Boustead Singapore

[greengiraffe]

http://kinnarii.com/About/Index

Extracts from yesterday's announcement:

Pursuant to the Shareholders Agreement, Boustead Knowledge will subscribe for
73,001 new shares of S$1 each in Kinnon Green Pte Ltd (“Kinnon Green”),
amounting to 50% of the of the total issued share capital in Kinnon Green plus
one share. The total subscription amount of S$73,001 will be financed by the
conversion of S$73,001 out of a loan of S$147,001 already extended to Kinnon
Green by the Company as part of a collaboration agreement with Kinnon Green.
Kinnarii will hold the remaining 73,000 shares of S$1 each in Kinnon Green.

My interpretations: As per Boustead's operating culture, the announcement is only made following extensive efforts to established the viability of new ventures. They started with a loan to a new venture and once they are satisfied with the due diligence process, loan is converted into equity for the JV.

I will pre-empt all analysts here on the analysis of the solar project in Japan based on competitors' public info (please refer back to links posted yesterday):

i) legislated feed-in tariff of 42 yen / kwh
ii) both Orix/Kyudenko and Kyocera have both indicated their plants can generate estimate 1126 to 1160 times per mw of solar installations
iii) Sky Solar indicated an irr > 20%
iv) Kyocera's debt/equity - 84/16
v) cost of yen debt 3% pa
vi) Japanese corporate tax 40%
vii) 10 year depreciation policy vs 20 year concession

Method One (Simple Analysis):

The JV (100%) uses 80/20 debt/equity. Equity contributions S$15m. IRR 20% = Net cashinflow = S$3m, Boustead's share = S$1.5m

Method Two (Detailed and counter-checking on Method One):

Total annual output on 20mw installed capacity = 22000 mwh
Revenue = 22000 X 42 = 924m Yen or S$12m (10000 yen = $130)
Interest costs = $60m X 3% = S$1.8m
Lease of land and maintenance = S$12m X 30% = S$3.6m
Gross operating cash before depreciation (non cash) = S$6.6m
Net operating cash before depreciation = S$6.6m X 0.6 = S$3.96m
IRR = 3.96/15 = 26.4%

If depreciation can qualify as taxable allowance then IRR will be higher.

Overall, the benefit is small from this new venture between S$1.5m to S$2.0m. However, capital outlay is small as well relative to Boustead's cash hoard and asset base.

Note that Kinnarii appears to be in the right business segment and there could well be more spinoffs for Boustead should viable projects arises in the future.

Vested

[yeokiwi]

Method Two (Detailed and counter-checking on Method One):

Total annual output on 20mw installed capacity = 22000 mwh
Revenue = 22000 X 42 = 924m Yen or S$12m (10000 yen = $130)
Interest costs = $60m X 3% = S$1.8m
Lease of land and maintenance = S$12m X 30% = S$3.6m
Gross operating cash before depreciation (non cash) = S$6.6m
Net operating cash before depreciation = S$6.6m X 0.6 = S$3.96m
IRR = 3.96/15 = 26.4%

The solar power plant has a rated output of 20MW.
Assuming that on average, the solar power plant is able to operate 6hrs each day at 20MW for 365 days.
Therefore, per day output of electricity energy is 20MWx6 = 120MWh
per year output of electricity energy = 120MWh x 365 = 43800MWh = 43800000 kwh

Current japan solar tariff is 42 yen/kwh.
Total revenue = 42 x 43800000 = 1.8396 billion yen = S$23914800. around S$24 million.

If I use the rest of your estimation,

Interest costs = $60m X 3% = S$1.8m
Lease of land and maintenance = S$24m X 30% = S$7.2m
Gross operating cash before depreciation (non cash) = S$15m
Net operating cash before depreciation = S$15m X 0.6 = S$9m

From the estimated cashflow, It probably takes around 9-10 years to recover the cost of implementation.
After that, it will become a $9million per year ATM machine.

But, the tariff may change over the course of 10-20 years.

[greengiraffe]

Hi Kiwi,

Please note my following replies. The sources are based on my initial links together with the official announcements:

Method Two (Detailed and counter-checking on Method One):

Total annual output on 20mw installed capacity = 22000 mwh
Revenue = 22000 X 42 = 924m Yen or S$12m (10000 yen = $130)
Interest costs = $60m X 3% = S$1.8m
Lease of land and maintenance = S$12m X 30% = S$3.6m
Gross operating cash before depreciation (non cash) = S$6.6m
Net operating cash before depreciation = S$6.6m X 0.6 = S$3.96m
IRR = 3.96/15 = 26.4%

The output factor of 1100x is based on the announced outputs from Orix and Kyocera's announcements respectively. Logically, the land rental amount is a fixed amount and should be subjected to inflation. Hence my 30% assumption (including maintenance) is simply a guesstimate - there is no basis whatsoever.

The solar power plant has a rated output of 20MW.
Assuming that on average, the solar power plant is able to operate 6hrs each day at 20MW for 365 days.
Therefore, per day output of electricity energy is 20MWx6 = 120MWh
per year output of electricity energy = 120MWh x 365 = 43800MWh = 43800000 kwh



Current japan solar tariff is 42 yen/kwh.
Total revenue = 42 x 43800000 = 1.8396 billion yen = S$23914800. around S$24 million.

If I use the rest of your estimation,

Interest costs = $60m X 3% = S$1.8m
Lease of land and maintenance = S$24m X 30% = S$7.2m
Gross operating cash before depreciation (non cash) = S$15m
Net operating cash before depreciation = S$15m X 0.6 = S$9m

From the estimated cashflow, It probably takes around 9-10 years to recover the cost of implementation.
After that, it will become a $9million per year ATM machine.

I think for Japanese authorities to roll out a tariff of 42 yen /kwh. We should assume that it is fixed. However, there remains a possibility that there may be a revision of tariff downwards should there be a glut like that experienced in Germany. In addition, efficiency of solar panels may decline with age.

But, the tariff may change over the course of 10-20 years.

[yeokiwi]

The output factor of 1100x is based on the announced outputs from Orix and Kyocera's announcements respectively.

GG,

Ah thanks for the correction.
Interesting. Only an average of around 60MWh per day for a 20MW solar power plant.

[mosi]

The output factor of 1100x is based on the announced outputs from Orix and Kyocera's announcements respectively.

GG,

Ah thanks for the correction.
Interesting. Only an average of around 60MWh per day for a 20MW solar power plant.

Hi yeokiwi
Hi GG

The headline figure (rated output) is technically the system's peak power.

The PV yield (kWh/kWp/yr) (what is referred to as the output factor) of 1100x is just about right.

In Singapore, small scale set-ups can hit a yield of 1200. But since Singapore is in a equatorial area, you expect it to be higher than that of a similar system in Japan. However, the efficiency of the system is inversely affected by the temperature. So a solar system converts less solar energy into energy if it's too hot. Performance starts to deterioriate above 40 deg Cel. So the PV yield of 1100 is just about right.

In Singapore, I believe K-Green owns the largest PV system of just 1MW at the Ulu Pandan NEWater Plant. The estimated area is 10,000m2.

So to get an idea of the land required, you estimate it by dividing 20MW (or 20,000kW) by 0.1 to get 200,000m2 or 20ha or 49 acre.

I too am not sure of the land costs, maintanence etc but one key risk to Boustead (and her partners) is the feed-in tariff(FiT).

Japan has a generous FiT at 42yen/kWh or USD0.44 kWh. It appears that the government is ready to trim it down to 37.8yen in Q2 this year. Just look at Europe's unsustainable FiT rates which led to a quick boom and bust.

For comparison, China has it at US$0.15 kWh.
Germany at Euro 0.11-0.14 (or US$0.15-0.18 kWh)
Spain pay Euro 0.27 (or US$0.36 kWh) but they have since stopped accepting new FiT applications

In nearby Thailand, the FiT is a very attractive US$0.27 kWh and this had led to a glut of applications for solar farms which the government is slowly handing out.

Perhaps the scenario in Japan is different as they no longer have the nuclear plants. One key point to note is grid parity. If it costs much more to produce solar (compared to the grid, i.e usually coal), then I don't think it will be sustainable.

Nevertheless, it's an interesting development. This may prove to be the beginning of a new revenue stream for Boustead.

__________________________________________________
My Margin Of Safety Investing thoughts http://www.mosi.sg

[greengiraffe]

The output factor of 1100x is based on the announced outputs from Orix and Kyocera's announcements respectively.

GG,

Ah thanks for the correction.
Interesting. Only an average of around 60MWh per day for a 20MW solar power plant.

Hi yeokiwi
Hi GG

The headline figure (rated output) is technically the system's peak power.

The PV yield (kWh/kWp/yr) (what is referred to as the output factor) of 1100x is just about right.

In Singapore, small scale set-ups can hit a yield of 1200. But since Singapore is in a equatorial area, you expect it to be higher than that of a similar system in Japan. However, the efficiency of the system is inversely affected by the temperature. So a solar system converts less solar energy into energy if it's too hot. Performance starts to deterioriate above 40 deg Cel. So the PV yield of 1100 is just about right.

In Singapore, I believe K-Green owns the largest PV system of just 1MW at the Ulu Pandan NEWater Plant. The estimated area is 10,000m2.

So to get an idea of the land required, you estimate it by dividing 20MW (or 20,000kW) by 0.1 to get 200,000m2 or 20ha or 49 acre.

I too am not sure of the land costs, maintanence etc but one key risk to Boustead (and her partners) is the feed-in tariff(FiT).

Japan has a generous FiT at 42yen/kWh or USD0.44 kWh. It appears that the government is ready to trim it down to 37.8yen in Q2 this year. Just look at Europe's unsustainable FiT rates which led to a quick boom and bust.

For comparison, China has it at US$0.15 kWh.
Germany at Euro 0.11-0.14 (or US$0.15-0.18 kWh)
Spain pay Euro 0.27 (or US$0.36 kWh) but they have since stopped accepting new FiT applications

In nearby Thailand, the FiT is a very attractive US$0.27 kWh and this had led to a glut of applications for solar farms which the government is slowly handing out.

Perhaps the scenario in Japan is different as they no longer have the nuclear plants. One key point to note is grid parity. If it costs much more to produce solar (compared to the grid, i.e usually coal), then I don't think it will be sustainable.

Nevertheless, it's an interesting development. This may prove to be the beginning of a new revenue stream for Boustead.

Hi Mosi,

Thanks for your in depth analysis. It is pretty obvious that you have done a lot of home work on it - certainly better than my typical analyst style desktop analysis.

You have provided a very comprehensive comparison of global solar tariffs. No prize for guessing why Boustead has chosen Japan as a startup since it is providing the best returns for solar producers due to a unique circumstance.

The land leasing expenses is something that I have no clue and hence I just hoot a 30% (including maintenance costs). I do not expect the Boustead JV to own the land since the life of the concession is 20 years unless of course there is long term potential of the solar farm land in Kyushu, Japan.

The contributions according to my estimates of S$1.5 - $2.0m is fairly small to overall bottomline. However, it does add to Boustead's track record as a dynamic and forward thinking company with global exposure.

It will be interesting to see if Kinnarri will provide Boustead with more green opportunities since the company is focusing on small utility projects across Asia.

[mosi]

Hi GG,

I'm sure if you wanted to, you would have found out the same info, perhaps much more. As a cursory desktop analysis, you did a fantastic job.

I just happen to have some prior knowledge about the industry and so I was able to benchmark it to the industry/other projects.

Have a good week ahead.

Best,
M
__________________________________________________
My Margin Of Safety Investing thoughts http://www.mosi.sg

[shanrui_91]

Jakarta to leverage geospatial data for decision making
Published Date : 22 March 2013

Jakarta: Indonesia’s capital city signed an agreement with the Geospatial Information Agency to use of geospatial information to support the city administration’s efforts in developing sustainable programmes.

According to an official statement, the objective of the agreement is to develop the city administration’s capability to use geospatial data in the Jakarta’s urban planning and socio-economic activities.

“Development activities will be much more effective and efficient when supported by authoritative and accurate geospatial data and information,” said Asep Karsidi, Head of the Geospatial Information Agency.

“At present, the Indonesian government, from policy makers at the local level to the national level have started using geospatial data and information in a variety of purposes. Through it, projects are more ‘impactful’ and citizens can enjoy the results of well-informed decisions.”

The agreement includes the implementation of GIS, technical trainings for GIS officers, and research and development in the field of data and application of geospatial information and technology.

Furthermore, the agreement also includes the establishment of the necessary facilities and infrastructures to support the collection, storage and sharing of geospatial information by the city administration and the Geospatial Information Agency.

Source: Future Gov

http://www.geospatialworld.net/News/View...ld+News%29

(vested)

[greengiraffe]

Hi Shanrui,

This is certainly a positive for ESRI South Asia. However, given the rampant corruption in Indonesia and constant flip-flop in government policies, it will be difficult to quantify any bottomline impact on ESRI.

It has been a while since I last track ESRI Australia. Personally, I think if there are new initiatives down under, it will be more positive than any other emerging markets.

GG

Jakarta to leverage geospatial data for decision making
Published Date : 22 March 2013

Jakarta: Indonesia’s capital city signed an agreement with the Geospatial Information Agency to use of geospatial information to support the city administration’s efforts in developing sustainable programmes.

According to an official statement, the objective of the agreement is to develop the city administration’s capability to use geospatial data in the Jakarta’s urban planning and socio-economic activities.

“Development activities will be much more effective and efficient when supported by authoritative and accurate geospatial data and information,” said Asep Karsidi, Head of the Geospatial Information Agency.

“At present, the Indonesian government, from policy makers at the local level to the national level have started using geospatial data and information in a variety of purposes. Through it, projects are more ‘impactful’ and citizens can enjoy the results of well-informed decisions.”

The agreement includes the implementation of GIS, technical trainings for GIS officers, and research and development in the field of data and application of geospatial information and technology.

Furthermore, the agreement also includes the establishment of the necessary facilities and infrastructures to support the collection, storage and sharing of geospatial information by the city administration and the Geospatial Information Agency.

Source: Future Gov

http://www.geospatialworld.net/News/View...ld+News%29

(vested)

[shanrui_91]

http://info.sgx.com/webcoranncatth.nsf/V...90032DBD4/$file/Boustead_Announcement-Proposed_Sale_of_a_Subsidiary-25.03.2013.pdf?openelement

As mr wong has said during the retail investor day, the tongzhou property will be divested and the proceed will be re-invested into the pcrt project in tongzhou

(vested)