Posted by DK66 > 2020-05-02 01:02 | Report Abuse

liewtz06, you are welcome

Vinh Tan 1 achieved full COD in Nov 2018. There are initial cash reserve needs for bank installments (6 months as required by bankers), working capital, maintenance reserve, coal reserves etc. You will only see more aggressive dividend policy after all reserve requirements are met as seen in Mong Duong II.

I m sure it is not in the interest of the chinese partner to see idle funds remain in Vietnam. There is a shareholder's agreement between Jaks and its partner regarding control matters and dividend policy. I trust Andy to have his own interest at heart to see strong dividend distribution.

I believe Vinh Tan 1 will start to distribute dividend in 2020 which is similar to Mong Duong II

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liewtz06 Hi, DK66, thanks very much for the earning insights.
May I ask, if dividend pay out from JPHD to Jaks is much less than profit attributable to minority shareholder, how is it going to contribute positively to the free cash flow of Jaks?
I raise this concern because the in your table showing Annual Report of China Southern Power Grid, under Vinh Tan 1 earning figures, seemed that after 1 year of COD, the minority share holder did not receive any dividend payout, could it be the same case to Jaks?
02/05/2020 12:38 AM

Posted by warrantKing > 2020-05-02 12:45 | Report Abuse

DK66 bro ,

What is the consideration for JAKS to subscribe optional 10% share ?

How much would it cost ?

Thanks

Posted by DK66 > 2020-05-02 12:49 | Report Abuse

Around RM260m

Posted by warrantKing > 2020-05-02 13:40 | Report Abuse

Thank DK66 Bro.

Business is full of challenges , market is full of uncertainty.

But it is no harm to buy JAKS at RM 1.0x and keep until 2021 end.

It is like a win big loss small bet.

Somemore coal price is at low side now.

https://markets.businessinsider.com/commodities/coal-price

Posted by DK66 > 2020-05-02 13:46 | Report Abuse

warrantKing, you are welcome

Posted by Aseng > 2020-05-02 14:00 | Report Abuse

my good friend OTB,

very good questions.
I am very happy you ask the questions here

Posted by OTB > May 1, 2020 11:47 PM | Report Abuse

Dear DK66,
I am not an accountant, I need to understand the below questions.

1. Assume the earning of Hai Duong power plant is RM 196 million (30% stake). I believe this earning will be reported as "income from other investment" in Jaks financial report. Am I correct ?

2. This earning or income is channeled back to Jaks Resources Bhd as a form of dividend. This dividend amount may not equal to RM 196 million. The amount will be less than RM 196 million. Am I correct ?

3. If JHDP does not declare any dividend even the earning is RM 196 million. In this case, the "income from other investment" in Jaks financial report is zero.
Am I correct ?

In the aforesaid circumstances, the EPS of Jaks cannot be based on RM 196 million. EPS will be lower or even equal to zero if there is no dividend declared by JHDP.

Please enlighten me.
Thank you.

Posted by Aseng > 2020-05-02 14:01 | Report Abuse

DK66,

very good answers.

thank you

Posted by DK66 > May 2, 2020 12:20 AM | Report Abuse

Dear OTB,

1. Yes, it will be reported as "share of profit in JV" in Jaks financial statement
2. Yes, the dividend may not be 196m. It maybe more or less depending on the need for cash reserve but it is not likely to be more than the free cash flow of 294m
3. No, profit is certainly 196m regardless of dividend distribution.

Thank you

Posted by DK66 > 2020-05-02 14:10 | Report Abuse

This article should attract more investor interest in jaks. Personally, I think there is no better way for providing a more convincing yet easy to understand profit forecast on JHDP.

Please "like" this article if you agree.

Posted by edkfc > 2020-05-02 16:29 | Report Abuse

Yes..this article nail it all...Great Job as always DK66 .

Posted by Snipper > 2020-05-02 16:52 | Report Abuse

Hi DK66, so the 25years of BOT will last till YR2045 (2020+25years)? Thanks for you advise in advance.

Posted by DK66 > 2020-05-02 16:55 | Report Abuse

I think should start from 2021

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Snipper Hi DK66, so the 25years of BOT will last till YR2045 (2020+25years)? Thanks for you advise in advance.
02/05/2020 4:52 PM

Posted by Steve Ooi > 2020-05-02 22:42 | Report Abuse

Thank you DK66, appreciate your effort. Great job, thumb up.
dumb dumb hold

Posted by DK66 > 2020-05-02 22:49 | Report Abuse

Steve Ooi, you are welcome
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Steve Ooi Thank you DK66, appreciate your effort. Great job, thumb up.
dumb dumb hold
02/05/2020 10:42 PM

Posted by dannykong > 2020-05-02 22:56 | Report Abuse

even no or min. dividend paid, the cash flow

Posted by DK66 > 2020-05-03 16:28 | Report Abuse

Dear All,

On second thought, I feel ashamed to claim credit for this article.

The fact is I didn't perform any analysis in the article. I merely put Vinh Tan 1's results before you which could be easily done by anyone. Apart from the elaborative wordings, I didn't do much. The results of Vinh Tan 1 could speak for itself. I suppose that is why the article is very convincing.

Anyway, thanks for all the compliments which I feel I don't quite deserve.

In any case, I hope everyone can read this article and have a thought on this incredible opportunity.

Thank you

Posted by YONG > 2020-05-03 21:33 | Report Abuse

Thank DK66 for the information.

Posted by YONG > 2020-05-03 21:43 | Report Abuse

An investor should assess the Vinh Tan 1 result to further understand the Jaks' prospects. Any decision should be made after an assessment rather than blame anyone when the price drop.

Posted by DK66 > 2020-05-03 23:10 | Report Abuse

YONG, you are welcome. I hope you found the article helpful.

Posted by Alex™ > 2020-05-04 15:31 | Report Abuse

China Southern Power Grid Corporation pe brapa?

Posted by DK66 > 2020-05-04 15:50 | Report Abuse

I believe it is not listed.

Posted by HuatRex > 2020-05-04 22:50 | Report Abuse

Sweet talk article. Lol. Attract more investors' interest? To help you push up the price?

Posted by DK66 > 2020-05-04 23:19 | Report Abuse

Which part of the article is sweet talk and untrue ?
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HuatRex Sweet talk article. Lol. Attract more investors' interest? To help you push up the price?
04/05/2020 10:50 PM

Posted by Psng1215 > 2020-05-05 09:20 | Report Abuse

The purpose of this i3 forum may for people with knowledge like Dk66 to share their research.

And for people like me ( without special knowledge) to find more information about the stock we bought.

I am sure it's not for attacking people. If someone want to attack people please do some research to prove their points of view. We will very appreciate. Tqvm

Posted by DK66 > 2020-05-05 09:53 | Report Abuse

Psng1215, I wish everyone in i3 possess your attitude.

Posted by Investee > 2020-05-07 09:17 | Report Abuse

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

Posted by DK66 > 2020-05-07 09:25 | Report Abuse

Can't share link directly to the file. It has to be downloaded to read.

However, You can search in this website
http://www.shclearing.com/xxpl/cwbg/nb/

Posted by Alex™ > 2020-05-07 09:28 | Report Abuse

dk66 avg buy price hw much a?

Posted by DK66 > 2020-05-07 10:01 | Report Abuse

RM0.70

Posted by DK66 > 2020-05-07 11:27 | Report Abuse

This artilce has attracted over 8000 visits ! Must have been heavily shared among friends.

Posted by Investee > 2020-05-08 20:14 | Report Abuse

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.

________________________________
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.

Posted by Investee > 2020-05-08 20:17 | Report Abuse

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.

Posted by DK66 > 2020-05-08 20:50 | Report Abuse

Investee, it is because of the magnitude of the interest cost is too huge not to be taken into consideration when arriving at the project IRR.

Posted by DK66 > 2020-05-08 20:52 | Report Abuse

If you do not include the interest cost to the net cash flow in the IRR calculation, the cash flow derived would not have taken the interest cost into consideration. In arriving at the net profit, you have to deduct the interest cost. The resultant amount would be very small. Practically, the project will not be considered worthwhile.

Posted by DK66 > 2020-05-08 20:54 | Report Abuse

consider carefully, there is no double pay

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Investee 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.
08/05/2020 8:17 PM

Posted by DK66 > 2020-05-08 21:01 | Report Abuse

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.

Posted by Investee > 2020-05-09 10:55 | Report Abuse

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?

--------------------
RM651m is net profit, not free cash flow
--------------------
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.

Posted by Investee > 2020-05-09 10:55 | Report Abuse

Thanks for explaining so far though.

Posted by DK66 > 2020-05-09 11:11 | Report Abuse

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.

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Investee 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?
09/05/2020 11:09 AM

Posted by Investee > 2020-05-09 17:05 | Report Abuse

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.
__________________________________________________

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.

Posted by DK66 > 2020-05-09 17:15 | Report Abuse

Investee, I mistaken you, I forgot that you are working backward with Vinh Tan's Profit. In that case, should add back depr instead of repayment. What was the IRR arrived by you ? Let me know the figure then I explain further.

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Investee 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.
______________________________

Posted by DK66 > 2020-05-09 17:21 | Report Abuse

Investee, you need higher IRR to get NPV to 0

Posted by DK66 > 2020-05-09 17:23 | Report Abuse

Originally I thought you were forecasting the FCF from scrap to arrive at 12% IRR in which case you should not use depr because it is a non cash item.

Posted by Investee > 2020-05-09 23:28 | Report Abuse

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.

Posted by DK66 > 2020-05-09 23:54 | Report Abuse

Please revise the interest rate to 6% and see what happen. Interest rate of 3.5% is too low

Posted by DK66 > 2020-05-09 23:58 | Report Abuse

I do not understand why you used 2 different FCF

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


(2) +284m minus fixed principal repayment of 94m and reducing interest for subsequent 15 years.

Posted by DK66 > 2020-05-10 00:01 | Report Abuse

I m now confused by your meaning of levered and unlevered

Posted by DK66 > 2020-05-10 00:01 | Report Abuse

Do they refer to Project IRR and Equity IRR ?

Posted by DK66 > 2020-05-13 08:29 | Report Abuse

I need to post the comment here to update the reader of this article.

Note that Vinh Tan 1 and JHDP will be adopting the same accounting treatment of their power plant assets. This enhances the comparability of Vinh Tan 1 to JHDP.

Stock: [JAKS]: JAKS RESOURCES BHD

May 12, 2020 1:29 PM | Report Abuse

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

---------------------------

Stock: [JAKS]: JAKS RESOURCES BHD

May 8, 2020 11:47 AM | Report Abuse

DK66 I am accountant, I know accounting treatment can have profound effect on the reporting of earnings especially when dealing with a transaction which spans as long as 25 years. Mong Dong II started operation in April 2015 and has written back as much USD203m when it adopted the new accounting standard in 2018 with USD40m increase in profit in 2018 alone as a result of change in accounting treatment.

Vinh Tan 1 is still using the old accounting standard. If JHDP is adopting the new accounting standard, It may be reporting higher profit than Vinh Tan 1.
08/05/2020 10:17 AM

Posted by Investee > 2020-05-14 15:33 | Report Abuse

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?

Posted by DK66 > 2020-05-14 21:24 | Report Abuse

There are all very similar. Only that we don't have the results for Mong Duong II.
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Investee 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?
14/05/2020 3:33 PM