YINSON is placing out 4% new shares to raise RM283m to fund its renewable and green technology investment. Given the typically long gestation period of these ventures, the exercise will dilute our FY24-25F EPS forecasts by 4% each. We also trim our TP by 1% to RM3.44 (RM3.47) but maintain our OUTPERFORM call.

YINSON is proposing a private placement of 120m new shares, representing 4% of its total share base at RM2.36 per share, marking a 6% discount from its last traded price and completion will be in 2QCY24. This exercise does not require new shareholder approval, as the company's board had already received approval on 13th July 2023 for new share issuances up to 10% of issued shares.

The RM283.2m proceeds raised will be used to fund its renewable energy and green technology ventures including electric marine vessels, e-bikes and swappable batteries, autonomous technology for electric vehicles, and charging solutions. These green technology ventures are likely to be cash flows negative initially, necessitating additional funding to scale up in the coming years. The renewable energy business, particularly with operational solar plants in India, offers more predictable cash flows and presents additional financing options beyond the proceeds from private placements.

The proceeds will reduce its net debt and gearing of RM11.5b and 1.5x as of end-Oct 2023 to RM11.3b and 1.4x, respectively.

Forecasts. We maintain our net profit forecasts but cut our FY24-25F EPS forecasts by 4% each to account for the dilution from the private placement.

Valuations. Correspondingly, we trim our SoP TP by 1% to RM3.44 (from RM3.47). Note that our TP reflects a 5% premium given 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.

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 - 21 Mar 2024