REE – Earnings to normalise from high base FY22 – Update

• REE recorded a historic high revenue and NP of VND9,375bn (+61% yoy) and VND2,690bn (+45% yoy) in FY22, fulfilling 100%/103% our estimate.
• We expect FY23F NP to drop 18% yoy, following the slump from hydropower, before rising 19% yoy in FY24F, back by power and M&E.
• Downgrade to Hold with lower TP of VND77,000/share.

FY22F recap: Historic high net profit recorded, marking a vibrant year

4Q22 revenue rose 62% yoy to VND1,900bn, but a drop of VND228bn in net financial income dragged NP to VND719bn (-9% yoy). FY22 revenue and NP rose 61% yoy/ 45% yoy to VND9,375bn/ VND2,690bn, the highest since listing. NP from power grew 91% yoy thanks to solid mobilization from hydropower and full-year wind power operation. Water NP rose 24% yoy thanks to demand recovery from service sectors post-Covid. Real estate segment although dropped 8% yoy, regarding the one-off profit in FY21, office leasing activities still rose 12% yoy thanks to rent price improvement. M&E NP although recorded 34% yoy increase from FY21 low base, the recovery is still lower than expected due to the freeze of property sector. Notably, in 4Q22, REE bought 38m VIB share, equivalent to VND738bn, accounting for 93.4% REE total securities investment portfolio. From the beginning of the year, VIB price has rose 22%, besides, the company planned to pay 10% cash dividend in FY23F.

FY23-24F outlook: Normalise from the high base FY22

We see FY23F NP to drop 18% yoy to VND2,208bn following the company largest contributor – hydropower coming out of its ideal condition. Accordingly, FY23F power segment NP to drop 27% yoy while other segment including water, and office leasing provides stable NP of 0.5% yoy and 5% yoy increase per our estimation. M&E activities is expected to record another gloomy year, with NP edging up 1% yoy, following the tough condition of property market. We find more bullish signals from FY24F with NP increases 19% yoy to VND2,630bn thanks to 1) Interest rate drop releasing pressure for REE businesses; 2) 20% yoy increase in power segment NP following hydropower output improvement; 3) 34% yoy surge in M&E segment NP thanks to strong backlog new-signed for terminal projects, as well as the residential property heat up; 4) Office leasing solid growth of 11% yoy thanks to additional contribution from E.Town 6.

Downgrade to Hold with lower TP of VND77,000/share

We revise down our STOP-based TP by 10% REE to VND77,000/share, following 14%/12% downgrade FY23/24F EPS forecasts. We see REE as a defensive player, less expose with market risk and contained a strong financial position. Its stock price performed firmly during last year market slump, edging down around 22% and outperforming its peers. Since then, the upside is now limited, thus we downgrade our recommendation from Add to Hold for REE.

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