POW – On track for recovery – Update

• 10M20 net revenue declined 15.8% yoy on the back of a 13.5% yoy drop in electricity selling volumes, in line at 80.3% of our full-year forecast.
• Reiterate Add at a higher TP of VND13,300 as we use a higher target EV/EBITDA of 6.7x (from 5.5x).

10M20 revenue within expectations

PVPower (POW) reported a 10M20 sales volume of 16.1bn kWh, down 13.5% yoy mainly due to weak mobilisation at Nhon Trach 1 plant, the 36-day medium maintenance at Nhon Trach 2 plant and slightly lower hydropower volumes due to water shortage at the beginning of 2020. Net revenue declined 15.8% yoy as selling prices on the competitive generation market (CGM) continued its downward trend, -76% mom in Oct and -24.2% yoy in 10M due to a sharp recovery in the low-priced hydropower source. 10M net revenue completed 80.3% of our FY20F forecast, which we deem in-line, as we expect Nhon Trach 2 and POW’s hydropower plants to be highly utilised in Nov and Dec.

FY21F outlook: earnings to recover on volume and ASP recovery

We estimate the company’s sales volumes in 2021F to increase 10.8% yoy, thanks to a rebound in electricity demand post Covid-19. There could be a sharp increase in hydropower volumes (+27.4% yoy), while thermal power mobilisation from EVN should decline as the low-priced hydropower source is prioritised. ASP is forecast to improve 4.7% yoy on the back of higher gas and coal input prices (which should be passed through to selling prices of contracted volumes) and a soft rebound in CGM prices (+3-5% yoy). We expect net profit to grow 16.4% yoy in FY21F.

No official news on divestment progress at PVMachino

POW’s share price has risen c.12% in the past 2 weeks on market news of a possible divestment of its unit PVMachino (PVM VN, Not rated) after reports that another shareholder of PVM had successfully divested its 17.1% stake in Nov. POW currently holds 19.9m shares in PVM worth c.VND189bn. If POW divests its entire stake in PVM at the current price, the company could book a financial gain of about VND187bn, in our estimates. However, we make no changes to our numbers as there has been no official announcement from POW on the progress of the divestment so far.

Reiterate Add at a higher TP of VND13,300

Our TP is based on an equal weighting of DCF and target FY21-22F EV/EBITDA of 6.7x. We raise our target EV/EBITDA from 5.5x to 6.7x to be in line with domestic peer average. A re-rating catalyst is recovery in sales volume and ASP in FY21F. Downside risks: complications involving the PPA renegotiation and unexpected provisions.

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