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To derive the cashflow projection over next 22 years, we need to first figure out the EBITDA for year 1.Īs mentioned in previous section, PAT and tax rate for year 1 is assumed to be RM1,060 mil and zero respectively. This translates into net profit of RM318 mil for Jaks' 30% stake.Ĥ. Eventually at about RM1,060 mil, IRR becomes 12%. It turns out that this level of profit will only generate IRR of approximately 8%.

I played with the IRR model by using PAT beginning from RM667 mil (translating into RM200 mil for 30% stake). It is a consensus formed by investors after studying profitability figures of already completed Vietnam IPPs as well as projects in other countries such as MFCB and YTL Power in Laos and Jordan respectively. The PAT figure is not something plucked from the air. Working backwards, Hai Duong's annual net profit would be RM667 mil (100% stake). Many investors are expecting net profit of at least RM200 mil for Jaks' 30% stake in Hai Duong (ignore the anaylsts, they will start upgrading when Jaks share price goes to RM2.00).

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I was made to understand that the IPP is tax free for first 4 years, 5% for subsequent 9 years and 10% thereafter. My hunch is that the difference will not be material).īased on depreciation period of 22 years (25 years concession, 3 years construction, 22 years operation), annual depreciation charges is RM340 mil. But for discussion sake, we just stick to this simplistic straight line assumption and finetune later if necessary. (In real life, debt is likely to be repayed in tranches. The declining interest expense will of course have a positive impact on profitability. By year 15, it would have dropped to RM19 mil only. However, as debt get progressively pared down, interest expenses also gradually decline. (b) in year 1, Hai Duang's interest payment is RM281 mil. (a) based on 15 years repayment period, annual repayment is RM374 mil. Based on USD : RM exchange rate of 4 to 1, that is equivalent to RM7.5 bil.Īssuming debt funding of 75%, total loan is RM5.6 bil.īased on assumed interest rate of 5% (average) and repayment period of 15 years, the debt profile will look like this :

Total capex for the power plant is USD1.87 bil. IRR is the discount rate that will lead NPV to become ZERO (Note : Co is a negative number while C1 to 25 is positive, so at certain discount rate, it is possible to cause the equation to end up with value of Zero).įor more information, please buy this Kindle Book and flip to page 115.īased on publicly available information and input and exchange of ideas from many i3 forum members, we know of the following (roughly) : C1 will be the free cash flow of Hai Duong in first year of operation (positive) while C2 will be the free cash flow for year 2 (positive), and so on (until year 25). Based on construction cost of RM7.5 bil (USD1.87 bil and exchange rate of 4) and construction period of 3 years, Co will be RM2.493 bil per annum (for 3 years).

In the equation, Co will be the negative cashflow to be incurred by Hai Duong during the construction period. Net Present Value is the sum of the discounted free cash flow of a project over its expected lifespan. To my surprise, they fit each other very well, without even needing me to massage the figures.įor those not familiar with IRR, please refer to the following : for its 30% stake, and (2) Internal Rate of Return of 12% (IRR).Ĭan these two pieces of information be reconciled ? To find out, I built an IRR model to test things out. So far, two major pieces of information attracted my attention : (1) expected net profit of at least RM200 mil p.a. Jaks is closed to completing the Hai Duong power plant.