO jobs under the conversion stage which provides significant earnings growth in coming years, (ii) its strong project execution track record which positions the company to benefit from strong structural demand for FPSO contractors anticipated in the coming years, and (iii) it being one of the first local oil & gas company invest in green technology companies (solar, e-mobility, etc) which in our view would help with the company’s long-term energy transition agenda. Maintain OUTPERFORM.

Risks to our call include: (i) crude oil prices falling below USD70/bb raising required IRR for new floating production projects, (ii) regulatory risks and uncertain returns for RE investments that are mainly focused on emerging markets (i.e. South America, India) and (iii) project execution risks including cost overrun, delays and downtimes for FPSO assets.

Source: Kenanga Research - 31 Jan 2024