Please Explain !
WHAT YOU DON'T KNOW ABOUT JAKS RESOURCES !
Not many investors know that even though Jaks may have high profit sharing from its power plant joint venture in Vietnam, the potential dividend after repayment of bank borrowings from the joint venture is much less and may not be sufficient to cover Jaks' annual cash flow requirements until the joint venture fully repaid its borrowings.
Lets explore
I walked away from the recent AGM with 2 pieces of new information;
1. The subscription of the additional 10% optional interest in JPP will be funded by borrowings from Banks in Singapore, and
The 10% optional interest in JPP costs around RM250m
2. The loan tenure for the power plant in Vietnam is 10 years.
Total project cost was USD1.87 billion with 75% bank borrowing.
Total bank borrowing was USD1.4025 billion
Annual repayment for 10 years loan tenure will be USD140.25 million equivalent to RM615m (Exchange rate 4.39 as at Dec 2022)
I gathered the following information from the annual report of year 2022;
1. Annual interest expense for JHDP borrowings was around RM265m
2. Annual depreciation of the power plant was around RM318m
3. Total bank borrowings in Malaysia as at Dec 2022 was around RM500m
4. Total interest expenses for borrowings in Malaysia was around RM24m
5. Net operating cash outflow was around RM17m
From Q1 2023 quarterly report, 30% profit sharing from the power plant in Vietnam has reduced to RM28m per quarter due to higher interest expense. Annual profit is projected to be RM112m.
Assumptions:
1. RM250m loans with 8.5% interest rate from Singapore Banks will be taken to subscribe for the 10% additional interest in JPP to be repaid over 5 years period.
2. Net current assets of RM144m as at Dec 2022 will be fully realised without further impairments on a straight line basis over a period of 5 years.
3. Bank borrowings with average interest rate of 7% will mature according to the maturity schedule as stated in the 2022 annual report with no further borrowings.
4. LSS4 will generate annual net cash inflow of RM10m consistently.
5. The power plant will be able to maintain its efficiency and generate consistent revenue over the concession period.
6. The profit sharing from JPP in Q1 2023 is representative of future revenue stream of JPP.
7. Local businesses continue to face operation net cash outflow of RM17m annually over the next 5 years.
JHDP cash flow projection based on Q1 2023
30% profit sharing amounts to RM28m per quarter.
100% profit on full year projection = 28 x 4 x 100/30 = RM373m
Cash inflow = profit + depreciation + interest expense
Cash inflow = 373 + 318 + 265 = RM956m
Below is a projection of cash flow of Jaks Resources for the next 5 years based on the assumptions above.
There is a potential total shortfall of over RM458m until year 2028.
This article merely highlights the potential shortfall in cash flow given the current state of finances without taking into account any measure which the management may adopt over the future course of business to address any cash flow requirements.
Above projection and assumptions maybe too simplistic but it is sufficient for a brief understanding of Jaks' future tight cash flow situation. After all, you do not need to know the weight of a man to tell if he is fat.
Readers are welcome to make assumptions based on your own predictions to arrive at your own modified cash flow projections.
Thank you for your attention.
Gotyou
This article is purely for educational purposes. This is not a buy or sell recommendation ! You should consult your dealers or remisiers before making any decision.
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Discussions
Be the first to like this. Showing 20 of 20 comments
If I were you, at the current price of 0.18, I will not present my calculation. Most probably I will be proven wrong for the truth I tell. Be wise not smart
2023-07-13 16:36
USD interest rate is peaking and will drop next year.
In recent AGM, mgt guided that retention sum around RM 80m-100m( cannot remember) as i only have small n insignificant holding of Jaks.
2023-07-14 11:24
valueinvestor888, any retention sum would have been included in the net current assets already.
2023-07-14 13:16
Jaks cash squeeze is well know fact like duck can swim .but it doesn't mean its net worth is negative. An over emphasis on the well known fact is not necessary and will turn misleading especially at current price , an almost a 80 %below its audited NTA. In my opinion , jaks has a strong recurring income , the loan repayment and business activities can possibly restructured anytime and initiate a price reversal like cypark. So, Your good intention can anytime turn a damage to those who has a weak heart and make a panic non rational trading decision .
2023-07-15 10:52
Jaks received dividend of RM 70,120,000 from JHDP in Q4 ended 31/12/2022 (JHDP start operation end Jan 2021)
30% share of profit: 2021: RM 140.7 million. 2022: RM 156.2 million: Q1 2023: RM 28.3 million
So you just need to wait till Q4 end 31/12/2023 result to know what will be the dividend from JHDP and compare with what the author calculation of RM 23 million.
Till then just hold your judgement whether the author is right or wrong.
2023-07-15 12:08
The sole purpose of this article is to demonstrate by rough estimation that Jaks maybe facing tight cash flow over the next few year mainly because of the short 10 years tenure of JHDP loan. As a big portion of the distributable cash in JHDP will be utilised for repayment of borrowings thus resulting in much less amount for dividend distribution. Nonetheless, this article does not assume that Jaks will default on its loan repayments. By all means, Jaks can refinance its borrowings or carry out fund raising exercises through private placements/ rights issues to address its cash flow deficiencies.
2023-07-15 21:43
Yes. Thank you for the clarification. You had made your analysis more reliable now .
2023-07-16 09:33
By all means, Jaks can refinance its borrowings or carry out fund raising exercises through private placements/ rights issues to address its cash flow deficiencies.
Only after 2030 the dividend from JHDP should be able to pay off the borrowing in X years. So no cash dividend for the next xx years.
2023-07-16 10:14
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥
As an investor, how Jaks raised this capital is of interest.
Going to the bank for loans, and able to get a loan will give confidence to the shareholders. Banks do not simply give money without doing due diligence.
On the other hand, raising cash from new share placements, such due diligence maynot be so stringent.
2023-07-16 10:25
Gotyou, you have not considered the 24% corporate tax on foreign source income upon remittance into Malaysia.
2023-07-16 17:02
Just88, the dividend received from outside malaysia by a malaysian tax resident company is exempted from tax if the headline tax rate of the income origin country is not less than 15%. In this case, HK or Vietnam both have headline tax rate of not less than 15%. The RM70m dividend received from JPP last year did not seem to have attracted any tax.
2023-07-16 21:31
Well done gotyou . What we want is a fair and unbiased view . A reasonable deduction is not always not always necessary a right deduction . You recent RI deduction is a good example . Dk indepth calculation is another . So a responsible writer never like to guess when the dividend will be paid out because it is itself already a biased view .
2023-07-18 14:19
Those who are slightly marginally affected by the "Sorry about the mistake" please reconsider your trip to Penang Bridge.
2023-07-19 18:57
Your JHDP cash flow projection based on Q1 2023
30% profit sharing amounts to RM28m per quarter.
100% profit on full year projection = 28 x 4 x 100/30 = RM373m
Cash inflow = profit + depreciation + interest expense
Cash inflow = 373 + 318 + 265 = RM956m
Is wrong because the interest expense is based on 2022 figure and not the current quarter figure.
Summarised adjusted statements of profit or loss and other comprehensive income
JPP Group
2022 2021
RM RM
Adjusted profit for the financial year, representing total comprehensive
income for the financial year 520,633,162 469,043,075
Included in total comprehensive income are:
Revenue 2,553,073,558 3,011,637,528
Amortisation/Depreciation (317,750,163) (296,585,635)
Interest income 3,493,288 1,736,511
Interest expense (265,209,747) (275,461,575)
Taxation (17,199) (1,530,307)
Cash inflow 2021= 469.04+296.59+275.46=1041.09 million
2022: 520.63+317.75+265.21= 1,103.59 million
Project IRR of 12 % for period of 25 year 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
2023-07-21 09:01
Yes, I m aware that 2022 interest expense was used in the computation. The projection itself was based on rough estimation using the most recent figures made available. Thank you for pointing it out.
2023-07-21 11:15
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Any calculation without the sufficient management guidance is liable to serious variation. Dk calculation was proven incorrect . Your speculation of RI is also proven incorrect . Do not forget narket is full of unexpectation and surprises. You good intention may turn misleading and creates big damages to those who follow your calculation blindly . Cypark price reversal is a good example of what surprises and unexpectation I am talking about . Why I am so positive at the current price if 0.18 ? 1. Power plant has value 2. Evolve mall has value 3. Pacific Tower has value 4. Solar plant has value . Any of these can create good new to iniate a price reversal like cypark . Why is it not possible a Singapore big boy to express his intention to acquire the mall , why it is not possible jaks will restructure its business . These are the surprises no power and logical calculation can cover sufficiently.
2023-07-13 16:07