Dear valued readers,
I believe all readers
should know that Jaks has a power plant in Vietnam named Hai Duong, it
is a joint venture with Chinese firm CPECC. Jaks has 30% stake and CPECC
has 70% stake in this power plant. Jaks has an option to own an
additional 10% within 3 years of operations.
The power plant
- The power plant of Jaks is called Hai Duong power plant. It is located in Vietnam.
- Jaks owns 30% of Hai Duong power plant with option to add 10%.
- The Power plant of MFCB is called Don Sahong Hydro power plant. It is located in Laos.
- MFCB owns 80% of Don Sahong Hydro power plant.
The price trend of the power plant
- I had made a detailed study on the trend (technical chart) of power plants in general.
- The stock price will go up slow and steady 6 months before the power plant is selling electricity.
- The stock price of MFCB started to move up north since 2/7/2019, the date to sell electricity is 1/1/2020.
- The stock price of Jaks started to move up north since 8/10/2019, the date to sell electricity is 1/4/2020.
- Enclosed are two technical charts of MFCB and Jaks for your perusal.
The reasons why the investors buy power plant 6 months ahead
- Power generation business is unlike other businesses which depends on supply and demand. There is a big variations on product pricing and its cost.
- Power generation business is a contractual business with pricing and others stated upfront in the contract agreements.
- The risks are project delays and unexpected project costs overrun.
- Big Investors will not give a high PER during the early phases due to the aforesaid risks.
- Once the project runs smoothly and near completion, a higher PER will be accorded.
- I am not surprised a PER of 15 will be accorded to both Jaks and MFCB once it started its earning to sell electricity respectively.
- A steady future income or revenue and cash flow for both Jaks and MFCB with good contractual margins.
Jaks
Please read the below link.
-
https://www.malaysiastock.biz/
Corporate-Infomation.aspx? securityCode=4723 - Q1 2019, Q2 2019 and Q3 2019 results were good.
- I believe the EPS for 2019 is projected to be 0.18.
My stock selection criteria
Below is my stock selection criteria, I want all of you to remember this keyword "UBS GMF".
Jaks passed 6/6 of my stock selection criteria.
TA comes first
U - Up trending stock - Cross 200-day SMA - Passed
B - Breakout chart - Break above 0.78 - Passed
S - Sector to focus - Construction or Energy - Passed (both)
FA comes second
G - Growth > 17% per year (2020) - Passed
M - Margin of safety > 43% - Passed
F - Forecast current year EPS must be better than the previous year EPS - Passed
Please note that I consider TA ahead of FA in my stock recommendation.
TA reading
- The share price of Jaks is breaking new high.
- The share price had breakout from Golden Cross at 0.78 which is very bullish.
- The price is above 20-day EMA, 70-day SMA and 200-day SMA.
- MACD signal is above zero level.
- Stochastic and Force Index showed buy signal which are bullish.
- Weekly MACD also showed a buy signal, this technical chart will be bullish for a long time.
3 important features appeared in the technical chart
I want the following features to appear in the technical chart so that the probability to win on this stock is very high.
- The Golden Cross of 20-day EMA to cut above 70-day SMA had been formed on 8/10/2019.
- The share price of Jaks to be higher than 70-day SMA to create a 3-month high.
- The Blue and the Red lines of MACD must stay above zero level to show a stronger momentum.
FA report
- I assume all Malaysian operations to be zero value. Evolve Concept Mall is valued at RM300 million, I believe this amount of money is more than enough to cover all losses in Malaysian operations.
- FY 2019, I projected the profit after tax of 113 million. First nine months the total net profit is 91 million, I assume net profit of 22 million in Q4 2019.
- FY 2020, I projected the profit after tax of 150 million. 50 million is the construction profit from power plant and 100 million on the sale of electricity in 2020.
- FY 2021, I projected the profit after tax of 250 million from the sale of electricity only.
| Year | Price | PAT | EPS | PER | Target price | Gain % |
| 2019 | 1.27 | 113 | 0.18 | 7.23 | 1.80 | 41.73% |
| 2020 | 1.27 | 150 | 0.23 | 5.44 | 2.33 | 83.69% |
| 2021 | 1.27 | 250 | 0.39 | 3.27 | 3.89 | 206.14% |
Compare 3 power plants (using coal-fired power) in Vietnam
Mong Duong 2, Hai Duong , and Vinh
Tan 1 are all foreign owned power plants (using coal-fired power) in
Vietnam operating under 25 years BOT contracts with capacity around
1,200 MW. All their power purchase agreements were signed around 2012.
Therefore, terms and conditions of these BOT contracts should exhibit extreme high similarity, if not identical.
The Mong Duong-2 power plant
The Mong Duong-2 power plant was
constructed on a 297ha site in the Mong Duong Power Centre,
approximately 200km east of Hanoi, and is located alongside the Mong
Duong 1 project.
The site was selected for its
proximity to coal mines, availability of transportation infrastructure
and cooling water, as well as easy connection to the national grid. Both
plants are expected to share common facilities, including the fuel-oil
and limestone jetties, as well as cooling water inlet and outlet
channels.
Mong Duong-2 is equipped with two
600MW power boilers, the first boilers to be produced domestically in
Vietnam, and will use pulverised coal (PC) technology, which will
involve the pulverisation of coal at a highly fine degree to spray into
the furnace. A flue-gas desulfuriser (FGD) will be installed for this
operation.
Mong Duong-2 power plant achieved full commercial operation in 2016 (COD).
Hai Duong power plant of Jaks
The
Hai Duong build-operate-transfer (BOT) power plant, licensed in 2011,
is the Malaysian company’s first foray into Vietnam’s power generation
secctor. It started construction in March 2016 through a joint-venture
between Jaks Resources and China Power Engineering Consulting Group.
Golden Keen Holdings, a wholly owned subsidiary of Jaks Resources also
secured a $454.5 million EPC contract for Hai Duong BOT power plant.
Future earnings look promising as the company has a 25-year power
purchase agreement (PPA) for the power plant. The project is expected to
come online in 2020, and it is expected to enjoy recurring
concession-type earnings with state-run Electricity of Vietnam from the
generation and sale of power under the signed PPA.
Hai Duong power plant will start to produce and sell electricity in April/May 2020.
Vinh Tan 1 Thermal Power Plant
Located in Vietnam's southern province of Binh Thuan.
The coal-fired power plant includes
two 620-MW super-critical generating units owned by a consortium led by
China Southern Power Grid, and constructed by CEEC. CEEC is a subsidiary
of CPECC who is Jaks' partner in JHDP.
The plant, with a total investment
of about US$1.76 billion, is the biggest project invested by Chinese
companies in Vietnam, as well as the first BOT (Build-Operate-Transfer)
investment made by China in the country. Both its design and
construction adopt Chinese standards.
Vinh Tan achieved full commercial operation on 27th November 2018 (COD).
How to calculate projected earning of Hai Duong power plant of Jaks
Since Hai Duong power plant and
Vinh Tan 1 are built by the same company of China i.e CPECC, it is more
accurate to use the earning of Vinh Tan 1 to project the future
projected earnings of Hai Duong power plant. These 2 power plants are
using the same technology from CPECC. However, I cannot get any
information from the profit of Vinh Tan 1 power plant.
How to calculate projected earning of Hai Duong power plant of Jaks (second method)
I am using the earnings of Mong
Duong 2 to project the future projected earnings of Hai Duong power
plant since these 2 power plants are using coal-fired power to produce
electricity.
Below is the current earning of the Mong Duong 2 power plant for the first 9 months of 2019.
AES owns 51% stake, total profit of US$ 74M for nine months (YTD2019: Q1+Q2+Q3), at 100% stake annualized = RM 812M.
It means Hai Duong power plant of Jaks equal to 30% of RM 812M = RM 812M*30% = RM 243M.
Please note that Q3 2019 result of
Mong Duong 2 is very impressive, based on Q3 2019 result (Using coal,
apple to apple comparison), if annualized the Pre-tax income at 100%
stake will be:
US$ 45/QTR x (100%/51%) x (RM4.2/1.0 US$) x (4 QTR/YR) = RM 1482 Million.
JAKS at 30% stakes, the earning is RM 444 Million (being tax free for the first few years)
Please note that Mong Duong 2
plant costs US$ 2.1 Billion and thus having much higher depreciation
rate than the US$ 1.87 Billion of Hai Duong. That’s about RM 40 Million
earnings difference per annum. The earning of Hai Duong power plant will
be more than Mong Duong 2.
My recommendation
- The profit of RM 250 million in 2021 is very conservative (please refer to 2 methods of calculation), I will take the lowest number I projected.
- Please note that there is no power plant in the world is losing money because the tariff of electricity sale is fixed at a good price to allow investors to make a good profit margin.
- Among 60 cities and provinces of Vietnam having received FDI between January and November, Hanoi has attracted the largest portion of capital commitments with over US$6.82 billion, accounting for 21.5% of total commitments in the period.
- Hanoi will face shortage of electricity supply due to high FDI flows in the next few years. Electricity will sell like a hot cake.
- I buy Jaks is because of Hai Duong power plant. I can see the future earnings growth of this power plant especially after 2021.
- I like to compare the power plant of Jaks to IPP of YTLPower, the share price of YTLPower increased 790% after IPP started operation.
- Where can you find this type of investment ? Invest RM 560M in this power plant, the payback is about 2 or slightly > 2 years. Then 23 years of guaranteed profit. The famous Chinese saying, "There is no such thing as so many big frogs jumping in the street".
- The general stock price trend of a power plant in the world, investors should buy the stock 6 months ahead of the power plant to produce and sell electricity. Hai Duong power plant will produce and sell electricity in April/May 2020, I believe it is the correct and right timing to buy Jaks now. The present price correction of Jaks served as the opportunity to buy Jaks at an attractive price. No one can buy a stock at the lowest price.
- You must buy and hold Jaks in your 2020 and 2021 portfolio to win big.
I take this opportunity to wish all readers in I3 "A Happy And Prosperous New Year 2020".
Thank you.
OTB
寧可天下人負我, 休教我負天下人
Disclaimer :
Please
be informed that the aforesaid stocks are solely for the purpose of
education only ; it is neither a trading advice nor an invitation to
trade. For trading advice, please speak to your remisier or dealer
representative.
Final decision to buy is always yours.
https://klse.i3investor.com/blogs/OoiTeikBee/2019-12-31-story-h1481978955-Jaks_We_buy_Jaks_because_of_its_Hai_Duong_power_plant_in_Vietnam.jsp
