let me ask a straight forward question:

do you not think that the Project IRR of 12% should be derived using FCFF excluding the interest (Debt structure)?

DK66, i am not posting because, i have to spend sometime to touch up the column headings and its not nice to post in a blog purely to dispute something in a negative manner. You naturally dont have the energy to do something that has no gain to self...

But we can easily have an idea by looking at Icon's IRR article.

I am commenting here on my opinions freely....so that if you can convince me otherwise, its a great opportunity to invest in JAKS.


Posted by DK66 > May 7, 2020 3:02 PM | Report Abuse

probability, you surely have done the table if you know Vinh Tan 1's IRR is 16%. Can we take a look? It will be more convincing.

@aseng, the problem is Vinh Tan 1 achieved that with a Project IRR of about ~16% (under exceptional dry season and 95.8% load) and JAKS management is only promising 12% (since they have subcritical plant unlike supercritical Vinh Tan 1 considering practical utilization rate)

Understand how one derives Earnings based on FCFF worked back from given project IRR.

I would lean on Vinh Tan 1 earning figures if JAKS say they can obtain 16% Project IRR.

The below gives step by step sample evaluation:

Project IRR and Equity IRR: A Curious Connection

https://feasibility.pro/project-irr-and-equity-irr-a-curious-connection/


Calculation of the internal rate of return considering only the project cash flows (excluding the financing cash flows) gives us the Project IRR.

From my calculation its possible with an IRR 15% by increasing the gap between cashoutflow and future inflow.


Posted by DK66 > May 7, 2020 2:24 PM | Report Abuse

probability, to exclude the interest cost, Vinh Tan 1 would not have achieved its latest results. Which is more convincing ?

Nope - but i think you may want to see only what you want to see.

Although most of the time i see you are open to other contrary opinions.

Guess, its because (If true) the implications is profound.


Posted by DK66 > May 7, 2020 2:08 PM | Report Abuse

Probably, I hope you are not implying I m hiding something.

Ok fine DK66, no issues if you are not presenting the table. Its a lot of work i suppose.

However, hope i can conclude that the only argument you have that we should use FCF-E on Project IRR given by management of 12% is because, FCF-F will wipe out the Earnings significantly below Vinh Tan 1.

I have not seen you presenting any other information to substantiate that we can use FCF-E for Project IRR calculation.

@aseng, the earnings is worked back from FCF-F in order to match an IRR of 12%.

IRR 12% is fixed, Icon had used FCF-E to show that.

This will have a significantly reducing effect on Earnings estimated by Icon.

DK66, take your time, i have done on my spreadsheet but it will not be like from a professional accountant.

I do not why you had hesitation on this right from beginning.



Posted by DK66 > May 7, 2020 1:53 PM | Report Abuse

probably, I will appreciate if you can do the job. I m busy.

Please show this on a Table like what Icon did.

Infact the first ever article you should have made on JAKS is on the cash flow based IRR of 12%, since this is the only information we have from management on what to expect directly.

This is the single most important - convincing information.
.............................................


Posted by DK66 > May 7, 2020 1:40 PM | Report Abuse

I m sure if you exclude the interest cost from Vinh Tan, the project IRR will be far far higher than 15%

Not sure what you mean.

If you exclude the interest and make the FCF-E(equity) Icon had used and replace it with FCF-F(firm), you can then work back on the required FCF-F to make the IRR 12%, you can then determine the FCF-F.

With the FCF-F, you have to then deduct the interest, depreciation to obtain the Earnings.

This way, the Earnings cannot exceed 160M.

However its quite sensitive to the time frame/intervals between cash outflow and inflow used.

Infact Icon's IRR article is the best prove on what we can expect from JAKS, but his derivations appears to have a flaw.


Posted by DK66 > May 7, 2020 1:04 PM | Report Abuse

If you could explain the results of Vinh Tan 1 under the assumption that the interest cost is excluded, then further discussion shall be meaningful.

Vinh Tan 1 earnings showing an IRR of 15%.

We are at the moment uncertain if JAKS could raise from an IRR of 12% estimated by the management to 15% like what DK66 is projecting.

Reason being Vinh Tan 1 had supercritical plant and operated at a load factor of 95.8% due to exceptional dry season in 2019.

As per OTB statement, though the management had said Hai Duong may have a better plant spec, till we know what is the 'spec' they have better, we do not know if it has any positive contribution to earnings unlike the spec on subcritical vs supercritical.



Posted by DK66 > May 7, 2020 1:04 PM | Report Abuse

If you could explain the results of Vinh Tan 1 under the assumption that the interest cost is excluded, then further discussion shall be meaningful.

@sarifah, what am i supposed to reply?

Not sure what you mean. If you exclude the interest and make the FCF-E(equity) Icon had used and replace with FCF-F(firm), you can then work back on the required FCF-F to make the IRR 12%, you can then determine the FCF-F.

With the FCF-F, you have to then deduct the interest to obtain the Earnings.

This way, the earnings cannot exceed 160M. However its quite sensitive to the time frame/intervals between cash outflow and inflow used.


Posted by DK66 > May 7, 2020 1:04 PM | Report Abuse

If you could explain the results of Vinh Tan 1 under the assumption that the interest cost is excluded, then further discussion shall be meaningful.

@DK66, on Icon's IRR 12% derivation comments section, i could not find your explanation on why the interest should be included when its a Project IRR.

I had presented my resources on why Icon's calculation is incorrect here:

http://infrastructure-projectfinance.blogspot.com/2013/11/project-irr-vs-equity-irr.html

http://ecapslock.com/project-irr-vs-equity-irr/


Internal Rate of Return (IRR)
.............................

Internal Rate of Return (IRR) is a rate on which NPV of the project equals to zero i.e. value arriving by discounting all the cash flows of the project with IRR rate will be zero.

Project IRR (PIRR) and Equity IRR (EIRR)
........................................

The project is generally financed in some proportion of Debt and Equity.

The project IRR gives the rate of return from the whole project. It is calculated presuming that there is no debt portion in the project financing. It calculates the rate of return considering the cash flows from the project only (i.e. except financing cost). Project IRR will remain same irrespective of capital mix of the project.


The above is not matching Icon's derivation here:

https://klse.i3investor.com/blogs/icon8888/2020-05-01-story-h1506818792-_Icon_Jaks_Resources_IRR_Model_Shows_That_RM300_mil_Net_Profit_p_a_For_.jsp


Its has significant impact on earnings estimation, as such kindly elaborate on this.

Thank you

Dk66, it states pulverized fuel (PF). I dont think we can use that for Vinh Tan 1 and Hai Duong comparison. I am quite confident on the difference we derived earlier, we should not spend time on these figures anymore.

already explained that it is on LHV basis which reports 10% higher value than HHV

Posted by jlwinstock > May 6, 2020 10:34 PM | Report Abuse

Perhaps you may google China coal plant efficiency benchmark. A subcritical 300MW unit power plant raising steam temparatures to 600 c is capable of efficiency rate to 42.8%

Because i need someone who can convince me otherwise

Ok fine, the forumer here had made up their mind that the efficiency difference will not have any implication on the earnings between Hai Duong and Vinh Tan 1.

I just expressed my points as i thought people wanted to know the negative aspects. But appears prefer to close one eye and think positively as per their wishes.

I think i have done my part on what i felt sincerely.

OK, since DK66 is not agreeing we should not go on the same path on efficiency debate again.

Lets just focus on how the efficiency affects profitability:

DK66 derived 10% higher fuel consumption with efficiency as per below respectively:

36% for subcritical

40% for supercritical

.......


Based on DK66's article below:

https://klse.i3investor.com/blogs/Jaks%20resources/2020-03-14-story-h1484838111-Jaks_Resources_Effect_of_Plant_Efficiency_On_Profit.jsp

Profit = percentage differential in plant efficiency above the agreed efficiency x Revenue

Therefore, potential EP profit of Vinh Tan 1 (efficiency at 40% for supercritical) based on Mong Duong 2 / Hai Duong (efficiency at 36% for subcritical) revenue for 2019 is;

Profit = (40.0% - 36.0%) / 36.0% x USD343m

Profit = 11% x USD343m = USD37.7m (1)

Meaning UsSD 37.7m is the extra profit Vinh Tan 1 would make above Mong Duong 2 per year.

This is about RM 158m. If you remove that on Vinh Tan 1 reported 2019 profit of RM 652m, you get 494m which would be reflective of subcritical plants like Hai Duong & Mong duong 2 annual profit.

The above at 30% stakes will be : 148m/yr for JAKS
...............................................

@Aseng, very fair starting point: 18% higher fuel cost.

I will show how that will impact the bottom line shortly based on DK66's article.

fine DKK66, i have given my views and you have given yours - its for the readers to take what they think is true

not worth to debate more on the actual efficiency difference

but its now worth to know how this efficiency difference (even if its 10%) how it affects Hai Duong vs Vinh Tan 1 based on PPA condition

your article on efficiency effects is what we need to verify and if both plant will use the same "floor efficiency level'

Vinh Tan 1 supercritical plant most likely costlier than subcritical but perhaps Vinh Tan 1 had lower construction - project cost


Posted by SarifahSelinder > May 6, 2020 7:16 PM | Report Abuse

D 2 types IPP cost almost sama jer

Klau subcritical n supercritical profit kan substantially difference knp Hai Duong IPP x guna supercritical jer??

icon888 makes more sense

hello Aseng, not me torture DK66...its his hardwork to find all possible goods news to justify Jaks is the one torturing me...

my JAKS earnings projection still stands about max 160M per year

80 M per unit/yr or 20 M per qtr till Sept 2021 results

easily eps will go below zero till then with other costs

walao...you all still thinking about me here! I just saw this forum...

No one told me to post anything...i was just curious to find why gloves stock keep moving up...and made a check on the numbers...

so i thought of posting...

yes, till now i dont know why its going up

you guys probably know the reason better

please excuse my innocence!

TQ and Bye

DK66, i am not assuming much. You can ask any maintennance engineers or anyone who had worked on manufacturing plants to verify.

The last figure of 18% from Table 2 is a direct power generation cost given (no assumptions).

It gives a range, not sure you can use its avg as the expected figure for comparison.

Would still recommend to use the Table 2 figures where they have given power generation cost per Kw generated:

15 - 21% higher based on the range given.

If you take the median around 18% should be considering all factors (probably even O&M).


https://www.bpastudies.org/bpastudies/article/view/170/318

Use 17% if you need to

Posted by DK66 > May 6, 2020 6:06 PM | Report Abuse

Probability, the article says subcritical 33-39% and supercritical 38-42%

This maintenance cost difference (if at all happens) can only be true on later years (due to wear & tear). During the early stage it can only be preventive maintenance which would not be much different between the two - sub & supercritical

Posted by DK66 > May 6, 2020 6:04 PM | Report Abuse

Probability, we are not expert and we learn from internet. We can only rely on what we come to knowledge. The article is dated 2014 which is not old.

The main technical challenge with supercritical plants is that the higher steam pressure and temperature require components (superheaters, headers, water tubes, steam chests, rotors and turbine casings) which are produced from nickel-based alloys. Nickel is an expensive commodity. Hence, I don't find it hard to believe that higher and newer technology entails higher O&M costs.

I won't say there is zero O&M cost in first year of operation. There is an annual maintenance period of 15 - 30 days.

Not sure what you are trying to say. let me clarify:


Say your subcritical plant efficiency is 33% and your supercritical is at 43%.

It means for subcritical:

100 fuel delivers = 33 power (energy)

For supercritical:

100 fuel delivers = 43 power (energy)


Now what is the fuel consumed to produce 100 power (energy)?:
...........................................................

From above equation,

100 power needs 303 fuel for subcritical

100 power needs 232 fuel for supercritical

The above mean subcritical consumes 303/232 = 30% extra fuel to produce the same power 100.

30% extra fuel consumption for 10 basis point difference
.........................................................



Posted by DK66 > May 6, 2020 4:51 PM | Report Abuse

This article showed (page 5) that current supercritical design has an average of 10% (4 percentage point) higher efficiency than subcritical design, not 25%

https://www.worldcoal.org/file_validate.php?file=Cornerstone_Volume3_I...

The below article is just a simple estimation based on the increasing capital cost in the order of subcritical < supercritical < ultrasupercritical

the logic is similar to BMW having higher maintenance cost compared to Toyota corolla

Its highly subjective and based on old data where the cost difference between these were significant during the earlier years

Its not something concrete (limitation based on laws of physics) as for the case of Thermal efficiency

Vinh Tan 1 having similar capital cost with Hai Duong is unlikely to have much difference in O&M

Further, the 196M/yr you had used is on the first year wlike with zero maintenance cost as the equipments are all brand new. This means the figure you are stressing 12M/yr below is not incorporated to used that to compare with Hai Duong. In other words, if you obtain 196M/yr on the 10th year of Vinh Tan 1, you can then use the O&M cost difference for derivation of Hai Duong earnings.




Posted by DK66 > May 6, 2020 3:58 PM | Report Abuse

Supercritical design has higher O&M cost which will offsets part of the benefit of cost savings over subcritical design. Each USD10 increase in O&M will results in annual extra cost of USD12m.

Coal has long been the workhorse of the power generation market. It may be in the twilight of its reign as environmental policymakers look to limit their reliance on coal-fired power, but its strong all-round financial characteristics will make coal economically competitive in the absence of high costs for carbon emissions or skyrocketing coal prices. O&M costs aren’t spectacularly low for coal, with the cheapest subcritical plants coming in at $43 per kW, the cost rising steadily through the more efficient supercritical and modern ultrasupercritical coal combustion technologies before arriving at $88 per kW in the case of the less-polluting and carbon capture-ready integrated gasification combined cycle (IGCC) plants.

A major driver for O&M costs at coal-fired plants is monitoring and servicing the many moving parts involved in the generation process, including turbines and generating sets, coal yard conveyors and handling systems. As coal power stations are often baseload plants, these components are often expected to operate continuously while being subjected to heavy loads and high temperatures, as well as varying levels of dust, dirt and moisture. Innovations in predictive maintenance and asset optimisation have helped bring down costs over the years, but O&M expenditure in this highly mature sector of the industry is now expected to remain stable through to 2035.

https://www.power-technology.com/features/featurepower-plant-om-how-do...

Thanks DK66 for having unbiased judgement and eagerness to know the truth.

Sometime our mind can trick is to look on all the positive aspects only when we are invested.

When i am convinced, will surely whack JAKS. But at the moment i have some reservations... knowing that there are other more certain investment opportunities.


Posted by DK66 > May 6, 2020 2:15 PM | Report Abuse

Aseng, you are right. So far the only credible comment is fom probability on the efficiency difference. I will try and hopefully find a credible way to quantify the monetary effect of the impact.

I appreciate the contribution by Probability. Thank you

Noted Icon.

To me all sounds fine except that it does not provide incentive for the plant supplier (vinh tan 1) who can provide a 20% reduction in operating cost with the same plant cost compared to another (Hai Duong).

20% in operating cost reduction is as good as providing 20% extra power for free.




Posted by Icon8888 > May 6, 2020 6:45 AM | Report Abuse

It doesn’t really matter what is the thermal efficiency etc

Because the concession agreement is structured to accommodate them

Let’s say vin tahn thermal efficiency is 70% and Hai Duong 50%

Under that kind of circumstances, during negotiation , vin tahn will agree to electricity sale price of let’s say RM100 per unit. However, since hai Duong cost is 21% higher (50% divided by 70% is 79%), it will ask for sale price of RM121 so as to cost pass through (and allow it to achieve same return as vin tahn !) (hey, that guy next door get paid RM50 per hour, I am doing the same thing during the same time, why should I get less ?)

In other words, IPP concessions are structured based on internationally accepted return

No matter what the operating parameters , in order to attract investors to set up the power plant, the government will have to promise certain FIXED return

Meaning they will have to absorb the fluctuation or variation of operational costs caused by different technology and other parameters

You don’t absorb I don’t invest

In other words, you don’t give me the return I like , I don’t invest

That is how it works

And that is why people like IPP model

your article is wrong in that aspect, the correct formula is different

your formula will derive more than 25% difference, actual will be about 20%

you can use the lower range from the Table 2 which give 15% difference

That is big enough to discount the earnings by 40M per annum of Vinh Tan 1 for Hai Duong


Posted by DK66 > May 6, 2020 9:42 AM | Report Abuse

The difference in efficiency is 25% but the fuel savings could be as low as 15%. My article assumed direct proportional relationship. Therefore, is it appropriate to use my article to quantify the difference in efficiency ? I m doing further studies on this ....

DK66, i didnt get what you mean here.

The cost of generating power is fuel. Both are energy, one in chemical form and the other in electricity. The plant thermal efficiency directly provides the efficiency of conversion between the two forms of energy. It provides a direct relationship between cost and sales.

From Table 2 under column Fuel cost, it shows the extra cost of generating power between subcritical & supercritical plants.

It would be incomprehensible to have a PPA condition which derives same profit for both type of plants all other aspects (plant cost
etc) being equal.

Its either they have cheaper plant cost (lower capacity payment) with a higher operating cost or an expensive plant (higher capacity payment) with a lower operating cost.

If one is providing a same plant cost with a lower operating cost by 20% (the most important factor of energy - power), it cannot be that they get paid the same way.

The above is just an argument based on logic. As the cost of production difference is too huge to be ignored.




Posted by DK66 > May 6, 2020 9:15 AM | Report Abuse

Obviously this article suggested that cost savings is not proportionate to improvement in efficiency due to difference in design

https://www.bpastudies.org/bpastudies/article/view/170/318

Therefore, potential EP profit based on Mong Duong II revenue for 2019 is;

Profit = (43.3% - 34.8%) / 34.8% x USD343m

Profit = 24.4% x USD343m = USD84m (1)

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

What you derive above, would be the exact difference between Vinh Tan 1 and Hai Duong.

Summary:
.......


If the PPA of Hai Duong & Vinh Tan 1 is made using the "same floor efficiency level', there will be profit difference as per your article below, using the avg efficiency difference above between subcritical & supercritical of about 20%


Jaks Resources - Effect of Plant Efficiency On Profit

https://klse.i3investor.com/blogs/Jaks%20resources/2020-03-14-story-h1484838111-Jaks_Resources_Effect_of_Plant_Efficiency_On_Profit.jsp

Posted by DK66 > May 6, 2020 12:50 AM | Report Abuse

Probability, I m an accountant not an engineer. I do not quite agree on the higher fuel cost of 20% to JHDP as you have not shown sufficient proof. However, I do agree that supercritical design has higher efficiency.

In any case, can you quantity the effect of 20% higher fuel costs on earnings ? My understanding is Capacity payment making up around two-third of the earnings which should be about equal for Vinh Tan 1 and JHDP.

DK66, the absolute efficiency does not matter as we do not know they are using LHV or HHV.

Hai Duong plant efficiency could be 36% and Mong Duong at 34%.

But, the supercritical will be at 45% then. Refer the Table 2 on the article i pasted. You can see from the Table 2 the evg efficiency difference between subcritical and supercritical is 25% and that the Fuel consumption varies from 15% to 21%.



Posted by DK66 > May 6, 2020 12:52 AM | Report Abuse

Probability, even mong duong II which is more inferior to chinese technology can achieve better than 34% efficiency.

You can see below on Table 2 giving comparison on efficiency and fuel consumption:

Supercritical and ultrasupercritical coal-fired power generation

https://www.bpastudies.org/bpastudies/article/view/170/318


Table 2. Estimated costs and thermal efficiencies

If you deduct 10% on the below figure from China report, you get about the same figure of 32% for subcritical thermal power plant.

what matters for our discussion to compare Hai Duong with Vinh Tan 1 is the relative efficiency difference between subcritical and supercritical whichever basis (LHV or HHV)

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

https://www.nsenergybusiness.com/features/chinas-coal-plants-new-efficiency-benchmarks/

Summer 2019 has seen the commissioning of a retrofitted 300 MW subcritical coal fired unit in China that is expected to be capable of an efficiency of 42.8% (net, LHV basis)

@DK66, the China report above is using LHV values

https://www.powermag.com/plant-efficiency-begin-with-the-right-definitions/

Extravt below under "No Common Performance Standards"

Most still report thermal efficiency based on the lower heating value (LHV) of coal instead of the HHV approach because the resulting calculated thermal efficiency is higher. Using LHV rather than HHV can push up the reported plant efficiency by as much as 10%, depending on the water content of the coal.

Post removed.Why?

https://economictimes.indiatimes.com/opinion/et-view/et-view-policy-induce-stepped-up-thermal-efficiency-in-power-plants/articleshow/70485707.cms?from=mdr

In subcritical plants, thermal efficiency of the steam cycle can average only about 32%. For supercritical plants it can go up to 42%; for ultra-supercritical plants, thermal efficiency can rise to 46%.

In that case, if the floor level efficiency given to Hai Duong and Vinh Tan 1 is the same in the PPA condition, this may explain the good earnings reported by Vinh Tan 1 due to its higher efficiency by 20%.


Posted by RangerJ > May 5, 2020 11:16 PM | Report Abuse

If I may add, for take or pay PPA, energy charge is usually a pass through, and usually a floor efficiency level binding the IPP. So long as the said floor level is met, no penalty to capacity payment. This is very different from open market PPAs. Thank you.

DK66, i used the assumptions above as Vinh Tan 1 unit load rate was 95.8% (though hours can be 7238 hrs per year, power sold would also depend on load rate where year 2019 appeared to be extreme dry season - increasing reliance heavily on thermal power plant). Just tried being realistic and see how it will appear on average with tax taking place later.

If the below is true where it was purely Vinh Tan 1's decision on the plant design & selection, then i cannot argue.

Not sure if Vinh Tan 1 plant cost is about the same as JAKS (surprising if true) despite having way much lower operating cost for certain.

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

DK66 comment: All PPA signed with EVN were on same terms. It is Vinh Tan 1 who changed the design of the power plant. EVN agreed with no change in PPA condition ( I can't substantiate as I lost the information link, you may ignore the remark). In any case, why would EVN be bothered with differential treatment to vinh tan 1 and JHDP. Moreover, note that JHDP signed the PPA one year earlier than Vinh Tan 1. Normally, the earlier ones are better, right ?

DK66,

(1) how do you justify the same earnings with Vinh Tan 1 when Hai Duong power plant fuel consumption is 20% higher? ( I had shown this earlier based on efficiency difference between supercritical & subcritical power plant)

(2) on all articles and news, Jaks had been only reporting 7.5B kwh annual power sales. This is 10% lesser than what Vinh Tan 1 sold 8.2B kwh. The high sales of Vinh Tan 1 is likely due to its nameplate output which is slightly higher than Jaks by 4% and exceptional power demand due to dry season in 2019

https://baohaiduong.vn/doanh-nghiep/doanh-nghiep-no-luc-vuot-bao-covid-19-134965


(3) There will be periodic maintenance every 3 years i suppose like Mong Duong 2 had.

Say 2 month loss for every 36 months (3 years)

The above is not considering breakdown losses - we have seen that happening in thermal power plants like Mong Duong 1


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


Based on Vinh Tan 1 earnings, you showed that JAKS at 30% stakes would earn 196M/yr.

If you factor at 7.5B kwh annual sales , earnings becomes:
= (7.5/8.2) x 196 M
= 179M

If you factor the time loss due to maintenance, earnings:
= (34 available months/36 months) x 179M
= 169M average /yr

If you factor in the Tax (assuming 10%)
= 0.9 x 169M
= 152M /yr

EPS under fully diluted condition of 745 m shares:
= 152M/745M shares
= 20 cents per annum



(Management did guide 120M/yr earnings to Public investment bank. This is also not far out from recent info i heard. The numbers would also be around this value if you consider Project IRR of 12% and derive correctly unlike the incorrect method Icon8888 used including the interest payment)


Considering above, at the moment i am inclined to believe that practically Jaks may only end with an EPS below 20 cents per annum.

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

Number 1 is a crucial factor we need to think of since there is no incentive for EVN to provide same earnings to both Hai Duong & Vinh Tan 1 while incurring 20% higher cost for Hai Duong.

Just want to know your thoughts on the above.

walao..just saw the results! Fantastic!!

https://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=7233

@Ironshirt, i have noticed the link between Dsonic and Jaks too..

you think they are actively buying or just goreng?

ok pang72, i will remove it

i just made a quick contra gain and exited
as i still could not obtain a tangible estimate on its earnings growth

good luck to all

PureBull is another superinvestor...underestimated all these sifu a lot.

my sincere apologies...

today i made a lot of money $$$ from Comfort & Rubberex!

Thanks uncle Koon & Pang72...

they are the ultimate super investor!! One in a million....