Comparison between JAKS and MFCB
The purpose of this article is to evaluate the validity of using the market price of MFCB as a valuation guide for Jaks based on the forecasted earnings of its 40% owned JHDP.
1,200 MW Jaks Hai Duong Coal Power Plant, Vietnam
The project covered the construction of a 1,200MW power plant, a powerhouse, 2 x 600 MW subcritical generating units, sub-stations, 4 x 300MW CFB boilers, laying of transmission lines. The project adopted the form of EPC+ Build-Operate-Transfer mode. Power Purchase Agreement of the project was signed in Aug 2011. The project was about 60 km to Hanoi. This project was the largest investment made by CPECC in overseas market. The project would provide more electricity for local area and the relevant state ministries, commissions attached great importance to the project. The project responded to the Belt and Road Initiative and was a major project.
260MW Don Sahong Hydro Power Plant, Laos
Located in Laos, the Don Sahong Dam is a run-of-the-river hydroelectricity facility at the downstream end of the Hou Sahong channel between Don Sahong and Don Sadam islands. The dam is 22.5 m high. It has an installed capacity of 260 MW, provided by four bulb turbines 65 MW each. Most of the produced electricity will be exported to Thailand and Cambodia. A dedicated 195 MW power line connecting the power station with Cambodia has been commissioned in early 2020.
| JHDP (40%) | Don Sahong (80%) | |
| Owner | Jaks Resources | MFCB |
| Type | Coal Power Plant | Hydropower Plant |
| Location | Vietnam | Laos |
| Capacity | 480MW | 208MW |
| Capital Investment | USD750 millions | USD400 millions |
| BOT Maturity | Year 2021 to 2045 | Year 2020 to 2044 |
| Power Purchase Agreement | Capacity and Energy payments | Take or Pay |
| Projected Payback Period | 8 years | 5.5 years |
| Estimated Profit | RM260m (Based on Vinh Tan1) | RM289m (assuming Q4 equals Q3) |
| Number of Shares | 1.755 billion | 454 million |
| Earnings per share (EPS) | RM0.148 | RM0.636 |
| Current Market Price | RM0.64 | RM7.34 |
| PE Ratio | 4.3 | 11.5 |
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.
https://klse.i3investor.com/blogs/Jaks%20resources/2020-05-01-story-h1506848575-Jaks_Resources_The_Most_Reliable_Earnings_Guidance_for_JHDP.jsp
Notable information
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Both companies are almost entirely dependent on a single power plant for revenue source and growth.
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Coal power plants globally are facing environmental concerns while hydro power plants in Vietnam and Laos are facing risk of drought and decreasing water level of Mekong river.
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Hydro power plants have dispatch priority over coal power plants due to lower cost of electricity generation.
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JHDP is protected by capacity payment which is receivable from EVN Vietnam as long as the power plant is available for electricity generation. Electricity dispatch is controlled by EVN.
- MFCB is paid by the quantum of electricity generated but limited to the agreed take up rate
Is MFCB a good candidate for valuation guide ?
Though there are some differences, MFCB is still a good valuation guide simply because just like Jaks,
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MFCB is a Malaysian company listed under Bursa Malaysia, and
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MFCB is primarily an IPP with a single power plant, and
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MFCB derives more than 95% of its revenue from Don Sahong power plant, and
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Don Sahong is located in a foreign country, hence subject to sovereign risks, and
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Don Dahong provides electricity to Asean countries where demand for electricity are high, and
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MFCB's 25 years BOT and PPA contracts only began recently after it achieved COD in Oct 2020, and
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MFCB will report certain and stable income during the entire BOT period, and
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MFCB's hydropower plant will be surrendered to the Laos authority free of charge at the end of the BOT period.
Conclusion
Both Jaks and MFCB have notable similarities in businesses and risk profiles, hence, they should have similar valuation.
MFCB is currently trading at 11.5 times earnings of Don Sahong. Given the same PE ratio, Jaks should be trading around RM1.70 after it has acquired additional 10% interest in JHDP and the power plant achieved full potential.
DK
Disclaimer
: This article is purely for information and opinion sharing purposes.
You should not make your decision based on the writing. You are strongly
advised to seek independent verification and advice.
https://klse.i3investor.com/blogs/Jaks%20resources/2020-11-23-story-h1536548440-Jaks_Resources_Using_MFCB_as_Valuation_Guide.jsp
