Posted by DK66 > 2020-05-01 14:31 | Report Abuse

Icon8888, Well done. A very detailed analysis using IRR.

However, I wish to point out that the 25 years concession begins after COD, not including construction period.

------------------
(Depreciation Charges)
Based on depreciation period of 22 years (25 years concession, 3 years construction, 22 years operation), annual depreciation charges is RM340 mil.

Posted by Icon8888 > 2020-05-01 14:31 | Report Abuse

Ok I will amend accordingly

Any other mistake ? Please help me identify

Posted by OTB > 2020-05-01 14:37 | Report Abuse

Dear Icon8888,
During the planning stage, the utilization hours used for planning purpose was 6,500.
After the plant is completed, the correct utilization hours used should be 7,238 (same as Vinh Tan 1 power plant). Hence IRR should be 15% instead of 12%.
7,238 utilization hours is confirmed by the management of Jaks to me after checking with CPECC engineers.
Please take note.
Thank you.

Posted by Icon8888 > 2020-05-01 14:41 | Report Abuse

Wow thanks !

Posted by DK66 > 2020-05-01 14:44 | Report Abuse

On depreciation, there is no clear indication that reducing balance method of amortisation should be used. Straight line method is still most widely adopted

"The most appropriate method of amortisation of the intangible asset is usually the straight-line method, unless another method better reflects the pattern of consumption of the asset’s future economic benefits. However, in some circumstances, where the expected pattern of consumption of the expected economic benefi ts is based on usage, it may be appropriate to use an alternative method of amortisation." - IFRIC 12

In any case, the new international accounting standard will not allow power plant asset to be recognised as "concession asset" anymore. The asset shall be recorded as Loan receivables and repayment will more or less reflect a straight line pattern.

Posted by DK66 > 2020-05-01 14:48 | Report Abuse

Icon8888 is right to include interest expense as Project IRR is working on Net cash flow based on the planned debt equity structure.

Posted by probability > 2020-05-01 14:49 | Report Abuse

Is that the reason why Vinh Tan 1 can only generate profit after 18 years?


https://www.vir.com.vn/vinh-tan-1-gearing-up-for-operation-61958.html


When will the Vinh Tan 1 thermal power plant start generating profits?

Operating under the BOT format, the project boasts around $1.75 billion in total investment capital, 80 per cent of which is sourced from a consortium of several international banks. If the project runs smoothly without any hitches, Vinh Tan 1 Power Co., Ltd. will be able to pay off all debts and start generating profits 18 years after the plant starts commercial operation.


Posted by popo92 > May 1, 2020 2:25 PM | Report Abuse

icon8888 sifu, your assumptions on depreciation is very wrong. Depreciation costs are usually higher at first and decreasing year by year. suggest you may look for some info on IFRIC 12. Basically when factor in Depreciation & amortisation you will get a completely different figure, but i am not sure we can able to see them one day since jaks only have 30% minority stake in this power plant. Track record of integrity is not on the right side for jaks management.

Posted by Icon8888 > 2020-05-01 14:51 | Report Abuse

Thanks for your input, unfortunately I am not able to either agree to it or refute it as I have not seen this before

If you can provide me with the relevant theoretical reasoning (an article or pages of the textbook), then I will be able to make a better decision whether to revise the model


probability
11405 posts
Posted by probability > May 1, 2020 2:29 PM | Report Abuse

I think you should exclude the Interest deduction on your FCF used to show the IRR of 12%.

Project IRR is assuming the whole asset is funded without Debt - 100% equity.
....

Will go through in detail and find out why its not matching my derivation of about 140M profit/annum with 2 units operating.

Posted by DK66 > 2020-05-01 14:52 | Report Abuse

icon8888, the loan tenure should be 18 years which is maximum allowed by the vietnam government. This is why vinh tan 1 cited 18 years to fully pay off all debts.

Posted by probability > 2020-05-01 14:54 | Report Abuse

@DK66, i have seen many articles on the vietnam power plant IRR, they always exclude the Interest when calculating the project IRR which most say only 12%.

anyway, i am not from financial background to assert this.


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

Project IRR vs Equity IRR

The project IRR takes as its inflows the full amount(s) of money that are needed in the project. The outflows are the cash generated by the project. The IRR is the internal rate of return of these cash flows. The calculation assumes that no debt is used for the project.

Equity IRR assumes that you use debt for the project, so the inflows are the cash flows required minus any debt that was raised for the project. The outflows are cash flows from the project minus any interest and debt repayments. Hence, equity IRR is essentially the “leveraged” version of project IRR.

Generally Equity IRR is more than project IRR and the equity IRR will be lower than the project IRR whenever the cost of debt exceeds the project IRR.

Posted by DK66 > May 1, 2020 2:48 PM | Report Abuse

Icon8888 is right to include interest expense as Project IRR is working on Net cash flow based on the planned debt equity structure.

Posted by Icon8888 > 2020-05-01 14:55 | Report Abuse

Does a project have to fully repay borrowings before it can generate profit ?

I find the statement weird

————

probability : If the project runs smoothly without any hitches, Vinh Tan 1 Power Co., Ltd. will be able to pay off all debts and start generating profits 18 years after the plant starts commercial operation.

Posted by Icon8888 > 2020-05-01 14:56 | Report Abuse

DK66 noted your 18 years tenure

Posted by DK66 > 2020-05-01 14:57 | Report Abuse

Mong duong II and vinh Tan 1 reported profit immediately upon COD

Posted by popo92 > 2020-05-01 14:59 | Report Abuse

DK66 sifu, this IFRIC 12 is actually introduced on 2008, but it doesn't adopted since lately years. So far i have not seen any BOT concession is still using straight-line method. Thank you for pointing out power plant asset cannot be recognised as concession asset under new international accounting standard. i didn't acknowledge that, could you send me any useful links for me to read? thank you

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

On depreciation, there is no clear indication that reducing balance method of amortisation should be used. Straight line method is still most widely adopted

"The most appropriate method of amortisation of the intangible asset is usually the straight-line method, unless another method better reflects the pattern of consumption of the asset’s future economic benefits. However, in some circumstances, where the expected pattern of consumption of the expected economic benefi ts is based on usage, it may be appropriate to use an alternative method of amortisation." - IFRIC 12

In any case, the new international accounting standard will not allow power plant asset to be recognised as "concession asset" anymore. The asset shall be recorded as Loan receivables and repayment will more or less reflect a straight line pattern.

Posted by probability > 2020-05-01 15:03 | Report Abuse

@DK66, its the Dividend distribution you are saying here right?

They can take that out from their huge depreciation / capital payment i suppose..

what certainty is there that it will be a continuous stream of dividend every quarter?

Mong Duong 2 did not even declare dividend last quarter.

If thats the case for JAKS - will that result as a zero income on a particular quarter where they did not receive cash distribution from Hai Duong power plant?



Posted by DK66 > May 1, 2020 2:57 PM | Report Abuse

Mong duong II and vinh Tan 1 reported profit immediately upon COD

Posted by Icon8888 > 2020-05-01 15:05 | Report Abuse

somebody mentioned recently (I forgot who) that upon COD, Hai Duong will “gradually scale up dependent on usage”

If I am not wrong, under Take or Pay concept, there is no “gradual scaling up dependent on usage”. From day 1, it is payment based on full capacity already Because they have made full capacity available to its client (Vietnam government)

That is why It is called capacity payment

Posted by DK66 > 2020-05-01 15:06 | Report Abuse

Project IRR always work on net cash flow basis in so far as the investment capital of the company is concerned. However, the equity portion of the capital shall not attract interest component as it represents shareholders' equity injection.

Project IRR return represents net return from the project and shall be used to weigh against risks for decision making. As borrowing costs represents part of the cost of investment, it is dangerous not to have considered the interest cost before making final investment decision.

Posted by DK66 > 2020-05-01 15:12 | Report Abuse

popo92, you may like to read this

Jaks Resources – Peer Comparison With Mong Duong II
https://klse.i3investor.com/blogs/Jaks%20resources/2019-04-29-story204451-Jaks_Resources_Peer_Comparison_With_Mong_Duong_II.jsp

-------------------------------
popo92 DK66 sifu, this IFRIC 12 is actually introduced on 2008, but it doesn't adopted since lately years. So far i have not seen any BOT concession is still using straight-line method. Thank you for pointing out power plant asset cannot be recognised as concession asset under new international accounting standard. i didn't acknowledge that, could you send me any useful links for me to read? thank you

Posted by probability > 2020-05-01 15:13 | Report Abuse

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

Project IRR vs Equity IRR
..........................

By CA Amit Bansal | 19/11/201844 Comments

Internal Rate of Return (IRR) and Net Present Value (NPV) are the two methods which are widely accepted method throughout the industries for evaluation of any Long Term Projects.

Calculation of IRR is little tricky. In this post we will understand what is IRR, difference between project IRR and Equity IRR and whether Project IRR can be lesser than Equity IRR or not?

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.

Posted by DK66 > 2020-05-01 15:14 | Report Abuse

Probabilty, I shall prove my point later. I m in the middle of my next article "Jaks Resources - The Most Reliable Earnings Guidance for JHDP"

Posted by probability > 2020-05-01 15:21 | Report Abuse

No issues DK66, look forward on that for my knowledge.

Below some reference related to LNG Thermal power plant using Project IRR less than 12% :


https://www.meti.go.jp/meti_lib/report/H29FY/000594.pdf

Posted by DK66 > May 1, 2020 3:14 PM | Report Abuse

Probabilty, I shall prove my point later. I m in the middle of my next article "Jaks Resources - The Most Reliable Earnings Guidance for JHDP"

Posted by DK66 > 2020-05-01 15:28 | Report Abuse

Meanwhile, icon8888 may like to take out the borrowing costs and determine the return. I m sure the return will look miserable and not feasible for investment.

Posted by probability > 2020-05-01 15:34 | Report Abuse

the return will be like what the management said to Public Bank IB of ~120M (profit) for 30% stake then

since the capital and interest payment is secured by EVN, its like a having a Bond level return perhaps...

just speculating

Posted by DK66 > May 1, 2020 3:28 PM | Report Abuse

Meanwhile, icon8888 may like to take out the borrowing costs and determine the return. I m sure the return will look miserable and not feasible for investment.

Posted by DK66 > 2020-05-01 15:36 | Report Abuse

Page 21 (summary 9)
https://www.meti.go.jp/meti_lib/report/H29FY/000594.pdf

You notice that the Presumptions used in calculation the IRR include allowance for borrowing costs.

Posted by probability > 2020-05-01 15:47 | Report Abuse

They are using the borrowing cost for establishing EIRR of 10% with PIRR of 7.1% compared against WACC of 6.4%.

PIRR is for comparing against WACC. If you include interest cost in PIRR than its meaningless to compare against WACC right?



Posted by DK66 > May 1, 2020 3:36 PM | Report Abuse

Page 21 (summary 9)
https://www.meti.go.jp/meti_lib/report/H29FY/000594.pdf

You notice that the Presumptions used in calculation the IRR include allowance for borrowing costs.

Posted by Ricky Kiat > 2020-05-01 15:56 | Report Abuse

https://www.vir.com.vn/vinh-tan-1-gearing-up-for-operation-61958.html

[ If the project runs smoothly without any hitches, Vinh Tan 1 Power Co., Ltd. will be able to pay off all debts and start generating profits 18 years after the plant starts commercial operation.]

my understanding is Vinh Tan 1 can generating profit for 18 years ( pay off all debt by 7 years ). not after 18 years. my goodness.

Posted by qqq33333333 > 2020-05-01 15:59 | Report Abuse

not going to be such high figures if the assumption is IRR of 12% on equity , not on project cost...................

Posted by DK66 > 2020-05-01 16:22 | Report Abuse

The fact is they are including the interest cost for calculation to establish the desired IRR to compare against the hurdle rate of 10%

Posted by supersaiyan3 > 2020-05-01 16:22 | Report Abuse

I blow water only. Don't take this seriously. Just view from a melon eater.

To build the plant need capital mah. So say Year 1-3, -2.5b X 30%. But JAKS has been reported profits.

So, cost likely to be deducted after COD.

8 years break even about right lah, Andy said so.

https://www.theedgemarkets.com/article/jaks-eyes-break-even-vietnam-project-eight-years

Icon's calculation seems to be right if he is talking about Cashflow. But don't expect Net Income can be 300m because JAKS need to deduct back construction cost mah.

Posted by karimboss > 2020-05-01 16:45 | Report Abuse

So many value stock there , why still invest complicated stock?

Posted by kalteh > 2020-05-01 17:19 | Report Abuse

Appreciate your work on the modeling.

I was wondering whether there will be maintenance capex incur throughout the period?

Posted by newbie8080 > 2020-05-01 17:21 | Report Abuse

@Icon8888

Great article.
Just to note: The exchange rate for USD/MYR may be too optimistic.
If I recalled correctly, in the last 60 years, MYR ever touch RM4 and above was less than 6 years.

Posted by Alex™ > 2020-05-01 17:25 | Report Abuse

icon sifu u buy alot ka? avg buy price hw much

Posted by Tom > 2020-05-01 22:36 | Report Abuse

lol, really? useless la.... the fact is below 0.5 is a good buy, above 1.00 is not a good buy

Posted by Tom > 2020-05-01 22:38 | Report Abuse

second round of laosai going to haunt all jaks's fans

Posted by Tom > 2020-05-01 22:40 | Report Abuse

Still dare to post this kind of article during bear market....someone must be brain damage, lol

Posted by CT > 2020-05-01 23:22 | Report Abuse

So what is good buy now ? Just hold cash or what ?

Posted by chl1989 > 2020-05-02 00:48 | Report Abuse

sifu dk66, you think 200mil net profit a year to Jaks pocket is possible by 2021?

Posted by Armada An Quantum Leap Stock In 2019/2020 > 2020-05-02 09:29 | Report Abuse

Wah ! Waited till neck long for icon8888 s article.
Thank you !

Posted by SarifahSelinder > 2020-05-02 09:34 | Report Abuse

Klau mcm ni u r talking abt return jz from capacity payment alone right?



Probability the return will be like what the management said to Public Bank IB of ~120M (profit) for 30% stake then 

since the capital and interest payment is secured by EVN, its like a having a Bond level return perhaps... 

just speculating

Posted by DK66 > 2020-05-02 10:58 | Report Abuse

chl1989, you find my answer here

Jaks Resources - The Most Reliable Earnings Guidance for JHDPhttps://klse.i3investor.com/blogs/Jaks%20resources/2020-05-01-story-h1506848575-Jaks_Resources_The_Most_Reliable_Earnings_Guidance_for_JHDP.jsp

--------------------------
chl1989 sifu dk66, you think 200mil net profit a year to Jaks pocket is possible by 2021?
02/05/2020 12:48 AM

Posted by Tom Tee > 2020-05-02 18:47 | Report Abuse

One big thing make me not to invest into Jaks is the management. Management style is well known on doing some strange method to chase out the famous investor. Will they will do the same to the small investor? Maybe yes, or maybe not. When the answer is yes, it will cause a big damage on us. Just becareful.

Posted by CT > 2020-05-02 22:07 | Report Abuse

AGM is coming. The Directors will seek for re-election during the AGM. If not happy with them may be we should ensure them not elected.

Posted by Steve Ooi > 2020-05-02 22:46 | Report Abuse

dumb dumb hold, 2 buck is coming.

Posted by gemfinder > 2020-05-22 23:31 |

Post removed.Why?

Posted by dannykong > 2020-05-23 00:32 | Report Abuse

The Jaks right issues no details yet? their assumption is 1:5 with free detachable warrant...

Posted by dannykong > 2020-05-23 00:33 | Report Abuse

if the RI price is attractive, I may collect more Jaks

Posted by abang_misai > 2020-05-24 22:03 | Report Abuse

wah seh Icon8888, your financial model looks very complicated. It's as if you use difficult-to-understand kongfu and ALP simply uses a gun to bring you down with a "peow".

Posted by abang_misai > 2020-05-27 22:03 | Report Abuse

May I know where is icon8888 sifu?

Posted by sc Khaw > 2020-10-28 14:35 | Report Abuse

Icon8888 gone already? Total lost in stock market?