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VALUATION REPORT
Glossary .......................................................................................................................................................................2
Main Assumptions in Valuation Model .....................................................................................................................2
Investment Summary...................................................................................................................................................3
Summary of Valuation Results from FCFF Model.....................................................................................................4
1. Company Overview ..............................................................................................................................................5
1.1.Company Overview................................................................................................................................................5
1.2.Core Businesses....................................................................................................................................................5
1.3.50 Mw Thuan Nhien Phong Wind Power Project...............................................................................................5
2. Industry Overview ................................................................................................................................................6
2.1.Vietnam Power Industry........................................................................................................................................6
2.2.Wind Energy Industry............................................................................................................................................6
2.3.Wind Energy Industry Outlook.............................................................................................................................7
3. SWOT Analysis.....................................................................................................................................................8
4. Project Status .......................................................................................................................................................9
4.1.Overview..................................................................................................................................................................9
4.2.Legal Status ............................................................................................................................................................9
4.3.Current Project Status........................................................................................................................................ 10
5. Financial Situation..............................................................................................................................................11
6. Financial Projection And Valuation Model.......................................................................................................12
6.1.Revenue Forecasting.......................................................................................................................................... 12
6.2.Costs And Expenses .......................................................................................................................................... 12
6.3.Depreciation......................................................................................................................................................... 13
6.4.Tax And Tax Refund ........................................................................................................................................... 13
6.5.Long-Term Debt Repayment ............................................................................................................................. 13
6.6.Dividend Payment............................................................................................................................................... 13
6.7.Projection Results............................................................................................................................................... 13
Conclusion .................................................................................................................................................................18
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VALUATION REPORT
GLOSSARY
Main Assumptions in Valuation Model
Explanations
Beta Risk Factor
CAPEX Capital Expenditure
COGS Cost of Goods Sold
FCFF Free Cash Flow to Firm
EBIT Earnings Before Interest and Tax
g Terminal Growth Rate
NPV Net Present Value
VND Vietnam Dong
WACC Weighted Average Cost of Capital
DCF Discounted Cash Flow
EPS Earnings per Share
DPS Dividends per Share
ROE Return on Equity
ROA Return on Assets
IRR Internal Rate of Return
Explanations
Projection Time 21 years
Typical timeframe of a wind power project and
add 1 year of construction.
Beta (Unlevered) 0,20
Average unlevered beta of listed wind power
companies in developed countries
Risk-free rate 8,8% 15-year Government Bond rate
Market Premium 5,00% Prof. Damodaran Data.
Country Risk 4,34% Prof. Damodaran Data.
Discounted Time December 31, 2014
Dividend
10% in 2016 and increase
10% for every 5 years
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VALUATION REPORT
Share Price
At the end of this month 17,000
At the end of this year 17,500
Trading Information 1th
August
Charted Capital (Billion VND) 102.2
Market Value (Billion VND) 102.2
Company Information
Name Asia Renewable Energy Corp.
Address
35th
Tôn Đức Thắng, district 1,
HCM city
Main Income Wind power generation
Main
Expense
Maintenance, Turbine operation,
Labor cost
Competitive
advantages
One of the first movers in
Vietnam Wind industry
Main Risks
Electricity purchasing price and
interest rate fluctuation.
Shareholder Structure
(5th
August, 2014)
Management Board 81.0%
Lê Khắc Thi (chairman & CEO) 81.0%
Others 18.1%
Trần Viết Giang 7.6%
Lê Văn Tiến 2.0%
Ngô Thị Vân 4.6%
Trịnh Mai Hương 2.9%
Lai Thục Hà 1.0%
Treasury Stock 0.9%
INVESTMENT SUMMARY
In 5th
Aug 2014, we performed valuation process for AREC or
Asia Renewable Energy Corporation, which is based mainly on
their 32 MW wind farm project in Binh Thuan province. By using
Discounted Cash Flow method or DCF, the estimated price for the
end of this month (31th
Aug 2014) is 17,000 VND/share and for
the end of this year (31th Dec 2014) is 17,500 VND/share.
50 MW Thuan Nhien Phong wind farm project is divided into 2
stages. The first stage will have total installed capacity of 32 MW
and the second stage will be launched after evaluating stage 1’s
performance. Additionally, stage 2 will have expected total
capacity of 18 MW, which will bring the total capacity of Thuan
Nhien Phong wind farm project up to 50 MW.
Required investment capital for stage 1 is estimated to be
around 1.458 billion VND or 70 million USD. Equity capital will
account for 30% of total investment, which is equivalent to 437
billion VND or 21 million USD, and debt will account for the
remaining 70% of total investment, which is equivalent to 1.020
billion VND or 49 million USD with expected interest rate of 5.4%
(in VND).
Currently, AREC has completed necessary legal procedures
for project with the adequate related legal paperwork
including: investment license, business license registration,
Power Purchasing Agreement (PPA) with EVN, and building
permit. Stage 1 has already in construction process, which is
expected to finish in June 2015. Moreover, AREC also enjoys
many privileges from the government's policies, such as corporate
income tax deduction and imported tariff exemption on equipment.
At the price of 10.4 cent USD/KWh, project’s investment
effectiveness is estimated at a good level with NPV of 345
billion VND or 16 million USD and IRR of 21.69%. Payback and
discounted payback period is calculated at 12 and 8 years,
respectively. In that, the most important factor is electricity
purchasing price, and at the current price 7.8 cent USD/KWh, NPV
will have negative value of 113 billion VND or 6 million USD.
The increase of electricity price to 10.4 cent will have a
positive impact on development of Vietnam wind energy
industry. With the newest information, the government is willing to
approve GIZ’s suggestion to raise electricity purchasing price from
7.8 cent USD to 10.4 cent USD. With this price, development of
Vietnam wind power industry will be improved significantly, when
over 48 current wind farm projects have been postponed, because
of the present electricity price.
Asia Renewable Energy Corporation
Industry: Wind Energy August 5, 2014
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VALUATION REPORT
Table 1: Forecasted Results 2013 – 2018
Unit 2013 2014F 2015F 2016F 2017F 2018F
Revenue Billion VND - - 118 243 249 255
Gross Profit Billion VND - - 83 171 177 183
Net Profit Billion VND (3) (6) 198 155 115 129
EPS VND (281) (143) 4,600 3,602 2,663 2,990
DPS VND 0 0 0 1,000 1,000 1,000
DPS/EPS % 0% 0% 0% 28% 38% 33%
Revenue Growth % 0% 0% 0% 105% 2% 2%
Net Income Growth % 0% 0% 0% -22% -26% 12%
Net margin % 0% 0% 167% 64% 46% 50%
ROE % 0% 0% 38% 23% 15% 15%
ROA % 0% 0% 19% 9% 7% 8%
Summary of Valuation Results from FCFF Model
Assumptions Valuation Results Million VND
WACC 2014 14.4% Projected time 21 years
Corporate tax rate 2014 (*) 0% PV of FCF 737,415
Cost of Equity (2014) 14.4% (+) Cash & ST investments 49,584
Risk-free rate 8.8% (-) Short and long-term debt 0
Market Risk Premium 5.0% Enterprise value (EV) 787,011
Unlevered Beta (2014) 0.20 Minority interest 0
CAGR 2.4% Total equity value 787,011
Terminal Growth rate 2.4% Outstanding shares (millions) 44
At the end of this year (VND) 17,404
At the end of this month (VND) 16,838
Report Limitations:
We have conducted valuation process on Thuan Nhien Phong Project in phase 1 corresponding to a capacity of 32MW.
Implementation of phase 2 corresponding to the remaining capacity of 18MW is not in the scope of this report.
Our analysis and assessments were conducted based on information provided by the Company. We have not performed any
review on the information related to construction costs, which is estimated based on the specifications of the project.
We have only conducted the discussions with the Board of Directors on reasonableness of those assumptions on capital structure,
revenue and cost of future projects, and the discount rate used in the process of cost of the project.
This valuation report is only valid with 6 months from issuing date based on assumptions that we believe is appropriate
Source: FPTS
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VALUATION REPORT
Brief Biography of Mr. Le Khac Thi
(Note: Photo of Mr. Le Khac Thi (front left) in contract signing
ceremony with TECO)
Qualifications: Ph.D. in Renewable Energy
Educational Process:
In 1988: graduated from Da Nang University of
Technology with Bachelor Degree.
In 2004: earned his Master Degrees in Electrical
Engineering from Washington State University.
In 2006: earned his Doctoral in Electrical Engineering,
focusing in Renewable Energy at Oregon State
University.
Mr. Le has over 23 years of experience in electrical
engineering including management consulting, project
management, environmental consulting, and engineering
services to the emerging wind power industry in the
United States.
1.1. Company Overview
Asia Renewable Energy Corporation (Trading name: AREC) was
founded on June 3, 2008, with business license No. 0305536959,
and their headquarters currently locates at 35 Ton Duc Thang
Street, District 1, Ho Chi Minh City. Moreover, AREC’s registered
chartered capital is 600 billion VND or 28,5 million USD, but existing
paid-up capital is only 102.2 billion VND or 4,9 million USD.
1.2. Core Businesses
AREC’s main operation areas are power generation, and
developing power projects using various renewable energy sources
including solar, wind, geothermal, and hydropower. However, at the
beginning stage, the company will focus primarily on the
development of wind power with the Thuan Nhien Phong project.
1.3. 50 MW Thuan Nhien Phong Wind Power Project
This is the first and sole wind power project of AREC since its
inception. Project site is located at Hoa Thang commune, Bac Binh
District, Binh Thuan Province with the total areas of 293 hectares,
and this location is expected to have a good wind potential with an
average wind speed of 6-7 m/s. Therefore, GE also estimated
utilization rate for this project is approximately 34,64%, higher than
the rate of 20-25% in Thailand. As the result, this power plant will
able to generate annual output of 97 GWh in Phrase 1, and this
terrific utilization rate will also enhance the effectiveness for this
project investment.
Overall, this project is implemented in form of a BOO (Build -
Operate - Own) project with total installed capacity of 50 MW. As
planned, the project will be divided into two phases. In Phase 1,
AREC will install 16 wind turbines with installed capacity of 32 MW,
and required investment is estimated at 1,458 billion VND (70
million USD). Currently, the first phase is being implemented and
will be put into operation officially in June 2015. In phase 2, AREC
will make an investment on the remaining capacity of 18 MW raising
the total installed capacity to 50 MW. However, the timeline for
Phase 2 will depend on evaluation of Phase 1’s implementation.
1. COMPANY OVERVIEW
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VALUATION REPORT
Graph 1: Electricity Consumption (2009-
2013)
Source: EVN
Figure 1: Vietnam Wind Map
Source: MOIT
.
2.1. Vietnam power industry
Electricity consumption has reached 115.06 TWh in 2013
As a fast developing country, along with a large amount of FDI
flowing into manufacturing industry, Vietnam electricity demand is
growing rapidly in recent years. According to EVN, the electricity
consumption has reached 115.06 TWh in 2013 with CAGR of 13%
over the past decade. Therefore, the Government is launching
"Master Plan VII” with a purpose of increasing total current installed
capacity from 27 GW to 68 GW in 2020 and to 137 GW in 2030.
However, the implementation has been facing many obstacles due
to a large required investment, which is estimated around 4.88
billion USD per year in period of 2011-2020. Thus, the authority has
been working on readjusting this plan.
In addition, the Government is developing a roadmap for Vietnam
Competitive Generation Market or VCGM. Accordingly, in last stage
of this route, which is expected to be after 2023, power purchasing
market will consist of many buyers, rather than the current
monopoly of EVN (or Vietnam Electricity, a state-owned
conglomerate controlling the whole supply chain of Vietnam power
industry). Thus, this roadmap will potentially improve electricity
purchasing price and promote transparency in the power market. As
a result, it will likely to attract more foreign investment into the
power generation industry.
2.2. Wind energy industry
Tremendous potential of wind energy
With a coastline of over 3,000 km and the location in the monsoon
climate region, Vietnam possesses a huge potential of wind power.
Although there are many studies on Vietnam wind energy, an
official figure on potential installed capacity has not yet been made.
According to "Wind Energy Resource Atlas of Southeast Asia"
report from the World Bank in 2001, Vietnam is considered as a
country with the highest wind power potential in Southeast Asia,
and the potential installed capacity is estimated around 513,360
MW. However, there are many arguments that this figure is too high
in comparison to the real potential. From another report of "Wind
Resource Assessment at the Selected Sites in Vietnam" conducted
by the Ministry of Industry and Trade in 2009, total area with
substantial wind speed of higher than 6 m/s accounts for roughly
0.8% of Vietnam total area. Moreover, the potential installed
capacity is measured at 10,637 MW. Specifically, the areas with the
highest wind potential concentrate in the southern coastal
provinces.
76
86
95
105.47
115.06
0%
2%
4%
6%
8%
10%
12%
14%
00
20
40
60
80
100
120
140
2009 2010 2011 2012 2013
Điện năng tiêu thụ Tăng trưởng
2. INDUSTRY OVERVIEW
Power Consumption Growth rate
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VALUATION REPORT
Table 2: Vietnam Wind Potential
Average
Wind
Speed
Fair
(6-6.5m/s)
Good
(6,5-7m/s)
Excellent
(>7m/s)
Areas
(km2
)
2.027 439 193
% of Total
Areas
0,61 0,13 0,06
Capacity 8.109 1.757 771
Total Potential Installed Capacity (MW) 10.637
Source: MOIT
Figure 2: Tuy Phong Wind Power Plant
Source: REVN
Figure 3: Operation Process
Source: REVN
Master plan for wind power industry
According to Master Plan VII, the total installed capacity from
renewable energy will reach 13,799 MW by 2030. In particular,
Vietnam will have 1,000 MW of wind power by 2020 and 6,200 MW
by 2030. Besides, the government has been issued many policies
to support development of this roadmap, such as decision No.
37/2011/QD-TTg regulating that EVN is committed to purchase all
of electricity output from wind power projects at the price of 7.8
cents USD/KWh, decision 130/2007/QD-TTg on incentive
mechanisms and policies for CDM projects’ investment and
corporate tax exemption and deduction.
Current situation
According to an incomplete statistics, at the end of 2012, there
were more than 77 registered wind power projects in 18 provinces
with a total installed capacity of 7,234 MW exceeding 16% Master
Plan 7’s target. However, there are currently only 48 remaining
registered projects with a total installed capacity of 4,876 MW and
only 3 operating projects with an installed capacity of 52 MW,
including Tuy Phong wind power project - 30 MW, Phu Quy Island
project - 6 MW, and Bac Lieu wind power project - 16 MW. The
main reason causing this delay is current electricity purchasing
price of 7.8 cents USD/KWh, which is very low compared to the
price of 20 cents USD/KWh in Thailand. This price is not sufficient
to make a wind power project profitable, when typical investment
cost is as high as 100 million USD for a 50 MW project with
common debt structure of 70-80%. Thus, along with current
borrowing interest rates of 8% in Vietnam, investors will have to
bear an enormous interest payment, which will negatively affect
Vietnam wind power industry. However, the situation is heading to
a brighter direction, when the government has been showing
positive signals on the petition to raise the price to 10.4 cents,
which is expected to be applicable by the end of this year.
2.3. Wind energy industry outlook
According to the Ministry of Industry and Trade, Vietnam has a
significant wind potential with total installed capacity of 10,637
MW, which is approximately 42% of Vietnam total installed
capacity in 2013. In addition, the government has already
specified the roadmap for wind energy development in Master
Plan VII in order to meet the rising electricity demand. At a same
time, it also diversifies energy sources and reduces the
dependency on harmful traditional power sources such as thermal
power, which induces greenhouse effect or hydropower, which is
causing a significant change in our ecosystem. Moreover, the
Kyoto Protocol in 2002 has already created "Certified Emission
Reductions" (CERs), so CDM projects can sell their emission
reduction credits to generate a considerable additional income.
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VALUATION REPORT
Figure 4: Turbine Foundation
Source: Company’s data
Sources: FPTS
3. SWOT ANALYSIS
Strengths Weaknesses
Project site is located at Binh
Thuan province, the highest wind
energy potential province in
Vietnam with an average wind
speed of 6-7 m/s.
Mr. Le Khac Thi is an experienced
expert with in-depth understanding
of Vietnam wind power industry
This project has a high level of
readiness with completed legal
documents and feasibility study
reports from creditable
international consultants.
Successful project
implementation will depend
mainly on electricity
purchasing price, which is set
by the Government.
Opportunities Threats
Many supportive policies
(guarantee to purchase the entire
output, supportive purchasing
price, and imported duty, VAT tax
and corporate income tax
exemption and deduction).
Master Plan 7 focuses on
development of renewable energy,
especially wind power.
Development of VCGM will help to
eliminate EVN monopoly.
Good chance that the purchasing
price will increase to 10,4 cent
USD/KWh by the end of this year.
The current purchasing price
of 7,8 cent USD/KWh.
The current interest rate of 8%
will put a tremendous pressure
on investors, when wind
projects typically have 70-80%
debt structure.
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VALUATION REPORT
Figure 5: Project Location
Source: Company’s data
Figure 6: Wind speed at site location
Source: Company’s data
Figure 7: Project Management Team
Source: Company’s data
4.1.Overview
Project purposes
Thuan Nhien Phong power plant has total installed capacity of 50
MW, and phase 1 will have an installed capacity of 32 MW. This is
the first and only project of AREC, so it is also the most important
source of revenue for the company in the coming years. Besides,
with the expectation that electricity purchasing price will increase
to 10.4 cents, this will also be a test for investment effectiveness in
the field of wind power generation. AREC could also gain valuable
experience of operating wind power plant, which will help them in
the expansion into second stage, as well as future development of
other projects.
Site location
Thuan Nhien Phong project is located at Hoa Thang commune,
Bac Binh District, Binh Thuan province with a total land area of
293 hectares (141 hectares for phase 1). On the other hand, Land
clearance process has been completed, and the project is being
conducted basic construction steps, which is expected to be
finished by the end of this year. Moreover, the project site is
located next to main roads, which will create a good condition for
equipment transportation.
4.2. Legal status
Completed legal documents
AREC has completed necessary legal procedures with the
adequate related legal paperwork including:
a. Investment license No. 4812000375 issued by the People's
Committee of Binh Thuan on May 14, 2009.
b. Business registration license issued by the Department of
Planning and Investment. Ho Chi Minh City on March 06,
2008.
c. Decision No. 5588/QD-BCT approving “Additional plan for
wind power plant Thuan Nhien Phong” issued on October
27, 2011.
d. Power Purchasing Agreement (PPA) No. 1002/EVN-KH
signed with EVN on March 30, 2011.
e. National Grid-Connection Agreement signed on June 22,
2012.
f. Decision No. 6799/QD-PPC approving “The overall site
clearance compensation plan for the construction of Thuan
Nhien Phong wind power plant at Binh Thuan Province”
issued on October 11, 2011.
g. Decision No. 1959/QD-PPC approving “the environmental
impact assessment for Thuan Nhien Phong wind power
4. Project Status
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VALUATION REPORT
Table 3: Investment Cost Breakdown
VND (%)
Total Investment 1,458,529,796,480 100%
1. Land Clearance 11,359,351,776 0.78%
2. Equipment 1,135,022,949,981 77.82%
3. Construction costs 143,092,737,379 9.81%
4. Project management 13,495,283,826 0.93%
5. Consulting costs 47,390,662,957 3.25%
6. Other costs 38,715,010,729 2.65%
7. Provisions 69,453,799,832 4.76%
Source: Company’s data
Table 4: Capital Structure
Capital Structure VND
Equity 437,600,000,000 30%
Debt 1,020,929,796,480 70%
Total 1,458,529,796,480 100%
Source: Company’s data
Figure 8: Construction of Turbine
foundation
Source: Company’s data
Project timeline:
01/2010-05/2011: Plan preparation and
approval.
05/2011-05/2012: Choosing turbin provider.
05/2011-05/2013: Loan contract application.
05/2012-06/2015: Construstion and finishing.
plant project at Hoa Thang commune, Bac Binh District,
Binh Thuan Province” issued on September 11, 2011.
h. Building permit issued on April 20, 2011.
i. The feasibility study reports from the well-known
international consultants ("Wind Plant Optimization - Thuan,
Phong, Giant Project Service Corp." by GE in 2008).
Hence, the readiness of Thuan Nhien Phong project is at a high
level with the fully completed legal paperwork. Furthermore, AREC
also has the adequate feasibility study reports from the trustworthy
consultants, which will help them in fundraising process at
international financial institutes.
4.3. Current project status
Required investment fund
According to the plan, Phrase 1 will have a total investment of
1,458 billion VND (70 million USD). In particular, equity capital will
account for 30%, equivalent to 437.6 billion VND (21 Million USD).
Their current chartered capital is 102.2 billion VND (5 million
USD), so they will need to raise an additional 335.4 billion VND
(16 million USD). On the other hand, debt capital will account for
the remaining 70% of total investment, equivalent to 1,020 billion
VND (49 million USD). In addition, AREC is applying for a loan at
Vietnam Development Bank (VDB) with proposed interest rate of
5.4%, equal to actual interest rate of Bac Lieu project.
The remaining equity capital will be raised by issuing shares.
Currently, issuing process has been carrying out smoothly. As a
result, the process is expected to be done by the end of this year.
In the meantime, VDB has accepted the borrowing contract and
been taking necessary steps to complete the process in order to
finalize the interest rate. Under the agreements, AREC will enjoy
grace period for principal and interest repayment up to 2 years.
Project implementation
The construction process is planned to finish within 18 months.
Currently, basic construction of turbine foundation and
administration buildings is being carried out, which will be done at
the end of this year, and 30% of total investment value will be
disbursed by that time.
At the beginning of 2015, AREC will disburse the loan from VDB
and complete payment procedures for their wind turbines. By June
2015, transportation and installation of wind turbines will be
finished, and the plant is expected to operate shortly after that.
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VALUATION REPORT
Graph 2: Total Assets and Equity (2010-
2013)
Source: Company’s data
Note: Because of Viet A Bank’s 270-billion-
VND (13 million USD) technical disbursement
on December 31, 2013, AREC’s short-term
debt and total assets have increased to 284
billion VND and 371 billion VND, respectively.
However, Viet A Bank had withdrawn this
amount in the next day, January 1, 2014.
Therefore, the company will not pay any
interest for this 270 Billion VND. As the result,
we have already removed this amount from our
projection process.
Only administration expenses incurred
Ever since 2009, the company's operations are only fundraising
activities, so there are only administration expenses incurring
during that period.
Balance Sheet (2012-2013)
Assets 2012 2013
+ Cash & equivalent 4,828 270,099
+ Short-term investments 0 0
+ Accounts receivable 49,884 49,874
+ Inventories 0 0
+ Other current assets 4,699 6,935
Total current assets 59,411 326,908
+ Gross fixed assets 140 0
- Accum. depreciation (75) 0
+ Net fixed assets 65 0
+ Long-term investments 0 0
+ Other long-term assets 0 213
Total long-term assets 42,582 44,325
Total Assets 101,993 371,233
Liabilities & Equity 2012 2013
+ Accounts payable 9,059 9,372
+ Short-term borrowings 4,482 274,872
+ Bonus, welfare 0 0
Current liabilities 13,541 284,244
+ Long-term debt 0 0
+ Other LT liabilities 0 0
Total LT liabilities 0 0
Total Liabilities 13,541 284,244
+ Total preferred equity 0 0
+ Addt’l paid in capital 0 0
+ Share capital 100,814 102,234
+ Retained earnings (11,424) (14,248)
+ Minority interest 0 0
Total equity 88,453 86,989
Liabilities & equity 101,993 371,233
(Unit: Million VND)
51
109
102
371
48
100 88 87
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013
Tổng Tài Sản
Vốn Chủ Sở Hữu
5. Financial Situation
Total Assets
Total Equity
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VALUATION REPORT
6. FINANCIAL PROJECTION AND VALUATION MODEL
Table 5: Projection Inputs
production Unit
Electricity 97,122,000 KWh/yr
CER 67,985 Ton/yr
production Unit
Electricity 0,104 USD/KWh
CER 10 EUR/Ton
*Electricity price increase rate: 1%/yr
*Foreign Exchange increase rate : 1.5%/yr
Source: Company’s data
Table 6: WAsP System Results
Unit Value
Production per
turbine
MWh 7,244.37
Uncertainties in
calculation process
% 10
Avaibility rate % 95
Production loss % 2
Actual ouput MWh 6,070.06
Utilization rate % 34,64%
Source: Company’s data
Table 7: Annual Expense
Expense
Equipment Depreciation (20 yrs) 56 Bn VND
Buildinds Depreciation (15 yrs) 21 Bn VND
Turbine Operation costs (USD/yrs) 624,000
Labor (USD/person/month) 600
Corporate Tax Rate 10%
Other Expenses 0.05%/Sales
Source: Company’s data
Since AREC has a stable cash flow from electricity generation
activity, so we decided to use discounted cash flow (DCF) method
for estimating their share price. Moreover, a wind power project
typically has a lifecycle of 20 years, so we have applied this
timeframe for projection period.
6.1. Revenue forecasting
AREC has decided to use wind turbines from TECO with more
superior features than the previous choice of GE’s wind turbines,
especially in their output. The generation capacity is measured by
WASP software, which has already included important technical
factors such as terrain roughness, air temperature, and
elimination of uncertainties in calculation process. According to
that, average annual output of each wind turbine is estimated at
6,070 MWh and of the 16 turbines is 97 GWh.
CO2 reduction for this project is estimated at 700 ton/GWh, so
total emission reduction is around 67,985 ton/year.
For the purchasing price, we will base on new expected
purchasing price of 10.4 cents USD/KWh, and it is projected to
increase by 1%/year. This is a conservative assumption. Since the
price is set by the government, it has not been changed from 7.8
cents USD/KWh for the last 3 years. According to that
assumption, purchasing prices is only increase to 12.69 cents
USD/KWh by 2035. For CER, the price of 10 EUR/ton is based on
the selling contract, but this price could be changed every year. In
addition, we also put into account increase of exchange rate by
approximately 1.5%, which is based on the fluctuation of
exchange rate in the previous year.
As the result, revenue is predicted to grow at 2.4% annually,
except in 2016, when only 50% of revenue was realized in 2015,
because the plant was put into operation in June 2015. Terminal
growth rate (g) is also set at 2.4%.
6.2. Costs and expenses
AREC will sign a lifetime maintenance contract with TECO, and
the annual cost is specified at 39,000 USD/turbine. Therefore,
AREC will have annual turbine operation cost of 624,000 USD,
equivalent to 13.6 billion VND. Besides, they plan to hire 20
employees for the first year and 10 employees for the remaining
year with an average salary 600 USD/person/month. All these
costs will be assumed to grow at 1.5% per year by applying the
change in exchange rate.
14. www.fpts.com.vn Page | 13
VALUATION REPORT
Graph 3: Lond-term Debt Projection
Source: FPTS
6.3. Depreciation
Equipment and buildings will be depreciated over 20 years and 15
years, respectively, so AREC will have relatively high depreciation
expense of 81 billion VND (4 million USD) in 2016 - 2029.
6.4. Tax and tax refund
Under corporate income tax law in 2012, AREC will enjoy a
preferential tax rate of 10%. Moreover, according this law,
corporate income tax for this project will be waived from in the first
4 years, reduced by 50% in the next 9 years, and the tax rate of
10% will be used for following years.
In addition, this project will be refunded value-added tax (VAT) on
the investment in equipment, project management costs,
construction costs and consulting costs. Therefore, they will earn
a tax refund of 137 billion VND (6.5 million USD) in 2015. Besides,
AREC also enjoy imported tariff exemption for their equipment.
According to AREC, they can be reimbursed investment in 110Kv
transmission lines and substations, which is estimated at 63 billion
VND (3 million USD). However, the time of this reimbursement is
not clear, so we would not put this into our projection.
6.5. Long-term debt repayment
Since cash flow for this project is relatively stable, so we assumed
the principle repayment will be made equally in 10 years starting
from 2017 with annual repayment of 102 billion VND (5 million
USD). Hence, LT Debt is expected to be fully paid off by 2026.
6.6. Dividend payment
Since AREC will start to have a sufficient profit from 2016, we
assumed that they would pay dividends at 10% of par value by
that time. Besides, the dividend rate is projected to increase by
10% in every five years, so in the period from 2031 to 2035, the
rate will reach 40%. Despite the high level of dividend payment,
AREC’s cash will reach 430 billion VND (20 million USD) in 2020,
so they could also start planning for investment into Phrase 2 of
the project by that time.
6.7. Projection results
Under these assumptions, our projected price for the end of this
month (August 31, 2014) is 17,000 VND/share and for the end of
the year (December 31, 2014) is 17,500 VND/share. In addition,
investment effectiveness of this project is also at a good level with
NPV of 345 billion VND (16 million USD) and IRR of 21.69%.
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