Yinson’s earnings to see minimal reduction after EV investment

by S BIRRUNTHA / pic by TMR FILE

YINSON Holdings Bhd will see a minimal earnings reduction of between RM1 million to RM2 million due to the company’s procurement and installation costs of ChargEV infrastructure, according to AmInvestment Bank Bhd (AmInvest). 

Yinson’s 100%-owned Yinson Green Technologies (M) Sdn Bhd had signed a term sheet with GreenTech Malaysia Alliances Sdn Bhd (GTMA) to speed up the development of electric vehicle (EV) charging infrastructure in Malaysia. 

It said on Oct 26 that its unit Yinson Green Technologies and GTMA, a unit of Malaysian Green Technology and Climate Change Corp (MGTC), would undertake the development. 

Under the agreement, Yinson will have the majority stake to provide EV charging stations in Malaysia, building upon the ChargEV network with over 400 charging stations nationwide established by MGTC, which will be injected into the joint venture. 

AmInvest research analyst Alex Goh noted that ChargEV charges RM240 annually for unlimited charging on its 9,850 members currently. 

While no financial details have been disclosed, he expects ChargEV to be loss-making given an estimated annual revenue of RM2.4 million based on the present payment structure. 

“Assuming procurement and installation costs at RM30,000 per unit, we estimate that Yinson’s investment could be below RM10 million, which is 0.2% of the group’s market cap. 

“Assuming interest costs at 5%, we estimate a minimal earnings reduction of RM1 million to RM2 million, which is 0.4% of financial year 2022 forecast (FY22F) earnings per share,” he stated in a research note yesterday. 

Going forward, Goh said Yinson’s management expects the government to introduce more incentives to encourage EV adoption in line with the country’s green agenda. 

He said this could escalate the number of fully battery-powered EVs from 200 and hybrid plug-ins from 52,000 currently. 

Together with new payment schemes, this is envisioned to turn around ChargEV to profitability. 

“Notwithstanding the slight immediate earnings erosion, we are neutral on this development that reaffirms the group’s net-zero carbon ambitions which have led to investments of up to RM60 million into green technologies in addition to its 330 megawatts solar projects in India. 

“This justifies our four-star environmental, social and governance (ESG) rating for the group which still derives most of its earnings from the oil and gas (O&G) sector,” he noted. 

On that note, Goh maintained its ‘Buy’ call on Yinson with an unchanged fair value of RM7.20 per share based on an ESG-adjusted sum-of-parts valuation. 

He added that this reflects a premium of 3% for the research house’s ESG rating of four stars given the group is the first O&G service provider to proactively invest into renewable energy, and implies an FY22F price-to-earnings (PE) of 15 times, on par with the FTSE Bursa Malaysia KLCI currently. 

He also noted that Yinson is currently trades at a bargain FY23F PE of 14 times versus its five-year average of 21 times for a globally recognised floating, production, storage and offloading player with a healthy balance sheet and strong prospects of substantively expanding its already formidable outstanding orderbook of RM40 billion, which translates to a robust 13 times FY22F revenue.