HDG – Waiting for new policy in wind power development – Update

• HDG released 1Q23 results with net profit (NP) of VND303bn (+24% yoy), fulfilling 26% of our full-year forecast.
• We project FY23/24F NP to reach VND1,165bn/VND997bn (+6.3%/-14.4% yoy) on the mix of (1) launching Charm Villas phase 3 in 3Q23F with lower gross margin, (2) lower hydropower output.
• We downgrade to Hold with lower TP of VND40,200.

1Q23 recap: strong growth in all segments
HDG posted VND956bn in 1Q23 revenue (+40% yoy) and VND303bn (+24% yoy) in 1Q23 net profit, fulfilling 26.1%/26% of our forecasts. Power segment witnessed a strong performance with revenue of VND543bn (+14% yoy, 56.8% total revenue) thanks to 22% yoy increase in hydropower output. Property segment also saw revenue growth of VND312bn (+148% yoy) as HDG handed over 13 units at its Charm Villas project. Notably, HDG’s property gross margin was 41% in 1Q23 – much lower than the margin of 79% in 1Q22 as HDG booked additional land-use right fees for the Charm Villas project.

Launching to sell Charm Villas phase 3 in 3Q23F with lower gross margin
HDG plans to launch sales of Charm Villas phase 3 in 3Q23F, which is key driver for HDG’s property revenue in FY23-24F. Green Lane (District 8, HCM) and Hado Minh Long (Thu Duc City, HCMC) have not yet completed the legal procedures. Thus, after selling out Charm Villas project, HDG’s residential property segment will foresee difficulties due to a lack of promising projects in the pipeline.

Hydropower outlook is gloomy while RE is waiting for new fee scheme
According to International Research Institute (IRI) ENSO forecast, a higher possibility of El Nino to take place from May 23. Thus, we expect hydropower output drop by 26%/5% yoy in FY23-24F, respectively. On 15 May 2023, Power Development Plan (PDP) VIII was officially approved with priority given to the development of renewable energy, in which wind power is strongly promoted. Accordingly, HDG has five new wind power projects that have been already included in the PDP VIII. However, we see the implementation of these projects is highly dependent on the new price mechanism for renewable energy (RE), which, at the moment, has not yet to be cleared up.

Downgrade to Hold with lower target price of VND40,200/share
We revise down our TP by 8.2% to VND40,200/share by rolling model FY23F and lower revision of FY23-24F NP by 10.5%/1.2%, respectively. Re-rating catalysts include the operation of new power plants and the booking of real estate projects. Downside risks include: (1) unfavorable weather conditions affecting the performance of power plants and (2) inefficient sales at Charm Villas project.

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