Thuận Nhiên Phong Valuation report v6 (ENG)

VALUATION REPORT

Asia Renewable Energy Corporation

Ho Chi Minh City, August 5, 2014

www.fpts.com.vn Page | 1

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



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



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



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



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

95105.47

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



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.



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.



VALUATION REPORT

Figure 5: Project Location


Figure 6: Wind speed at site location


Figure 7: Project Management Team


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



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%


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%


Figure 8: Construction of Turbine foundation


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.



VALUATION REPORT

Graph 2: Total Assets and Equity (2010-2013)


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



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


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.



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%.

0

1,021 1,021 919 817

0

200

400

600

800

1000

1200

2014F 2015F 2016F 2017F 2018F



VALUATION REPORT

Appendix

Graph 4: Projected Revenue and Net Profit in Period of 2015 – 2026

Source: FPTS

Table 8: Sensitivity Analysis based on Interest Rate and CER Price

CER Price

19229.691 7 8 9 10 11 12 13

Inte

rest

Rate

2.4% 18,696 19,026 19,355 19,684 20,013 20,342 20,672

3.4% 17,749 18,074 18,399 18,723 19,048 19,373 19,697

4.4% 16,814 17,134 17,454 17,775 18,095 18,415 18,736

5.4% 15,890 16,206 16,522 16,838 17,154 17,470 17,786

6.4% 14,976 15,288 15,600 15,912 16,224 16,536 16,848

7.4% 14,073 14,381 14,689 14,997 15,305 15,613 15,921

8.4% 13,179 13,483 13,787 14,091 14,396 14,700 15,004

9.4% 12,294 12,594 12,895 13,195 13,496 13,797 14,098

11.4% 10,548 10,841 11,135 11,429 11,723 12,017 12,312

Source: FPTS

Table 9: Sensitivity Analysis based on Interest Rate and Electricity Price

Electricity Price

19229.691 0.078 0.087 0.095 0.104 0.113 0.121 0.130

Inte

rest

Rate

2.4% 9,709 13,010 16,350 19,684 23,009 26,324 29,628

3.4% 8,912 12,154 15,440 18,723 22,001 25,270 28,531

4.4% 8,123 11,308 14,540 17,775 21,006 24,231 27,450

5.4% 7,340 10,469 13,651 16,838 20,024 23,206 26,384

6.4% 6,564 9,639 12,771 15,912 19,054 22,195 25,333

7.4% 5,793 8,816 11,901 14,997 18,097 21,197 24,296

8.4% 4,912 7,999 11,038 14,091 17,150 20,212 23,272

9.4% 4,201 7,187 10,183 13,195 16,215 19,238 22,263

11.4% 5,342 5,577 8,493 11,429 14,375 17,327 20,281

Source: FPTS

118

243

249 255 261 267 274 280 287 294 301 309

198

155

115 129 136

151 167

181 196

213 230

248

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

-

50

100

150

200

250

300

350

2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F

Revenue Net Income



VALUATION REPORT

Appendix

Table 10: Projected Financial Report 2013 – 2018 Unit: Million VND

Source: FPTS

Income statement 2013 2014F 2015F 2016F 2017F 2018F

Net income - - 118,449 242,657 248,557 254,603

- COGS - - (35,860) (71,159) (71,375) (71,595)

Gross profit - - 82,589 171,497 177,181 183,008

- Sales & Marketing - - - - - -

- General & Admin (2,142) (5,992) (25,341) (25,415) (25,430) (25,445)

Operating profit (2,142) (5,992) 57,247 146,082 151,752 157,563

+ Financial profit - 6 2,777 8,811 17,891 20,606

+ Other profit (237) - - - - -

EBIT (2,379) (5,987) 60,025 154,893 169,642 178,169

- Interest expense (445) (158) - - (55,130) (49,617)

EBT (2,824) (6,145) 60,025 154,893 114,512 128,551

- Income tax expense - - - - - -

- Tax Refund - - 137,772 - - -

EAT (2,824) (6,145) 197,796 154,893 114,512 128,551

PAT (less minority interests) (2,824) (6,145) 197,796 154,893 114,512 128,551

EPS (VND per share) (281) (143) 4,600 3,602 2,663 2,990

EBITDA (2,356) (3,051) 110,131 227,341 233,011 238,822

Depreciation 23 2,941 52,883 81,259 81,259 81,259

Net income growth rate 0% 0% 0% 105% 2% 2%

Operating profit growth rate 0% 0% 0% -22% -26% 12%

EBIT growth rate 0% 0% 0% 155% 4% 4%

EPS growth rate 0% 0% 0% -22% -26% 12%

Profitability ratios 2013 2014F 2015F 2016F 2017F 2018F

Gross margin 0% 0% 70% 71% 71% 72%

Net margin 0% 0% 167% 64% 46% 50%

ROE DuPont 0% 0% 38% 23% 15% 15%

ROA DuPont 0% 0% 19% 9% 7% 8%

EBIT Margin 0% 0% 51% 64% 68% 70%

PAT/PBT 100% 100% 330% 100% 100% 100%

PBT/EBIT 111% 100% 105% 106% 112% 113%

Leverage ratio 0.86x 0.99x 0.37x 0.41x 0.46x 0.52x

Efficiency ratios 2013 2014F 2015F 2016F 2017F 2018F

Days inventory on hand 0 89 89 89 89 89

Days AR outstanding 0 0 0 0 0 0

Days AP outstanding 0 0 0 0 0 0

Cash conversion cycle 0 89 89 89 89 89

Liquidity/Solvency 2013 2014F 2015F 2016F 2017F 2018F

Current ratio 4.0 10.9 37.1 74.0 83.6 95.9

Quick ratio 4.0 10.9 37.1 74.0 83.6 95.9

Cash ratio 0.0 9.5 30.2 61.3 70.6 82.6

Debt-to-assets 0.0 - 0.6 0.6 0.5 0.5

Debt-to-capital 0.1 - 0.6 0.6 0.5 0.5

Debt-to-equity 0.1 - 1.7 1.4 1.2 0.9

Short-term debt to equity 0.0 - - - - -

Long-term debt to equity - - 0.6 0.6 0.5 0.5



VALUATION REPORT

Appendix

Table 11: Projected Financial Report 2013 – 2018 (Cont.) Unit: Million VND

Source: FPTS

Balance sheet 2013 2014F 2015F 2016F 2017F 2018F

Assets

+ Cash & equivalent 270,099 49,594 157,335 319,478 367,960 430,445

+ Short-term investments - - - - - -

+ Accounts receivable 49,874 - 28,846 59,094 60,531 62,004

+ Inventories - - - - - -

+ Other current assets 6,935 6,935 6,935 6,935 6,935 6,935

Total current assets 326,908 56,529 193,116 385,508 435,426 499,384

+ Gross f ixed assets - 44,112 1,502,642 1,502,642 1,502,642 1,502,642

- Accum. depreciation - (2,941) (55,824) (137,083) (218,342) (299,602)

+ Long-term investments - - - - - -

+ Other long-term assets 213 213 213 213 213 213

Total long-term assets 213 41,384 1,447,030 1,365,771 1,284,512 1,203,253

Total Assets 371,233 421,420 1,640,146 1,751,280 1,719,939 1,702,638

Liabilities & Equity 2013 2014F 2015F 2016F 2017F 2018F

+ Accounts payable 4,162 - - - - -

+ Short-term borrow ings 274,872 - - - - -

+ Other ST liabilities 4,689 4,689 4,689 4,689 4,689 4,689

Current liabilities 284,244 5,210 5,210 5,210 5,210 5,210

+ Long-term debt - - 1,020,930 1,020,930 918,837 816,744

+ Other LT liabilities - - - - - -

Total LT liabilities - - 1,020,930 1,020,930 918,837 816,744

Total Liabilities 284,244 5,210 1,026,140 1,026,140 924,047 821,954

+ Total preferred equity - - - - - -

+ Additional paid in capital - - - - - -

+ Share capital 102,234 437,600 437,600 437,600 437,600 437,600

+ Retained earnings (14,248) (20,393) 177,403 288,536 359,288 444,080

+ Minority interest - - - - - -

Total equity 86,990 416,211 614,007 725,140 795,892 880,684

Liabilities & equity 371,234 421,421 1,640,147 1,751,280 1,719,939 1,702,638

Cash flow 2013 2014F 2015F 2016F 2017F 2018F

Beginning cash 4,828 270,099 49,594 157,335 319,478 367,960

Profit after tax (2,824) (6,145) 197,796 154,893 114,512 128,551

+ Depreciation 23 2,941 52,883 81,259 81,259 81,259

+ Other non-cash adjust. - - - - - -

+ Changes in non-cash (2,386) 45,712 (28,846) (30,248) (1,437) (1,472)

Cash from Operations (4,916) 42,508 221,834 205,904 194,334 208,338

+ Disposal f ixed assets - - - - - -

+ Capex (1,595) (323,507) (1,135,023) - - -

+ Change in investments - - - - - -

+ Other investments - - - - - -

Cash from Investing (1,595) (323,507) (1,135,023) - - -

+ Dividends paid - - - (43,760) (43,760) (43,760)

+ Change in capital 1,420 335,366 - - - -

+ Change in ST debt 270,362 (274,872) - - - -

+ Change in LT debt - - 1,020,930 - (102,093) (102,093)

+ Other f inancing act. - - - - - -

Cash from Financing 271,782 60,494 1,020,930 (43,760) (145,853) (145,853)

Net changes in cash 265,271 (220,505) 107,741 162,144 48,481 62,485

Ending cash 270,099 49,594 157,335 319,478 367,960 430,445



VALUATION REPORT

Appendix

Table 12: NPV Analysis 2014 – 2035

Unit: Million VND

Source: FPTS

Table 7: NPV and IRR result

Financial Performance NPV 345 Billion VND IRR 21.69% Payback Period 12 years Discounted Payback Period 8 years

Source: FPTS

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Cash-in Flow - 1,277 243 249 255 261 267 274 280 287 294

Revenue - 118 243 249 255 261 267 274 280 287 294

Debt - 1,021 - - - - - - - - -

Tax Refund - 138 - - - - - - - - -

Cash-out Flow (327) (1,193) (94) (251) (246) (247) (242) (237) (232) (228) (223)

CAPEX (324) (1,135) - - - - - - - - -

O&M (3) (8) (15) (16) (16) (16) (16) (16) (17) (17) (17)

Interest Payment - - - (55) (50) (44) (39) (33) (28) (22) (17)

Debt Repayment - - - (102) (102) (102) (102) (102) (102) (102) (102)

Depreciation - (50) (78) (78) (78) (78) (78) (78) (78) (78) (78)

Corporate Tax Income - - - - - (6) (7) (7) (8) (8) (9)

Net Cash Flow (327) 84 149 (3) 9 14 25 36 48 59 71

Discount Rate 1.00 0.91 0.83 0.76 0.68 0.62 0.56 0.50 0.44 0.39 0.35

PV of Cash Flow (327) 77 124 (2) 6 9 14 18 21 23 25

Cumulative PV of Cash Flow (327) (250) (126) (128) (122) (113) (99) (81) (60) (36) (12)

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Cash-in Flow 301 309 316 324 332 340 348 357 365 374 383

Revenue 301 309 316 324 332 340 348 357 365 374 383

Debt - - - - - - - - - - -

Tax Refund - - - - - - - - - - -

Cash-out Flow (218) (214) (107) (119) (120) (102) (103) (104) (105) (106) (82)

CAPEX - - - - - - - - - - -

O&M (17) (18) (18) (18) (18) (19) (19) (19) (19) (20) (20)

Interest Payment (11) (6) - - - - - - - - -

Debt Repayment (102) (102) - - - - - - - - -

Depreciation (78) (78) (78) (78) (78) (57) (57) (57) (57) (57) (28)

Corporate Tax Income (10) (10) (11) (23) (24) (26) (27) (28) (29) (30) (34)

Net Cash Flow 83 95 209 205 212 238 245 253 260 268 302

Discount Rate 0.31 0.27 0.23 0.20 0.18 0.16 0.14 0.12 0.10 0.09 0.08

PV of Cash Flow 25 25 49 42 38 37 34 30 27 25 24

Cumulative PV of Cash Flow 14 39 88 130 168 205 239 269 296 321 345



VALUATION REPORT

Conclusion

Based on information provided by AREC and our analysis process, we are pleased to present the projected price for AREC share at the end of this month (August 31, 2014) is 17.000 VND/share and at the end of the year (December 31, 2014) is 17.500 VND/share. This price is estimated based on the likelihood that wind power price could increase to 10.4 cents USD/KWh by the end of this year with expected interest rate of 5.4%.

Projection Results

Share Price 17.000 – 17.500 VND/share NPV 345 Billion VND IRR 21,69%

FPT Securities – Ho Chi Minh City Branch

Nguyễn Thành Minh

Director of Research Department

Nguyễn Tấn Quang Vinh

Analyst

Email:[email protected]

Tel: (84) - 86290 8686 - Ext : 7593

Disclaimer of Liability

All of information and analysis on this repost made by FPTS based on information sources that the company provides to us reliable resources, available and legal. Investors who are using this report need to note that all of comments on this report only the subjective opinions of FPTS. The investors have to take their own responsibility about their decision when using this report. FPTS may base on all information in this report or others to make decision for us, but not have any claim on legal of given information.

© 2010 FPT Securities

FPT Securities

Headquarter

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Documents

Thuận Nhiên Phong Valuation report v6 (ENG)