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POW – Bumpy recovery – Update

Company Note 20/11/2020    222

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  • 9M20 revenue fell 16.9% yoy to VND21,795bn, following an 8.2% yoy drop in sales volume and 9.5% yoy decline in electricity selling prices.
  • We revise down our FY20-22 EPS forecasts by 19.7%-27.7%, mainly on lower volumes from thermal power and lower ASP.
  • Reiterate Add with a lower target price of VND12,200.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 9,730

VND 12,200

0%

ADD

POWER

Bottom line fell sharply in 3Q20

PetroVietnam Power (POW) generated 4.2bn kWh of electricity (-14.9% yoy) in 3Q20 while its average selling price (ASP) fell 9.4% yoy as a second wave of COVID-19 halted the recovery of demand, while the fast recovery of hydropower (the cheapest source of power) dragged down the prices on competitive generation market (CGM). 3Q20 revenue tumbled 22.9% yoy to VND6,112bn, but net profit recorded a larger decline of 85.0% yoy due to a one-off provision expense of VND85bn for Electric Power Trading Company (EPTC)’s receivables and higher tax expenses as the tax incentives for Ca Mau 1&2 plants expired in 2020.

9M20 results fell below our expectations

9M20 revenue fell 16.9% yoy to VND21,795bn on an 8.2% yoy drop in sales volume and 9.5% yoy decline in electricity ASP. 9M20 net profit declined 40.3% yoy to VND1,303bn, coming in at 54.4% of our full-year forecasts. This number was below our expectations due to the faster-than-expected recovery of hydropower that stifled the CGM price and lowered the mobilisation of thermal power sources.

We cut FY20-21-22F EPS forecasts by 19.7%-27.7%

Taking into account 3Q20 results, we reduce the utilisation rate of gas-fired and coal-fired plants, while increasing POW’s hydropower utilisation by 5% pts. In addition, we now assume CGM price to fall 20% yoy, leading to a 4.9% downward revision in ASP. For FY20F, we expect EPS to fall 22.9% yoy before recovering at a slower pace than previously, at 15.6% yoy in FY21F and 12.3% yoy in FY22F.

Reiterate Add with lower target price of VND12,200

We cut our TP to VND12,200 due to lower FY20-22F EPS forecasts while maintain the Add rating on the back of: 1) net profit recovery in FY21-22F as demand rebounds post Covid-19 and POW would not encounter gas supply issues like in 1H20, given that the new gas field Sao Vang has come into operation in Nov 20, and 2) potential gas-fired capacity expansion (+55.0%) over the next five years. Our TP is based on an equal weighting of DCF and target FY20-21F EV/EBITDA of 5.5x. Re-rating catalyst: gas-fired output recovery from FY21F. Downside risk: unexpected operational/technical issues.

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