3 years ago, when I started to invest in Jaks, this was what Jaks Hai Duong Power Plant looks like;
Now, this is what it looks like. Unit 1 Completed and under final trial run.
A lot has happened in the last 3 years, some significant events were;
The Star Media claimed the RM50m bank guarantee due to the delay in hand over of The Star Tower.
The pacific star project continued to face delay and had to provide LAD of around RM40m annually.
Jaks did 3 private placements and 2 right issues to raise cash for Vietnam EPC contracts and JHDP capital requirements.
Jaks had to bail out its property subsidiary by taking over some of its properties.
In June 2020, Jaks handed over The Star Tower to The Star Media and settled the lawsuit.
In Sept 2020, Jaks sold its property development subsidiary to the 49% partner for RM1 and pocketed 72m gains and halt further LAD provision.
Covid19 has delayed the construction of Hai Duong power plant by about 4 months
The construction of power plant has resumed in May 2020 and Unit 1 is now in final trial run.
During the last 3 years, Jaks was facing lawsuits, project delays, LAD, cash flow problems, and covid19. All businesses activities, except Vietnam EPC, were facing losses. Property development division was the major drag. There were numerous fund raising exercises to raise funds for its EPC works. The latest right issue is to raise fund for Jaks to complete its ownership subscription in JHDP.
These problems and fund raising exercises had created very bad publicity for Jaks in the investment arena.
Current business status
Lawsuit claims by The Star Media
SETTLED with RM50m damages paid.
Jaks is currently persuing The Star Media for damages.
Property development business
DISPOSED with RM72m gains.
Gains will be reflected in Q3 2020 results.
Pacific Star Complex
Vietnam Power Plant (Unit 1)
Final 336 hours trial run starting 31 Oct 2020.
COD expected In Nov 2020.
Vietnam Power Plant (Unit 2)
Both boilers successfully completed steam blow tests.
COD expected In Q1 2021.
Unit 1 officially commencing 336 hours trial run at 5pm on 31st Oct 2020
A New Beginning
After ceasing the loss making property development business, apart from some local infrastructure construction projects, Jaks is fully relying on its Vietnam power generation business to propel its future.
By the end of Nov 2020, Unit 1 of the 1,200MW Jaks Hai Duong Coal Power Plant (JHDP) will be operating commercially. The second unit will commence commercial operation in Q1 2021. According to the CEO Andy Ang, it is expected to easily achieve US$600m to US$700m revenue annually. Jaks currently owns 30% of JHDP and has an option to increase to 40%.
“We also have the option to increase our stake in the power plant by a further 10%, and we are already working on exercising this option,” said Andy Ang in an interview.
Andy's revenue projection is similar to Vinh Tan 1 power plant's 2019 results
Financial data below is extracted from the 2019 annual report of the holding company of Vinh Tan 1. Note that amounts are in RMB
Revenue = US$665m
Net Profit = US$157m
Free Cash Flow = US$236m
You can refer to my earlier article "Jaks Resources - The Most Reliable Earnings Guidance for JHDP" for detail discussion on the use of Vinh Tan 1 as earnings guide.
Given Jaks' heavy reliance on its power generation business in Vietnam, how much is 40% ownership in JHDP worth to Jaks ?
Base on the results of Vinh Tan 1, it is worth RM260m in annual net profit with 390m in annual free cash flow.
Based on the enlarged share base of 1.755 billion shares after right issue, the earnings per share (EPS) is RM0.148
10x PE = RM1.48
15x PE = RM2.22
The valuation figures derived using PE are in no way representative of the intrinsive value of the power plant. They only serve as a general idea of the potential valuation which maybe given by the investing public as PE valuation is the most widely used valuation method among the investing community. Personally, I think Discounted Cash Flow (DCF) method is more appropriate for valuation of businesses with determinable stream of future cash flows.
There is no new information in this article which I have not mentioned before.
The only purpose of this article is to remind the general investing public about the soon-to-commence operation of the power generation business which will have a resounding effect on Jaks' future, taking it up to a whole new level.
The time for serious investment decision has come.
My purpose here is like an alarm clock, I make buzzing sound but to wake up or not is up to you. Hence, to buy or not to buy is entirely up to you !
A question to ponder : How many listed company in Malaysia can achieve consistent RM390m annual free cash flow for 25 years ?
Disclaimer : This article is purely for information sharing purposes. You should not make your decision base on the information without seeking independent verification and advice.