The Electricity of Vietnam Group (EVN) is considering a plan to divest is stakes in various power plants by 2030, VietnamBiz reported on 1 June, citing a government document.

The draft proposal for EVN's development strategy until 2030, which contains the general divestment plan, is subject to amendments and approval from relevant government units, the item said.

Under the proposal, EVN will consider exiting newly built power plants after they have become operational.

As for power plants that are in stable operations, EVN will gradually sell down its ownership and not necessarily retain a controlling stake in those units, the item added.

Funds from these deals will be used to repay debts and reinvest in new projects, the item said.

Luckily I sold recently. Avoided this drop. Pure luck.

EVN unit Genco 2 eyes IPO in December; valued at VND 46.1trn (translated)

Power Generation Corporation 2 (Genco 2), a subsidiary of Vietnam's state-owned The Electricity of Vietnam Group (EVN), will be holding an initial public offering (IPO) in December this year, Vietnam Finance reported on 19 May from a government's press conference.
The news item said that all related government units are committed to carrying out the IPOs in December 2020, with detailed plans to be submitted to the country's Prime Minister for approvals in August 2020.
The item added that Genco 2 has been given a valuation of over VND 46.1trn (USD 1.97bn) as of 1 January 2019 with UHY and AASC retained as the joint advisers.
The state's stake in Genco 2 is worth more than VND 26.6trn (USD 1.14bn), the item noted.

HI DK66, can I join the room for discussion too? Thanks.

Not so agree because Vietnam Government is a financing guarantor.

If you think it's 12% on $1.87b, that means debt structure is irrelevant and EVN doesn't care how the project is financed, right? In this case, it contradicts with Appendix 2 of Circular No. 56/2014 which includes principal repayment under cash outflow. In other words, the fixed capacity charge includes a portion for debt repayment and hence debt structure is relevant in EVN's 12% computation. Does this make sense?

This is also the reason why EVN cap equity at 20%-30% of project cost in the circular. Too high equity % will be too costly for EVN. EVN needs to give 20-30% to incentivise foreigners to build and transfer knowledge. EVN will make sure capacity charge is enough to service debt repayments and add on 12% return on invested equity.

The issue with Vinh Tan 1 is that we have no detailed financial breakdown to analyse. Any one-off income will throw that out of whack. Mong Duong 2 has detailed financials disclosed up to Q1'19, just not in its IR section. Haha, need to search harder.
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DK66 Investee, You have to take risk into account.

Think of it this way, when you invest USD1.87b on a project, whether you use borrowing or not your total risk is USD1.87b. If you can't complete the power plant, you lost USD1.87b, not 468m.

In the 25 years of operation. Your capacity payment is only guaranteed if you make the capacity available. If for any reason your power plant does operate because of your fault (not Vietnam EVN's fault), there is no capacity payment, and your total loss will be the whole sum not just the equity portion. Therefore, you think you will base your projection on 468m and not 1.87b ?

In any case, Vinh Tan 1 would not have achieved its results had its IRR is equity based.

Hey, don't go for personal attack. Try to explain can already. Just a forum to exchange idea.

If you invest 1.87b equity, I will pay u 12% on 1.87b. If you invest 468m equity, I will ensure fixed capacity charge = principal repayment + interest + 12% on 468m.

This way, you will have IRR 12% on equity and payback period of 8 years to recover 468m invested equity.

You cannot use 12% on 1.87b and assume that's the FCF because capacity charge already take care of your principal repayment and interest. Capacity charge - principal repayment - interest will give you 12% IRR on equity.

Aside to PBB report, the 82m is a NPV, i.e. PV of future FCF (however derived by PBB) minus invested equity capital. It's not how much it's worth, i.e. PV of future FCF. Can understand ah?

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DK66 Investee, I m sorry. I don't quite understand the below

Actually it is whether 1.87b or 468m. JAKS' equity contribution is 25% x 1.87b x 30% stake = 140m. PB ascribing 82m (RM329/4) is weird but maybe not so big difference as presented here.

Hey DK66, u have my respect. This is just for argument sake. Ignore me if this is too noob question.

Actually it is whether 1.87b or 468m. JAKS' equity contribution is 25% x 1.87b x 30% stake = 140m. PB ascribing 82m (RM329/4) is weird but maybe not so big difference as presented here.

The logic is Vietnam will give fixed capacity charge to cover fixed principal repayment and interest expense. The leftover for equity holder (EBITDA - principal repayment - interest) is really 12% Return on Invest Equity. That's why we need to compare Invested Equity to leftover for equity holder.

Refer:
https://klse.i3investor.com/blogs/Jaks%20resources/2019-04-29-story204451-Jaks_Resources_Peer_Comparison_With_Mong_Duong_II.jsp

"The Capacity Charge is a fixed payment that is paid each period for each kilowatt of available (not dispatched) capacity. It includes fixed charges involved in the construction, operation, and maintenance of the power plant, including charges for: – Repayment of the principal and interest of the debt used to construct the facility – Return on equity capital invested..... bla bla bla~"

Therefore, capacity charge is for return invested equity after netting of mainly principal repayment and interest.

Hey DK66, out of curiosity. Why Vinh Tan 1 is a better comparable as compared to Mong Duong 2? Or actually they are pretty similar?

Forgive me. Why do we always assume FCFE = 12% of U$1.87b instead of the 12% of U$468m (i.e. 25% of 1.87b)? Take note that this is FCFE, not FCF.

That means the construction cost will be capitalised and charge out over 25 years? Damn, that's not so nice. Hahaha.
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DK66 Dear All,

Even though the american owner of Mong Duong II has adopted the new accounting standard ASC606, this is not happening to JHDP. JHDP will adopt the same accounting standard as Vinh Tan 1.

I wish to express my deepest appreciation to Mr OTB for his assistance in getting the confirmation from the Vietnam auditor. Thank you

Unlevered IRR about 12.7% with -623m first 3 years and +284m for subsequent 25 years.

(1) -623m is 1.87b / 3 years
(2) +284 is RM651m / 4 (convert to USD) + 75m depr (1.87b/25) + 46 interest (@3.5% of 1.4b)

Levered IRR about 23.0% with
(1) -156m first 3 years (25% of 1.87b / 3)
(2) +284m minus fixed principal repayment of 94m and reducing interest for subsequent 15 years.
(3) Once debt is paid off after 15 years then FCF will be +284m until end of 25-year concession.

I'm not sure the IRR 12% stated in Circular 56/2014 is granted for levered or unlevered FCF. I get confused with Appendix 2 of the circular. Working backward from Vinh Tan 1 sounds like it's unlevered FCF 12% IRR. Do you get me?

With that said, Vinh Tan 1 profit may have one-off gain which we cannot tell.

Sorry I lost you there. If I read you correctly, we get FCF by PAT + Principal Repayment + Interest. I thought:

(1) FCF = EBITDA - Principal Repayment - Interest & Tax Paid
(2) FCF = (PAT + Interest Expense + Tax Expense + Depr) - Principal Repayment - Interest & Tax Paid
(3) FCF = PAT + Depr - Principal Repayment, assuming Paid = P/L Expenses

When I use your formula FCF = RM651m / 4 + 94m principal repayment + 46m interest for 25 years versus 1.87b outlay, I do get close to zero NPV @ 12% discount but I just don't understand why we add back principal repayment to PAT to arrive at FCF?

I understand the diff between project and equity IRR. The question is whether 12% IRR applies to project or equity IRR.

Thanks for shedding some light here.
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DK66 Investee, you are welcome. Your calculation is mostly right except that you should replace depr with principal repayment.

If you take the entire investment capital as initial outlay, you are calculating project IRR.

If you are only taking the equity capital as initial outlay, you are calculating Equity IRR.

Thanks for explaining so far though.

Yea, I figured that out after posting. So now I have FCF -623m for first 3 years, +284m for subsequent 25 years.

-623m is 1.87b / 3 years
+284 is RM651m / 4 (convert to USD) + 75m depr (1.87b/25) + 46 interest (@3.5% of 1.4b)

With the above then I can get close to zero NPV at 12% discount but this is unlevered FCF calculation though.

My confusion is whether 12% IRR is for levered or unlevered. Unlevered meaning I consider -623m in first 3 years with no principal or interest in subsequent years. Levered meaning I consider 25% x -623m = 156m in first 3 years + principal & interest repayment over subsequent 15 years. It's either or situation, right?

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RM651m is net profit, not free cash flow
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Investee If you don't mind, I would like to ask here. I cannot get what you mean. Is it possible to add more colour as to why cannot get near Vinh Tan 1 result without debt capital? I simply tried with U$1.8b upfront capital, RM651m p.a. over 25 years BOT. It's a lot lower than 12% IRR.

Btw, I read the parameter guideline. It's does say equity and debt capital plus repayment of original loan as part of "spending". Sound weird to double pay though.

If you don't mind, I would like to ask here. I cannot get what you mean. Is it possible to add more colour as to why cannot get near Vinh Tan 1 result without debt capital? I simply tried with U$1.8b upfront capital, RM651m p.a. over 25 years BOT. It's a lot lower than 12% IRR.

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DK66 A lot of valuation methods were modified to suit each objective. There is no hard and fast rules. You should read Vietnam government's guideline on the parameters used to calculate the IRR for its BOT project.

You can try to do your calculation without debt capital and compare that with Vinh Tan 1's results. With 12% IRR, is it able to achieve Vinh Tan 1's results ? I can tell you off hand, your results won't even be near.

Project IRR would be regardless of funding structure, right? Then it wouldn't have principal repayments to derive Earnings. The double counting is as though EVN pays 12% IRR for the initial 1.87b and 75% of 1.87b over the loan tenure rewarding debt structure. Just my 2 cents here.

Icon's projection double counted the capital investment funded by debt, as he took debt principal repayment (75% of 1.87b) over years and initial upfront investment (1.87b). He should take 25% of 1.87b as initial upfront investment which will lower the earnings in later years.

Actually the way Icon calculated FCF may not be so correct. The interest is separated from the principal repayment. It will be a higher fixed repayment that covers P+I, though I will gradually reduce and more to settle P later on. Hence, the FCF is a lot lower during loan tenure and higher after that. With discounting factor, this will diminish the NPV.

Also I think IRR should cover U$1.87b capital investment only without debt and tax.

DK66, can I trouble u to share the link to Vinh Tan 1 2019 annual report that form ur basis for peer comparison? Written in Chinese is ok

"Future electricity price are required to fully recover all the Power sector's costs (operation, maintenance and investment cost, debt repayment obligations) by the revenue from selling electricity and this price was expected to average about 11-12 cents/kWh."

11-12 cents/kWh is a lot to give.

https://en.evn.com.vn/d6/news/World-Bank-specialist-Vietnam-sells-power-below-capital-recovery-rate-66-163-1378.aspx

Doesn't anyone know what's the impact of low interest rate environment now on the debt financing for power plant? Is there any significant savings there?

DSO is?

Is there anyone care to enlighten on my question on MFCB vs Jaks?? :D

Genuine question. How comparable is JAKS without property/construction to MFCB? MFCB recently had it maiden income from energy sales in Feb'20 announcement but price soared ahead. Doesn't seem to be the case for JAKS so I am wondering what's the not-so-good point for JAKS, if any.

Bro, Can share link? Can't seems to find it

Hi, why did you mention that the Credit Culture facility is now cancelled? Is it announced?

Share here lo Kakashi

AGM in ipoh?

Buy or bye?

when is AGM?

cut loss lo

This hype source is fake news?

But u can find Disney in pavilion. It's ok.

I just entered. Hopefully not a bad decision

Sailang now d.

But director disposing though. Odd enough.

Why is everyone so confident on QR?

www.thestar.com.my/business/business-news/2018/08/06/eye-on-local-tech-companies-this-follows-apples-record-us1-trillion-market-cap-achievement/

Kesm has no exposure to Apple, right?

Anyone knows the impact to profit with AAC gone? Heard it's the most lucrative part of the business.

Anyone going for the AGM on coming Monday?

Bought in 0.475

Broke sma50. Stay strong guys.

Who is this blogger 回归根本 actually?

Undeniably the EG mgmt really take time to deliver. Always over promise growth and hence not much investor confidence. I cut down EG mgmt estimate by half normally coz of this. Want rapid high growth, this is not the stock although undervalued.

1) QR result at most neutral. Take note that Q3 and Q4 is seasonally weak historically. If can smoothen out then it's a plus point.
2) PBT RM4.6m + RCPS expense RM1.7m + Depr increase RM2m = RM8.3m. It's quite comparable to Q1 PBT of RM8.2m. In other word, if look at EBITDA, it shows no growth.
3) Margin drop is a bit worrying coz profit is sensitive to margin.
4) IPC starting March'18 means Q1'19 only can reflect the cost saving but at the same time it will be much higher WC requirement. Depends how u see it. Can be good or bad
5) Forex not an issue due to natural hedge.
6) If cannot deliver RM1.2b sales for FY18, then maybe got impairment for intangibles.

All in all, know ur risk. May be a long term uphill fight.

One thing i dislike about EG is that the commentaries and reports are done in not-so-professional way. Not sure if it's due to the young CFO in the group. Find many inconsistencies and errors but still can get the big picture la.

TERENCE TEA: LIKE A PHOENIX RISING FROM THE ASHES

http://aspire.sharesinv.com/53544/terence-tea-like-a-phoenix-rising-from-the-ashes/

EG Industries Bhd

Target price: 76 sen BUY

UOB KAY HIAN RESEARCH (JAN 22): EG's aspiration to expand group margins via its higher-margin box-build segment now requires a longer time to achieve the full earnings impact. Nevertheless, the box-build factory is already contributing positively to the group's earnings and running at about 70% utilisation rate. To recap, EG ventured into the box-build business in FY14 and the segment contributed 16% to its total revenue in FY17. We estimate the segment to account for 18% of group revenue in FY18, driven by higher orders from its customers, primarily Flic and Trimigo.

Similarly, contribution from the printed circuit board assembly (PCBA) segment is expected to grow slower than expected in FY18, thanks to benign order volume growth and material sourcing issues. Management guided that the multilayer ceramic capacitor, a type of packaging for integrated circuits, is facing some supply crunch globally due to an increase in demand and disciplined capacity expansion by major vendors.

Despite the minor blip in the PCBA segment in FY18, we are positive on the development of the division as we understand that the group is securing a potential customer, which will reduce the concern of customer concentration risk.