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DK66

Author: DK66   |   Latest post: Wed, 15 Jan 2020, 10:32 AM

 

Jaks Resources - Higher Expected Investment Returns from JHDP ?

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Important : The main and sole purpose of this article is to demonstrate the impact of improvement in annual utilization hours on the expected investment returns of Jaks Hai Duong Power Plant project (JHDP).


Why Looking at  Vinh Tan 1 ?

Mong Duong II, Hai Duong , and Vinh Tan 1 are all foreign owned power plants in Vietnam operating under 25 years BOT contracts with capacity around 1,200 MW. All their power purchase agreements were signed around 2012. 

Therefore, terms and conditions of these BOT contracts should exhibit extreme high similarity, if not identical.

Vinh Tan 1 Thermal Power Plant

Located in Vietnam's southern province of Binh Thuan.

The coal-fired power plant includes two 620-MW super-critical generating units owned by a consortium led by China Southern Power Grid, and constructed by CEEC. CEEC is a subsidiary of CPECC who is Jaks' partner in JHDP.

The plant, with a total investment of about US$1.76 billion, is the biggest project invested by Chinese companies in Vietnam, as well as the first BOT (Build-Operate-Transfer) investment made by China in the country. Both its design and construction adopt Chinese standards. 

Vinh Tan achieved full commercial operation on 27th November 2018 (COD).

First contrat year operation data of Vinh Tan 1

http://www.cnr.cn/gd/gdkx/20191206/t20191206_524886717.shtml

在第一个合同年,项目两台机组持续保持安全、稳定、高负荷运行,机组负荷率达95.80%,累计发电86.86亿千瓦时,累计售电81.94亿千瓦时,年利用小时数7238小时,提前17天完成了购电协议规定的可用小时数要求。

In the first contract year, the two units of the project continued to maintain safe, stable, and high-load operation. The unit load rate reached 95.80%, the cumulative power generation was 8.686 billion kWh, the cumulative power sales were 8.194 billion kWh, and the annual utilization hours were 7,238 hours. The available hours specified in the power purchase agreement were completed 17 days in advance.

Government data

Accordingly, the prices for power generation in coal-fired power plants are set to range between VNĐ1,677 and VNĐ1,896 (US$0.07-0.08) per kWh during 2019, excluding some taxes, sea port fees and infrastructure. The prices are VNDĐ359 and VNĐ76 per kWh higher than those of 2018. 

The ministry’s calculation showed that the price of imported coal this year is VNĐ1.74 million per tonne excluding taxes and transport costs, increasing VNĐ0.14 million from the previous year. The rise in the price scheme for power generation was partly due to the increase of imported coal prices. 

The 2019 power generation prices have been calculated on the basis of net fuel consumption rates of 0.478 kilo per kWh applied to the net capacity of 1x600 MW and 0.474 kilo per kWh for the capacity of 2x600 MW.


Based on the above announcement;

JHDP Earning Forecast

Plant capacity = 2 x 600MW = 1,200MW

Output based on 6500 hours = 1,200,000 x 6500 = 7,800,000,000 KwH

Net output ( 6% auxiliary consumption as per Vinh Tan 1) = 7,800,000,000 KwH x 0.94 = 7,332,000,000 KwH

Average prices for power generation effective February 2019 = US$0.075 per KwH

Average Cost of Imported Coal in 2019 = VND1.74m / 23,350 = US$74.5 per tonne

 


Management Guidance

Jaks' CEO Andy Ang has indicated during the recent AGM that the power purchase agreement and hence earnings estimate of JHDP was formulated on the basis of 6500 annual utilization hours.

Therefore, management guidance of 8 years payback period and 12% IRR were based on 6500 annual utilization hours.

 

Based on 6,500 annual utilization hours,


Revenue  = 7,332,000,000 KwH x 0.075 = US$ 550m

Cost of Coal Based on 0.474 kg per KwH consumption rate

7,800,000,000 KwH x 0.474 x US74.5 / 1000 US$ 275m

Average Fixed O&M Cost = 39,500/MW x 1200 = US$ 47m

EBITA = 550m - 275m - 47m = US$ 228m

Average Interest expense at 6% = US$44m

Depreciation Expense = US$ 1,870m / 25 = US$75m

Profit before tax = US$ 228m - 44m - 75m = US$ 109m

 

If JHDP able to achieve 7,238 annual utilization hours,


Revenue  = 8,194,000,000 KwH x 0.075 = US$ 614m

Cost of Coal Based on 0.474 kg per KwH consumption rate

8,686,000,000 KwH x 0.474 x US74.5 / 1000 US$ 307m

Average Fixed O&M Cost = 39,500/MW x 1200 = US$ 47m

EBITA = 614m - 307m - 47m = US$ 260m

Average Interest expense at 6% = US$44m

Depreciation Expense = US$ 1,870m / 25 = US$75m

Profit before tax = US$ 260m - 44m - 75m = US$ 141m


 

Note : The above government data from Vietnam is only applicable to local IPP but not foreign BOT operators. Usage of data in the calculation above is only to demonstrate the impact of change in annual utilization hours on earnings.

The above calculation showed that earnings increased by 29.3% from US$109m to US$141m when the annual utilization hours increased from 6500 to 7238 hours.

 

Hence, JHDP is able to achieve 29.3% higher income if it is able to increase its annual utilization hours from 6,500 to 7,238.


 

Conclusions

If JHDP can achieve 7,238 annual utilization hours,

1.  Its payback period can be reduced from 8 years to 6.18 years (8 / 1.293)

2.  Its project IRR can increase from 12% to 15.51% (12 x 1.293)

 
Using the reverse payback methodology,
 
US$1.87b / 6.18 years = US$303m cashflow per year
 
Depreciation Expenses = US$1.87 / 25 years = US$75m per year
 
Profit = US$303 - US$75 = US$228m x 4.2 = RM958m 
 
30% sharing = RM958m x 0.3 = RM287m  => EPS = RM0.446
 
40% sharing = RM958m x 0.4 = RM383m  => EPS = RM0.595
 
Using 10x PE, Jaks is worth between RM4.5 to RM6
 
Using 15x PE, Jaks is worth between RM6.7 to RM8.9

 

Happy Investing !

DK66

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Labels: JAKS

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Chart Stock Name Last Change Volume 
JAKS 1.43 +0.01 (0.70%) 8,842,100 

  17 people like this.
 
DK66 Ramada, thanks for your 1st "like"
09/12/2019 11:01 AM
probability I no longer have any doubt on JAKS.

The most important person who should read this is Mr.Koon. He cant go wrong by investing here. In fact he should sell Dayang and buy back JAKS.
09/12/2019 5:31 AM
samheong78 Topglov earn 300 million and become KLCI blue chip and PE fetch 30. So I think Jaks can also become blue chip and worth around RM18 and become KLCI members. Have to look far far ...
09/12/2019 11:56 AM
ramada Just want to repeat this. I think this is very very important, but I hardly to see others mention it — JRB doesn't need to pay taxes for first 4 years.

Posted by DK66 > Nov 13, 2019 11:41 PM

I apologize for wrong information given earlier.

Correct information should be : Vietnam BOT will be exempted from taxes for the first 4 years, 5% for the next 9 years and thereafter 10%.
09/12/2019 6:36 PM
SarifahSelinder Kelihatan initially more eager to impress Andy was talking wit more honesty bila he quoted expected 250m - 300m PAT dari Veitnam IPP
09/12/2019 6:40 PM
SarifahSelinder Don't worry

Each n every cent of electricity sold wil b metered

Veitnam IPP revenue figure kan as honest as possible
09/12/2019 6:47 PM
SarifahSelinder Sarifah proudly berjiwa IPP unapologetic angkuh dan liar
09/12/2019 6:48 PM
probability just with 20M investment now, he will recover his lost 64M

all he needs is some patience, 25 years of recurring income cannot be suppressed
09/12/2019 7:18 PM
deMusangking JRB doesn't need to pay taxes for first 4 years.
----------------------------------------------------
what is the amount per year assuming paying taxes?
09/12/2019 7:25 PM
DK66 After 13 years , the tax rate will be 10%. Roughly RM30m
09/12/2020 2:55 PM
ramada Only 10% taxes after 13 years. This is really a good deal.
09/12/2020 2:06 PM
Sslee Dear DK66,
The 1,400 million loan repayment table:
year Principle 6% payment Prin. Payment Balance
1 1,400.00 84.00 109.518 25.52 1,374.48
2 1,374.48 82.47 109.518 27.05 1,347.43
3 1,347.43 80.85 109.518 28.67 1,318.76
4 1,318.76 79.13 109.518 30.39 1,288.37
5 1,288.37 77.30 109.518 32.22 1,256.15
6 1,256.15 75.37 109.518 34.15 1,222.00
7 1,222.00 73.32 109.518 36.20 1,185.81
8 1,185.81 71.15 109.518 38.37 1,147.44
9 1,147.44 68.85 109.518 40.67 1,106.76
10 1,106.76 66.41 109.518 43.11 1,063.65
11 1,063.65 63.82 109.518 45.70 1,017.95
12 1,017.95 61.08 109.518 48.44 969.51
13 969.51 58.17 109.518 51.35 918.17
14 918.17 55.09 109.518 54.43 863.74
15 863.74 51.82 109.518 57.69 806.04
16 806.04 48.36 109.518 61.16 744.89
17 744.89 44.69 109.518 64.82 680.06
18 680.06 40.80 109.518 68.71 611.35
19 611.35 36.68 109.518 72.84 538.51
20 538.51 32.31 109.518 77.21 461.31
21 461.31 27.68 109.518 81.84 379.47
22 379.47 22.77 109.518 86.75 292.72
23 292.72 17.56 109.518 91.96 200.76
24 200.76 12.05 109.518 97.47 103.29
25 103.29 6.20 109.518 103.32 (0.03)

For FCF: Net profit + depreciation - loan principal payment
Coal cost should take care of 6% auxiliary consumption
Should take out Maintenance cost since tariff should included maintenance payment.

Thank you
09/01/2020 7:02 PM
DK66 Dear Sslee,

You didn't say these when I included auxiliary consumption and maintenance in my previous article "Jaks Resources - Earning Forecast of Hai Duong Power Plant based on Government Data" - Why ?

Now you want me to exclude just because it will lower the impact ?

Your view is contradictory - now the 6% auxiliary consumption is taken care of by the coal cost and the tariff has included maintenance payment, but not in my previous article !

Anyway, there is no way to confirm that the coal cost has taken care of the auxiliary consumption and the tariff has included maintenance payment. As the government data were meant for local IPPs. I don't think the government would manage the costs of the IPPs.

As far as the interest cost is concerned, I have already explained I have used the long term average interest cost as it is deemed more appropriate for making long term investment decision.

Thank You.

------------------------------
Coal cost should take care of 6% auxiliary consumption
Should take out Maintenance cost since tariff should included maintenance payment.
09/12/2019 8:34 PM
Sslee Dear DK66,
What I mean is if Coal consumption is based on 0.474 kg per KwH generated:

Output based on 6500 hours = 1,200,000 x 6500 = 7,800,000,000 KwH
Net output (6% auxiliary consumption as per Vinh Tan 1) = 7,800,000,000 KwH x 0.94 = 7,332,000,000 KwH
Average prices for power generation effective February 2019 = US$0.075 per KwH
Average Cost of Imported Coal in 2019 = VND1.74m / 23,350 = US$74.5 per tone
Revenue = 7,332,000,000 KwH x 0.075 = US$ 550m
Cost of Coal Based on 0.474 kg per KwH consumption rate
= 7,332,000,000 KwH x 0.474 x US74.5 / 1000 = US$ 259m

Then coal cost should be
= 7,800,000,000 KwH x 0.474 x US74.5 / 1000 = US$ 275.44m

Thank you
09/12/2019 8:48 PM
probability sslee, DK66 was only demonstrating the impact of change in annual utilization hours on earnings. Its for comparison , not for absolute profit derivation.

That is for the local IPP not for foreign BOT.

If you really want to know the money they make now, you should see the below chart:


https://markets.businessinsider.com/commodities/coal-price

That's almost 50% Coal cost reduction compared the 6% due to auxiliary consumption you were stressing.
09/01/2020 11:03 AM
probability Posted by DK66 > Dec 9, 2019 7:08 PM | Report Abuse

Nagachan, Thanks for sharing your knowledge. May I ask how do you know the IRR for Jaks is around 15%? Is your project also in Vietnam ?
------------------------
nagachan I am involved in a similar power project of the same size like Jaks (also under construction now). Basically all PPAs in Vietnam have to have the following to be bankable. BOT contract, fuel cost (coal price) passed thru. No IPPs will take fuel risk even in Malaysia. USD fluctuations not a concern as the tariff is index to USD even though is paid in Dong. The last thing is Dong convertibility which is guaranteed by MOF of Vietnam. In essence Jaks is a profitable IPP with project IRR around 15%. The only thing to worry like in any other business is Management credibility.

Posted by nagachan > Dec 9, 2019 8:47 PM | Report Abuse

DK66 my answer to you is Yes
09/12/2019 12:13 PM
DK66 Dear Sslee,

I apologize that I have misunderstood you. You have always tried to lower my figures.

I have chosen to use the net output for both 6500 and 7238 hours for simplicity. Anyway, the net impact is only about US$1m. It won't affect my conclusion.

Nevertheless, I will amend my article for more "correct" presentation

but I still do not understand your point on "Should take out Maintenance cost since tariff should included maintenance payment."

Thank you
09/12/2019 9:42 PM
DK66 Article amended on Sslee comments. Thank you Sslee.
09/12/2019 9:51 PM
Sslee Dear DK66,
Normally a new plant would have very low maintenance for first few years hence only a provision is provided (I thought previously I read somewhere from your article that this maintenance provision is provided for in the agreed power purchased agreement).
Only after the recommended hours of operation then only have scheduled MTA to replaced those wear and tear parts.

Thank you
09/12/2019 9:55 PM
PotentialGhost Yeah follow dk66 Ride the jaks rocket .
09/12/2019 10:25 PM
probability To appreciate JAKS, one need to do the following basic homework:
.............................................................

1) Understand what an IRR of say 10% means for 25 years with capital invested at 30 - 40% stakes of the equity ownership of the 1200 MW Power plant valued at US 1.87 Billion. Alternatively the meaning of a payback period of 8 years considering the depreciation of the plant over 25 years.

2) What Earnings does the above translate to JAKS for 25 years.

3) If the earnings is too impressive, question the economics of Vietnam government to provide such an attractive offer for BOT contract? How is it economically viable and why they do so?

4) Finally, figure out how in the first place did JAKS managed to obtain such a fantastic lucrative deal?

once you obtain the above answers, you may slowly start to appreciate JAKS. Then you can start verifying with other similar BOT contract power plant performance and earnings.

almost all the answers are available on DK66 articles below:

https://klse.i3investor.com/blogs/Jaks%20resources/blidx.jsp

the more you research and understand, the more you will be able to appreciate the sanctity of all the above.
09/12/2019 11:00 PM
DK66 Dear Sslee

Capacity charge includes payment for capacity and fixed maintenance as well as agreed capital returns.

Here we are talking about vietnam government tariff for local IPPs which should be sufficient to cover IPPs' expenses including maintenance costs.

However, the tariff or capacity charge paid by the government still need to minus the maintenance costs etc to get the net profit.

I agree that new plants have very low maintenance cost. However, my intention here is to show the impact of change in annual utilization hours on earnings on a long term basis, thus I have to consider the case under normal operating conditions.

-----------------------------
Sslee Dear DK66,
Normally a new plant would have very low maintenance for first few years hence only a provision is provided (I thought previously I read somewhere from your article that this maintenance provision is provided for in the agreed power purchased agreement).
Only after the recommended hours of operation then only have scheduled MTA to replaced those wear and tear parts.

Thank you
09/12/2019 9:55 PM
09/12/2019 11:21 PM
SarifahSelinder Skrg ni a range of PAT can b calculated starting from 6500 hrs

Soalannya

Can Hai Doung hits 95.8% load factor?
10/12/2019 8:23 AM
SarifahSelinder Load factor mcm ni d power plant is humming like a fine royce rolls aircraft engine 24/7.... printing US$ every second
10/12/2019 8:32 AM
SarifahSelinder One important point to note too Vihn Tan likes its neighbourhood IPP
10/12/2019 8:38 AM
SarifahSelinder Tak... make that Vihn Tan loves its neighbourhood IPP
10/12/2019 8:39 AM
DK66 At 7238 annual utilization hours, Jaks' IRR is about 15.5% which matches information provided by Nagachan. From his statement below, I know Nagachan indeed has in-depth knowledge of BOT IPP in Vietnam. Very few will know that the tariff is actually calculated in USD but paid in Dong and eventually converted to USD again. I know this is true.

---------------------
nagachan I am involved in a similar power project of the same size like Jaks (also under construction now). Basically all PPAs in Vietnam have to have the following to be bankable. BOT contract, fuel cost (coal price) passed thru. No IPPs will take fuel risk even in Malaysia. USD fluctuations not a concern as the tariff is index to USD even though is paid in Dong. The last thing is Dong convertibility which is guaranteed by MOF of Vietnam. In essence Jaks is a profitable IPP with project IRR around 15%. The only thing to worry like in any other business is Management credibility.
10/12/2019 10:07 AM
tftey Recalled YTL Power experience. Early bird enjoy all the fruit. JAKS may repeat and enjoy the fruit like YTL Power those days. Electricity demand by Vietnam now is like year 1993 in Malaysia, ie severe shortages.
10/12/2019 10:07 AM
DK66 I will be grateful if Nagachan could provide more information
10/12/2019 10:10 AM
Icon8888 Very aggressive projections
10/12/2019 11:55 AM
Icon8888 OTB asked me to follow his TA calls to re enter Jaks after I sold at 140

Little did he know that his presence in jaks is exactly the reason I avoid the counter
10/12/2019 12:00 PM
probability its no longer a projection , outcome which is even better than the projection had unfolded

....will reveal itself soon
10/12/2019 12:03 PM
probability take OTB as a catalyst icon...dk66 is the diamond

Posted by Icon8888 > Dec 10, 2019 12:00 PM | Report Abuse

OTB asked me to follow his TA calls to re enter Jaks after I sold at 140

Little did he know that his presence in jaks is exactly the reason I avoid the counter
10/12/2019 12:05 PM
RainT good information !
10/12/2019 12:06 PM
AlgoQuant Perhaps the growth investors in this forum would like to look at a takaful insurance co that is experiencing and inflection point and a structural shift in islamic insurance..

Takaful's net profit grew by CAGR 25% over the last 10 years from RM 38 mil (2009) to RM 380 mil (T4Q), increasing even through the global financial crisis and recession with a still low takaful penetration of 16% (overall insurance penetration rate of only 50% with takaful insurance growing much faster than conventional insurance)

Takaful is currently trading at a PE of only 12.7x (vs Lonpac PE 18) and a P/BV of only 3.6x (historical P/BV 6.x) with an industry-leading ROE 29.11% (Lonpac ROE 16.72%)

* Growing dividends and a record high 20c ex-date 18 Dec 2019 giving rise to DY of 3.4% *


(AlgoQuant) A Takaful Titan & Analysis of Listed Insurance Companies (TAKAFUL)

https://klse.i3investor.com/blogs/AlgoQuant/243164.jsp
10/12/2019 3:26 PM
DickyMe Takaful?? No, thanks. If it is not for the government, it would have closed shop. They use government to arm twist companies to subscribe takaful, kind of mandatory.
10/12/2019 3:30 PM
probability https://www.meti.go.jp/meti_lib/report/H29FY/000594.pdf

chapter 9 - Financial, Economic Analysis, and Prospect of Project Funding

will provide very good information on IRR sensitivity to utilization rate, selling price and fuel costs

Table 9-7: EIRR sensitivity analysis results by power selling price

Table 9-9: EIRR sensitivity analysis results by fuel price

Table 9-10: EIRR sensitivity analysis results by operation hours

......................

Fuel price dropped by just 10%, can increase the IRR from 10% to whopping 20%! Appears to me the current fuel price had actually dropped by 50% from their original estimate.

https://markets.businessinsider.com/commodities/coal-price

However, for the BOT contract, what matters most is the Table 9-10

These are perfectly inline with DK66 basis of IRR of 12% at about 6500 hrs/yr. The chart says 12.6% at 6600 hrs.

"my salute to DK66 on his meticulous derivations"
10/12/2019 11:44 PM
DK66 This article demonstrated that increase of 11.35% in annual utilization hour from 6500 to 7238 hours has significant impact on the investment returns of the power plant.

It shows that the relationship between utilization hour and earnings is not linear but exponential.

The logic behind this exponential relationship is to encourage the IPP operator to "work harder".
11/12/2019 8:14 AM


 

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