Thanks for the questions. I will endeavour to answer them.
The timing of these projects coming on stream has been one of the major topics of debate for a number of years.
So I will firstly frame how I think about timing for projects like these.
There are components of the projects that EWC can control and there are components that are outside their control. Examples of components they can control are the building and applications for approvals. Components that are outside their control are usually related to dealing with areas of Government and related entities.
While EWC operates in these countries it is imperative that they follow the processes required by the authorities and the timing of this will be what it is. All companies have the same issues to contend with.
We have sequenced the components that EWC can control and find that they are very effective and efficient when it comes to building the infrastructure (once they have the appropriate consents and approvals) and this can easily be verified by time stamping photos of the progress and comparing these over time.
Your assumptions about drawdown are all in mid 2016. Do you mind if I ask if this is just an assumption or do you have any reasons for these dates? Our views are as follows;
Funding of the projects
The first 400 MW funding is currently in final stages. I have accessed as many of the official sites as I can to determine where I believe this project sits in its approval process. These sites include the DOE, banks sites and others. My investigations have led me to believe that the CPs as listed on these sites have been completed. It is highly likely that the approval and drawdown of funding is now down to the wording of the approvals between EWC and the banks, i.e. they are probably down to crossing the t’s and dotting the i’s. In addition many visits have been made to the EWC power and hub site by authorities or representatives of authorities for inspection, including health and safety, fire, marine, engineering etc. These have been carried out since the beginning of the build but in particular the last 6 to 9 months. These checks are extensive and discussed on the sites I access.
In my view funding for this part of the project is imminent and unlikely to be as late as mid 2016.
The hub funding should follow quite closely after the power plant funding and so again unlikely to be as late as mid 2016.
The next 250 MW is unlikely to require further funding.
I do not have a strong view as to timing of the funding for Indonesia. This depends on an off-take and completion of this will require further work by the company with PLN. I have no reason to believe it will not be done by mid year but until the company can focus on this issue I have no strong view.
Economics of the projects
Firstly the hub in the Philippines is a very strategic asset. There are plenty of articles written by independent parties including, the International Energy Agency, Singapore Exchange, Wood Mackenzie, Lazards and many others that show that EWC has a very strategic and valuable Hub asset. EWC mentioned at the AGM the interest by large international players and this does not surprise me at all. This Hub asset is likely worth a minimum of $600 mill and possibly much more when completed particularly if capacity can be expanded. It is interesting to note that Total, Shell and others are looking at LNG terminals and all indicate costs well in excess of $1 bill. An expansion of an equivalent Hub on the EWC site once completed would cost significantly less than that, even including the cost of pipelines to Manila or Batangas. This is unlikely to go unnoticed by the authorities.
I therefore believe the only way to look at the value of the EWC Hub is to consider replacement value of this strategic asset and I expect a large player could validate this by taking a stake in this project (thereby injecting equity into EWC through its Philippines subsidiary) as indicated by EWC at the AGM.
The power business value depends on a number of inputs and the economics improve significantly with the commissioning of the 250MW steam turbine, making the combined cycle very efficient.
Main assumptions include: wholesale electricity price into the grid, cost of gas, capacity utilisation, heat rate and overhead/opex.
I believe the 400MW once commissioned will generate between $US75 mill and $US90 mill EBITDA per annum on my assumptions derived from data gathered from websites, including Siemens, DOE and others, and my knowledge of other similar plant operations globally. Note that my assumptions do not allow for extreme years which do occur and therefore value based on my numbers does not account for inherent option value that is embedded in these assets.
The addition of the 250MW steam turbine will add between $US125 mill and $US150 mill EBITDA per annum. Combined, this is between $US200 mill to $US240 mill EBITDA per annum. I will leave you to adjust for depreciation (which is pretty much standard 25 year life), interest and tax. With my assumptions on these items my numbers turn out to be slightly higher than your $US0.02 per share per 200 MW.
Indonesia is more difficult to value because the company does not yet have an offtake. The profitability of the plant depends on this and the agreed price, so I won’t speculate on this at the moment and will do so when these are in place. What I will say is that the tank infrastructure can be used not only export but also for import and is therefore also a strategic asset like the Philippines Hub and is worth considerably more than book value, although not as much as the Philippines Hub in the near term.
EWC Price at posting:
23.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
