REE – Growing up with sustainability – Initiation

• REE, a leading multi-utility holding company, will sustainably benefit from the country utilities consumption growth.
• We see the company’s aim to expand its exposure to renewable energy (RE) will drive the earnings growth since 2022F going forward.
• Initiate coverage on REE with an Add rating of VND98,300.

Building up a multi-utility’s portfolio with growing exposure to RE
REE owns a dense list of power plants with total capacity up to 1,005MW, of which hydropower (52.1%), thermal power (29.1%) and RE (18.8%). The company aims to expand its portfolio in RE by 500MW in 2024F. In 2022F, its three new wind power plants (~102MW) will be put on use, becoming the new earnings growth engine. Water investment portfolio with four water treatment factories and 4 clean water suppliers will deliver about 8% yoy in earnings over 2022-23F thanks to stable demand growth.
M&E and property leasing businesses are warming up
As a leading M&E contractor, REE will ride on country’s big story of infrastructure development. After a pull-back during last year pandemic, we expect M&E earnings to increase 165% yoy/23% yoy in 2022-23F thanks to VND3,757bn/ VND4,508bn value of new-signed backlog. By managing seven offices for lease with high occupancy rates, property leasing is a cash-cow business, making up about 22% net profit in 2022F. We expect a sprint growth of property leasing in 2023F when the new office E.town 6 will be put into operation.
Net profit to grow sustainably in 2022-23F
In 2022F, REE put out quite conservative net profit plan of VND2,061bn (+11% yoy). However, we expect 2022F net profit to rise 18% yoy to VND2,183bn with the strong support from three new wind power plants and M&E sharp recovery, offsetting modest drop in hydropower and real estate segment. In 2023F, we see positive growth in all segment, especially solid rise in real estate NP thanks to the appearance of E.town 6. Thus, 2023F net profit will increase 18% yoy to VND2,565bn.
Buy on the dip with STOP-based target price of VND98,300
The recent market-sell off has sent REE back to buy territory. We believe with an upside of 24%, the risk-reward profile is attractive to accumulate a defensive stock like REE. Re-rating catalysts include (1) Higher than expected hydropower output mobilization, (2) the announcement of new RE power price mechanism, and (3) excited public investment activities recover. Downside risks include (1) M&E GPM narrows higher-than-expected, (2) global commodity price highly volatiles longer-than-expected, and (3) water price adjustment proposal in Hanoi may not be executed due to inflation concerns.

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