Some eight years ago, when printing ink manufacturer Toyo Ink Group Bhd first announced its plan to build a coal-fired thermo power plant in Vietnam, many doubted its capability due to its lack of know-how in the energy sector.
But today, Toyo Ink (fundamental: 0.9; valuation: 2.4) has been approached by a number of utility firms and independent power producers for equity partnership in the US$3.5 billion (RM12.54 billion) project, says managing director Steven Song Kok Cheong.
“We need a special purpose vehicle (SPV) to undertake this project and we need capital to form Newco. Some industry captains [in the power sector] have expressed interest in taking equity interest in our project,” he tells The Edge.
Some 80% or US$2.8 billion of the cost will come from project financing and the remaining 20% or US$700 million from equity financing.
Under project financing, Toyo Ink expects to get financial assistance from export-import banks or export credit agencies in Japan, China, South Korea, France, the US and India as the group might need to procure a substantial amount of equipment from these countries, Song points out.
As for the equity financing, Toyo Ink plans to sell a stake in the SPV.
“By inviting other parties to come in, the need for us to raise money will be much less,” says Song.
The group hopes to remain the single largest shareholder of the SPV, but not necessarily with a controlling 51% stake.
Toyo Ink was listed on Bursa Malaysia in 2003 and manufactures printing ink for the printing and packaging industries. State-of-the-art equipment is used in the production of varnishes, solvent ink and water-based ink. It also deals in the sale, import and export of printing ink, printing machinery and equipment.
To recap, Toyo Ink in May 2007 proposed to lease land in the Thói Hóa Industrial Park in Bình Duong province as part of its plan to diversify into the power generation business in Vietnam.
In April 2011, it said it would instead build two new 1,000mw coal-fired thermo power plants in Song Hau Power Centre in Hau Giang province in southwest Vietnam.
The build-operate-transfer (BOT) project is currently estimated to cost US$3.5 billion, some US$1 billion more than when it was announced in 2011.
The Vietnam government gave the project its approval in March 2013. It is worth noting that the total project cost is about 178 times larger than Toyo Ink’s market capitalisation of just RM69.6 million based on its closing price of 65 sen last Tuesday.
To date, Toyo Ink has spent about RM100 million on the Vietnam project, says Song. The group hopes to obtain all the relevant approvals, including the power purchase agreement, next year.
“The construction from ground zero to the entire commercial operation will take about four to five years. We should be able to commence operation by 2020/2021,” he says.
Song acknowledges that a new venture by a public-listed company will draw both pessimistic and optimistic views.
“The pessimist will ask, ‘How on earth did Toyo Ink convince the Vietnam government to award it the (power plant) project?’”
But the optimist, he says, will see it as a good long-term investment for the group despite its lack of experience in the power sector.
“There are so many big players in Malaysia and the region. I’m not sure if they tried but eventually we got it.”
Toyo Ink will be responsible for the ancillary infrastructure works, including a coal-handling system, cooling and fresh water systems, pollutant and waste control, removal and treatment systems, a coal yard and a dedicated coal jetty.
Song says Toyo Ink will need 10.5 years to settle all its debts and borrowings for the power plant project, which is expected to provide an internal rate of return of 15% in 25 years.
“Hopefully, from the 11th year onwards, we will enjoy the profits of this project,” he says.
Even without the Vietnam project, Toyo Ink is worth some RM123 million based on its net tangible asset (NTA) per share of RM1.15 as at Dec 31 last year.
“I believe the company has a bright future. The investors are just waiting for a clearer direction of the power plant project,” he comments.
With earnings per share (EPS) of 4.81 sen and NTA of RM1.15, the counter is trading at a historical price-earnings ratio of 13.5 times and a price-to-book value of 0.56 times.
For the financial year ended March 31, 2014 (FY2014), Toyo Ink recorded revenue of RM85.86 million, unchanged from the previous year’s RM85.89 million. Net profit was RM4.88 million in FY2014 compared with RM1.18 million the previous year.
According to Toyo Ink’s 2014 annual report, Song owns a 10.93% stake in the company while Singaporean non-executive director Lim Guan Lee has 10.81%.
It is worth noting that Eng Lian Enterprise Sdn Bhd, a privately owned property developer controlled by the Ng family, has a 15.4% stake in Toyo Ink. Eng Lian Enterprise is a low-profile property firm that developed the Bangsar Baru and Taman Seputih neighbourhoods.
This article first appeared in The Edge Malaysia Weekly, on February 23 - 29, 2015.
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