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JAKS’ 1,200 MW coal fired power plant, Vietnam site visit

 

As you know, JAKS’s profit for 3 quarters of the year was not so good and many weak shareholders simply dump their holdings without looking at the future profit growth prospect which is the most important consideration. As a result, its share price is being depressed.

Many shareholders have asked for my opinion as they wanted to know if they should sell or hold on or buy some more shares.

If you need money badly and you are not a long-term investor, you should sell. But you must bear in mind that statistics shows that long term investors made more money than short term investors. If you have funds, you should take advantage to buy during the cheap sale.

On 17 Aug, the company announced the sale of 4 parcels of land to Sunway Holdings Sdn Bhd for Rm 167 million and with a net profit of Rm 107 million.

On 2 Oct, the company announced the sale of another parcel of land to Hectare Sdn Bhd for Rm 25.8 million with a net profit of Rm 18.5 million.

The total profit of Rm 125.5 million will most likely be included in the next quarter and I am sure when investors see these profit announcements, they will rush to buy JAKS shares to push up the price.

As you can see from the company announcement, the Company CEO Ang Lam Poah, a few directors, my wife Tan Kit Pheng and I have been buying additional shares because I strongly believe I can make a few hundred per cent within the next few years especially when the power plant is completed in two and half years’ time.

If you look at the article on my track record in which I mentioned my purchases of Latitude, VS Industry and Lii Hen and became the 2nd largest shareholder of each company. Each of these 3 counters went up a few hundred per cent within a few years. I strongly believe JAKS will perform the same way as any of the 3 counters I mentioned above, otherwise my wife and I would not have bought 150 million JAKS shares.

On 14 Nov 2017, the CEO of JAKS, Mr Ang Lam Poah and his team took my wife and I including Mr Ooi Teik Bee, James Ong, Allan Gan, Grace Chang and Tey Kok Shin to see the construction of the 1,200 MW coal fired power plant in Hanoi, Vietnam. We were told that the Chinese JV partner will be able to complete the power plant ahead of Schedule in June 2020.

About 6 years ago, the Vietnamese Government awarded to JAKS Resources Bhd the contract to construct 4 units of 300 megawatts (MW) coal-fired power plant to sell electricity to the Vietnamese Government for a 25-year period in August 2011.

Since the total cost of US$1.87 bil (RM7.76 bil) (based on US$1=RM4.15) is so huge that JAKS could not find any bank to finance the project, the construction of the power plant was postponed several times until JAKS found China Power Engineering Consulting Group Co Ltd (CPECC) to be its joint venture partner in March 2016.

The construction is scheduled to complete in 2020. CPECC is very experienced in conducting survey and designing of power generation and transmission plants. Moreover, CPECC has been playing a leading role in China’s power survey and design industry with about 90% of such work in the country undertaken and completed by the group.

After careful study of the viability of the concession, a consortium of three banks, namely Industrial and Commercial Bank of China, China Construction Bank Corporation and Export-Import Bank of China have expressed preparedness to finance US$1.4 bil (RM5.81 bil) for the entire scheme.

Assurance of project completion

The three Chinese banks accepted the power purchase agreement (PPA) duly signed by the Vietnamese Government as collateral to finance the project. The banks will provide 75% of the funding for the project cost totaling of RM7.76 bil with the balance (25%) to be borne by JAKS and CPECC.

To protect the banks’ interest, the financiers must make sure that the PPA is water-tight and that JAKS and its JV partner must be able to complete the project on time. Both JAKS and CPECC must also be financially sound, otherwise they will not be capable of paying up the remaining 25% of the project cost of RM7.76 bil which amounts to RM1.94 bil.

To ensure that the whole project can be completed satisfactorily, the Chinese JV partner undertakes the full responsibility to complete the construction and operate the power plant for 25 years. JAKS will receive US454.5 mil (RM1.89 bil) during the construction period and 30% share of the independent power producer (IPP) business. The profit of about RM400 mil for JAKS will flow back into the JV company to fund JAKS’ equity portion. In other words, JAKS only needs to fork out RM203mil to own a 30% stake in the power plant. JAKS is also given an option to buy up another 10% of the JV company.

In essence, JAKS is sure to make RM400 mil during the construction period. Upon completion of the power plant project, both JAKS and its partner will enjoy profit every year for 25 years from the sale of electricity to the Vietnamese government.

As a co-founder of Mudajaya, Gamuda and IJM Corporation, I have more than 50 years of experience in the construction industry. In fact, I was involved in building more than 10 power plants and the first was Tungku Jaffar power station in Port Dickson, Negri Sembilan about 50 years ago.

I am very impressed with the Chinese contractor in the power plant construction. The piling for the foundation is almost completed, although you cannot see the piles but you can see the chimney under construction. The chimney is 170-meter-high which is 650 feet, equivalent to a 56-storey building.

Mr Ang has just visited China to inspect the fabrication of the steel structure and the manufacture of the 4 units of 300 MW steam boilers. They must make sure the boilers can last more than 25 years.

Conclusion: Investors must note that when the company CEO and substantial shareholders are buying the shares, it can only mean that the share is under-priced.

 

 

 

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