From WA : Nuclear Power and Uranium (1)

As the evidence of the impact to the world from the global warming becomes clear, the world has changed its course to embrace nuclear power as a means to alleviate the greenhouse emission despite concerns on the handling of radioactive wastes and misuse of uranium. As shown in the below table (extracted from World Nuclear Association’s estimates), there are 436 reactors being operable at present with additional 53 reactors being built worldwide (China’s share is 20). From the medium and long term perspective, 142 and 327 reactors are expected to come into operation within 10 and 15 years, respectively, mainly driven by China, India and US.

Country	Reactors				2010 Uranium
	Operable	Built	Planned	Proposed	Requirement (t)
US	104	1	11	19	19,538
France	58	1	1	1	10,153
Japan	54	1	13	1	8,003
Russia	31	9	8	37	4,135
South Korea	20	6	6	0	3,804
China	11	20	37	120	2,875
India	18	5	23	15	908
WORLD	436	53	142	327	68,646

As a result, demand for uranium, a natural element used as a nuclear fuel, will rise significantly. Uranium is supplied from two main sources, primary and secondary source. Primary souce of uranium is coming from mining activity and account for about 62% of the world’s need. While the secondary source is derived from the inventories which are expected to deplete at a faster rate than the past, adding more pressure on the tight uranium market.

At the end of 2009 Kazakhstan, Canada, Australia and Namibia are the world leading uranium producers. While Australia, Kazakhstan, Russia and Canada together holds about two-third of the world uranium resources. It’s no surprised that a lot of uranium exploration acitivities are taking place in Australia, Canada, Africa and Central Asia.

However, despite the perception of high demand in uranium, uranium spot and long term price have been weak. Spot price is hovering around USD40/lbs whereas the long term price is set around USD55-60/lbs. But that does not stop all the uranium mining companies pouring more money into uranium mining development.

Major uranium producing companies are Areva (France), Cameco (Canada), Rio Tinto (Anglo Australia), Kazatomprom (Kazakhstan) and BHP Billiton (Australia). In Australia (as far as I know), Energy Resources of Australia (majority owned by Rio Tinto) and Paladin Energy are the two uranium producing companies listed on ASX.  BHP Billiton is another company listed on ASX which has a uranium mining exposure.

More details on these companies next article though.

From WA : Australia LNG Play

Australia, sitting on huge gas reserves, is the world sixth largest LNG exporter with current annual shipment of 15.0 Mtpa. Given that it is a politically stable country and located closed to energy hunger nations, Asia, it draws in an influx of foreign investment funds to develop LNG plants from conventional natural gas and unconventional coal-seam gas. If all the developments on the drawing boards come true, Australia will leap frog to the second largest LNG exporter in 2015 with expected annual shipment of 57.5 Mtpa, chasing the No.1 Qatar (expected annual shipment of 78.0 Mtpa in 2015). To date, there are only 2 operating LNG projects in Australia, the North West Shelf project operated by Woodside (owned by a joint venture formed by Woodside, Chevron, BP, Shell, BHP Billition, Mitsubishi/Mitsui and CNOOC) and Darwin LNG project operated by ConocoPhillips.

The international major oil and gas companies such as BG, Chevron, ConocoPhillips, Petronas and Shell are ramping up their stakes in natural gas and coal seam gas assets by partnering up with Australian companies such as Origin Energy and Santos. Table below shows the planned LNG development projects.

Project	Company	Expected Start	Estimated Budget
North West Shelf redevelopment	Woodside, BHP Billiton, BP, Chevron, Shell, Japan Australia LNG	2013	USD 5.1m
Australia Pacific LNG (coal seam gas)	Origin Energy, ConocoPhillips	2014-2015	AUD 35bn
Curtis (coal seam gas)	BG Group	Late 2013	AUD 8bn
Gladstone LNG (coal seam gas)	Santos, Petronas	2014	AUD 7.7bn
Gorgon	Chevron, Shell, ExxonMobil	2014	USD 50bn
Ichthys	Inpex, Total	2015	USD 20bn
PNG LNG	ExxonMobil, Oil Search, Santos, Nippon Oil	2013-2014	USD 12.5bn
Pluto Train 1	Woodside, Tokyo Gas, Kansai Electric	Late 2010	USD 12bn
Shell Australia LNG (coal seam gas)	Shell, Arrow Energy	2014-2015	USD 35bn
Wheatstone	Chevron	2015	USD 30bn

 

LNG developments require enormous CAPEX (in the amount of billions dollars). In order to get a green light to start the development, the project must be able to secure long term buy contract. At present, Japan is the largest LNG importing country accounting for about 40% of the world’s imports. Undoubtedly when economic downturn takes toll and hence, dragging with it, the oil price, it becomes even more difficult to pin down buyers. In addition, as can be seen from the above table, almost all LNG supplies will flood the market in 2016 therefore it is very crucial at this stage to secure a contract at the right price. The most advanced projects are Pluto Train 1 which is due to complete in late 2010 and people start talking about development of Pluto Train 2. Who will come as the winners will be unveiled in the near future.

Thai Nakarin Hospital (TNH)

Thai Nakarin Hospital (TNH) is a 214-bed hospital situated along Bangna-Trad Road, Eastern Bangkok, listed in Thailand’s sister market, MAI. Its operating performance has been outstanding as its revenue jumped from about 500MB to 1,000 MB and net profit skyrocketed from 37.5MB to 128 MB over the period of 6 years from 2002-2008. Returns on Equity (ROE) and Returns on Asset (ROA) are improving over the last 3 years. Last fiscal year (2008), its ROA stood at 30%. Over the past 3 years, it has managed to maintain Gross Profit Margin at the level of 30%. In term of cashflow measure, it eked out CROIC in the north of 30% in 2007 and 2008.

With such outstanding operating record, it usually draws in competition. However, thanks to its location which is closed to Suvarnabhumi Airport and expansion of the population in its vicinity, demand in healthcare provision will likely rise steadily and definitely will benefit TNH. In addition, as it is gearing towards high-end services by opening specialty centers such as heart center and recently, holistic cancer center, number of patients both inpatient and outpatient is poised to rise in tandem with its growing reputation and superior services.

By taking a long term view, I ran a ruler over TNH’s intrinsic value by using discounted cash flow method. My assumption is 12% growth rate of free cash flow over the next 10 years then dropping to a steady rate of 5% for the second decade through rising in capacity utilization rate and service fees. I further assumed a discount rate of 12%. In 2008, the free cash flow generated from hospital operation is 116 MB. The sum of the present value of the free cash flow for the next 20 years is calculated as shown in the table below.

	FY	Growth	FCF (MB)	Discount	PV (MB)
0	2008		116.0
1	2009	12%	129.9	12%	116.0
2	2010	12%	145.5	12%	116.0
3	2011	12%	163.0	12%	116.0
4	2012	12%	182.5	12%	116.0
5	2013	12%	204.4	12%	116.0
6	2014	12%	229.0	12%	116.0
7	2015	12%	256.4	12%	116.0
8	2016	12%	287.2	12%	116.0
9	2017	12%	321.7	12%	116.0
10	2018	12%	360.3	12%	116.0
11	2019	5%	378.3	12%	108.8
12	2020	5%	397.2	12%	102.0
13	2021	5%	417.1	12%	95.6
14	2022	5%	437.9	12%	89.6
15	2023	5%	459.8	12%	84.0
16	2024	5%	482.8	12%	78.8
17	2025	5%	506.9	12%	73.8
18	2026	5%	532.3	12%	69.2
19	2027	5%	558.9	12%	64.9
20	2028	5%	586.9	12%	60.8
				Total PV	1987.4

Adding the net cash position of 15 MB, the estimated intrinsic value is approximately 2,000 MB or an equivalent of about 11 Baht per share. At the last trading price of 7.85 Baht (10 July 2009), the margin of safety is calculated to be 30%.

Depending on what side of the coin you are looking at, the short term impact from economic malaise might yet provide another opportunity for long term investors who seek for value in his investment.

Gone is the summer…

Gone’s the summer….and come’s the winter.

In southern hemisphere like Australia, winter is fast approaching while in Thailand it is about to enter raining season. Temperature at Perth at present is quite pleasant during day time (20 something degree celcius). But at night the mercury drops to single digit. In the next few months, the mercury will drop further. But I won’t have a chance to experience any snow here unless I travel east.

Season change reminds me of one similar thing in investing world.

Gone’s the bear….and come’s the bull….

It repeats endlessly…..

Sharemarket Investing Course (1)

I’ve enrolled a 6-week short course on share market investing in Perth and yesterday was my first lesson. Although most of the stuff presented are quite rudimentary for me, it’s quite useful in term of getting myself famiarlize with Australian share market.

This week the overview of the sharemarket was presented. Lecturer highlighted that we always see one recession every decade, give or take plus or minus 2-3 years. And that we are in the recession now provides tremendous opportunities for us to increase wealth through share market investing. As a rule of thumb, the average P/E ratio of Australian market is 14. At the turn of 2009, market P/E hovered around 10.

One assignment for this week is to research Banking sector and come up with which Bank to be bought and for what reasons. It’s quite a challenging assignment though. Whatever my findings are, I will post them next week. For now, it’s time to do some research.