KUALA LUMPUR (July 9): Printing ink maker Toyo Ink Group Bhd is seeking shareholder approval to enter into a consultancy services agreement (CSA) with Phu My Vinh Consulting Investment and Trading Service Co Ltd (PMV) pertaining to two 1,000MW coal-fired thermal power plants costing RM13.2 billion in the Song Hau Power Complex, Vietnam.
In a filing with Bursa Malaysia, Toyo Ink (valuation: 1.4; fundamental: 0.4) stated shareholders’ approval would be sought before the formalisation of the arrangement with Vietnam-based PMV that would cost US$35 million (RM132.76 million).
The consultancy service cost is indeed more than Toyo Ink’s market capitalisation of RM79.7 million based on today’s closing of 74.5 sen.
The consultancy fee does not include associated taxes such as value-added tax, and is equivalent to 1% of the total development cost of the project.
“The fee is proposed to be funded through a combination of equity and debt financing instruments to be arranged for the project as well as internally generated funds of the group.
“The board is of the view that the services are critical in assisting and facilitating Toyo Ink in the negotiation process and the finalisation and eventual execution of the build, operate and transfer (BOT) contract, power purchase agreement (PPA) and land lease agreement (LLA) between us and the relevant authorities there,” it said.
PMV is tasked to advise the group on research and support the negotiation on the BOT contract, PPA and LLA of the power plant with the relevant authorities in Vietnam.
The arrangement with PMV is further to its consulting contract for which the former provides services related to research, survey and document preparation for the policy of additional operation planning and management area as well as the resettlement area for the power plants.
It added that the CSA proposal is not expected to have any material effect on the consolidated earnings and earnings per share (EPS) of Toyo Ink for the financial year estimates 2016 (FYE2016).
“However, the board believes that barring any unforeseen circumstances, the power plant, upon implementation, is expected to contribute positively to the earnings and EPS of the group in the longer future,” it said.
To recap, in 2007 Toyo Ink had proposed to the Vietnamese government to undertake the construction of a power plant project at a suitable province in the Indo-China country.
Following the appointment of energy consultant Power Engineering Consulting Joint Stock Company Two, which submitted a project investment paper to the government in September 2012, Toyo Ink was approved as the project investor for the power plant on a BOT basis.
“The proposed investment in the power plant is in line with the planning of Song Hau Power Complex approved by the Vietnam Industry and Trade Ministry,” it said, adding that Toyo Ink shareholders approved the diversification of business into electric power generation on Aug 20, 2013.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)