Sslee blog
JAKS JHDP IRR 12% what does it mean?
Dear all,
Since I was Business Development Manager before and had work thro’ many project feasibility studies hence please allow me to summary what JAKS JHDP 12% IRR mean by the two camps.
DK66 & OTB Vs qqq3 & i3lurker.
Project total cost USD 1,870 million. Equity 25%: loan 75%. BOT: 25 years.
- Project IRR base on USD 1,870 million
ZERO = - 1,870 + A1/(1+0.12) +A2/(1+0.12)^2+……………till A25/(1+0.12)^25
USD 1,870= 7.8431A thus A= USD 238.425 million
Project payback period of 1870/238.425= 7.8 years
Loan USD 1,870 x 0.75= 1,402.5 million for simplicity assume yearly equal payment B with interest of 6 % 25 years.
USD 1,402.5= B/(1+0.06) +B/(1+0.06)^2+……………till B/(1+0.06)^25
B= 1402.5/12.7834 = USD 109.712.
Thus yearly FCF after Loan Principal and Interest payment is 238.425 - 109.712 = USD 128.713
30% to JAKS = USD 128.713 x 0.3 = USD 38.614
Base on USD: MYR of 4.34: JAKS share of FCF RM 38.614x 4.34= RM 167.58 million.
Base on JAKS equity of USD1,870 X 0.25 X 0.3= USD140.25.
Payback period= 140.25/38.614 = 3.632
JAKS equity IRR:
Zero = -140.25 ++ 38.614/(1+IRR) +38.614/(1+IRR)^2+……………till 38.614/(1+IRR)^25
140.25/38.614 0r 3.632= sum 1/(1+IRR)^N. N=1 to 25
IRR of about 27%
- Base on Equity IRR of 12% on which the 75% loan is taken care of by capacity payment:
Equity USD1870 X 0.25 = USD 467.5 million
ZERO = - 467.5 + A1/(1+0.12) +A2/(1+0.12)^2+……………till A25/(1+0.12)^25
USD 467.5= 7.8431A thus A= USD 59.606 million
Equity payback period of 467.5/59.606= 7.8 years
30% to JAKS = USD 59.606 x 0.3 = USD 17.882
Base on USD: MYR of 4.34: JAKS share of FCF RM 17.882 x 4.34= RM 77.61 million.
The question now is who is right? Let us check back what the BOD said during the 2019 AGM.
https://klse.i3investor.com/blogs/kianweiaritcles/2019-07-08-story214175.jsp
建造、经营及转移 (BOT) 是一个非常强大的模式，未来相信再也看不到；Hai Duong发电厂投入运作后，预计每年可为JAKS的30%股权带来RM80-100m的盈利；将以Equity Accounted方式，也就是Associated贡献进账，不会录得营业额。
AT 25 June 2019 the USD to MYR is 4.13 thus base on today rate of 4.34 the BOD say 30% will contribute share of net profit RM 4.34/4.13 x (80-100) = RM 84 - 105 million.
May I suggest anyone of you who attend the 2019 AGM can you confirm this number? For the coming AGM you can ask for a copy of 2019 minutes from the company secretary as it is their duty to take minutes of the AGM.
- SECRETARY
- Leong Oi Wah (MAICSA 7023802)
- REGISTERED OFFICE
- 802, 8th Floor
- Block C, Kelana Square
- 17, Jalan SS7/26
- 47301 Petaling Jaya
- Selangor Darul Ehsan
- Tel No : 603-7803 1126
- Fax No : 603-7806 1387
- Email No : info@jaks.com.my
Or you can write in or drop in the registered office to ask for a copy of the JAKS 2019 AGM minutes.
Hope my above explanation can settle the unending dispute between the two camps.
Stay safe, stay healthy, stay invest and stay happy
Thank you
Note: I make amend the IRR mathematic model refer to as share of FCF (Payment to equity holders)
Share of Net profit is different as share of FCF distribute to the shareholders.
FCF =Net profit + depreciation + interest expenses – Loan repayment of USD 109.712 million.
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Be the first to like this. Showing 19 of 19 comments
Dear all,
I make amend the IRR mathematic model refer to as share of FCF (Payment to equity holders)
Share of Net profit is different as share of FCF distribute to the shareholders.
FCF =Net profit + depreciation + interest payment – Loan payment of USD 109.712 million.
2020-05-14 23:13
Philip ( buy what you understand)
Now this is a well written totally unbiased article.
Kudos Sslee.
In the absence of real concrete results, I believe it is safer to use the most conservative figure available. At least that way when the real results come up you can be pleasantly surprised instead of aggressive investing based on anticipated good results and very shocked.
2020-05-14 23:24
Good morning Philip,
Thank you.
When you put your thought on paper, you can see more clearly and make amend.
I still have a lot to learn.
2020-05-15 08:27
Dear Sslee,
Good morning
I know It is not my job to judge your work is good or bad
Since you begin with such a declaration
"Since I was Business Development Manager before and had work thro’ many project feasibility studies"
It is very dangerous to support your calculation with this news
https://klse.i3investor.com/blogs/kianweiaritcles/2019-07-08-story214175.jsp
and a challenge to verify the net income with the management during the AGM
Many careless readers will be easily misled into believing your last figure RM77. 61 is the total net profit of the business operation even though after the ammendments and your reminder it is not.
Sorry to tell early in the morning,
Very misleading playing with figures.
2020-05-15 08:27
Dear All,
If you use the 2019 AGM BOD share of profit RM (80-100) million or USD (19.37-24.21) million Exchange rate 4.13
Since FCF=Net profit + depreciation + interest expenses – Loan repayment of USD 109.712 million.
Then share of FCF for the end of first year (base on 30%). Exchange rate USD to MYR = 4.34
USD (19.37-24.21) + 1870X0.3/25 + 1402.5X0.06X0.3 - 109.712X0.3
USD (19.37-24.21) + 22.44 + 25.245 – 32.913
USD (19.37-24.21) + 14.77
USD (34.14-38.98)
RM (148.16- 169.17) million
Base on above using NPV with discount rate of 5% for inflation
NPV with 5% discount Sum (1/(1+0.05)^N). Where N= 1 to 25 is 14.0939
Hence base on NPV with 5% discount rate the 30% JHDP worth to JAKS is RM (148.16- 169.17) X 14.0939 million
=RM (2,088 – 2,384) million
Thank you
2020-05-15 10:08
AT 25 June 2019 the USD to MYR is 4.13 thus base on today rate of 4.34 the BOD say 30% will contribute RM 4.34/4.13 x (80-100) = RM 84 - 105 million.
so is it 84-105 or 148-169?
2020-05-15 10:24
so 100 million on 600 million shareholder fund , that is 16% accounting rate of return for first year...that also sounds about right............
2020-05-15 10:54
Dear Sslee,
Based on the following calculation, what would be the net profit to Jaks ?
-----------------------------
Equity USD1870 X 0.25 = USD 467.5 million
ZERO = - 467.5 + A1/(1+0.12) +A2/(1+0.12)^2+……………till A25/(1+0.12)^25
USD 467.5= 7.8431A thus A= USD 59.606 million
Equity payback period of 467.5/59.606= 7.8 years
30% to JAKS = USD 59.606 x 0.3 = USD 17.882
Base on USD: MYR of 4.34: JAKS share of FCF RM 17.882 x 4.34= RM 77.61 million.
2020-05-16 18:10
"..75% loan is taken care of by capacity payment" implies that at minimum the capacity payment would cover both interest and principal loan payment. Bear in the mind however different source of loan carries different interest rate. At low end, those loans from development banks probably cost much less than 5% interest rate while loans from Vietnamese banks have interest rate in low teens (Interest rate in Vietnam was around 8-15% during the earlier years of 2010s). Private equities loans? Probably in high teens... What does that mean? If you run a policy guaranteeing loan but not equity, you risk gamification by investors (Max loan, indiferrence to interest rate (government pays mah)). Net results is negative to government due to higher tariff rates.
The alternative is to set the project IRR to 12%. What the government want is to get investors to invest. And quickly. A project IRR of 12% in fact looks unattractive in an environment where interest rate was around 8-15% given the long gestation period. Hence, the many side incentives: USD tariff payment, guaranteed buyer, capacity payment, hedge from coal price fluctuation, etc.. Yes, the equities IRR of 27% would look ridiculously high but that is more to leverage than other things. Flip the ratio to 75% Equity 25% loan, the equity IRR drops to mere 14%...
2020-05-18 00:36
Dear DK66,
I have not come across any feasibility study report given out at any trade promotion organized by foreign country investment mission with Equity IRR calculation. All are base on total project cost IRR.
2020-05-18 10:04
Posted by Sslee > May 15, 2020 10:08 AM | Report Abuse
Dear All,
If you use the 2019 AGM BOD share of profit RM (80-100) million or USD (19.37-24.21) million Exchange rate 4.13
Since FCF=Net profit + depreciation + interest expenses – Loan repayment of USD 109.712 million.
======
FCF no need add back interest lah....
2020-05-18 10:24
Haha qqq3,
Interest expense is tax deductable hence net profit mean profit after tax, depreciation and interest.
By the way FCF on one hand you add back interest expenses but deduct the loan repayment (Principal plus interest) so interest is zero sum gain in FCF.
2020-05-18 10:50
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u think DK and the rest don't know meh? They all pretending only.
https://klse.i3investor.com/servlets/forum/600317771.jsp
2020-05-14 20:15