POW – Firing up gas-fired power – Update

• 1Q22 NP rose 41.9% yoy to VND721bn, back by impressive surge in production output, fulfilling 38% of our full year forecast.
• We raise 2022/23/24F EPS by 32.2%/8.1%/9.9% regarding the brighter outlook for gas-fired power output recovery.
• Upgrade to Add rating with higher target price of VND20,400.

1Q22 recap: Gas-fired power to drive the bottom lines growth

In 1Q22, POW gas-fired power recorded a positive output result, hydropower output also recorded an impressive growth thanks to ideal weather condition, offsetting output loss from Vung Ang 1 technical problems. Although 1Q22 revenue dropped 7.8% yoy to VND7,061bn, GPM increased 3.1% pts to 14.5% due to the elimination of low GPM segment after PVMachino divestment, helped gross profit rose 17.3% yoy to VND1,027bn. Financial expenses also drop 31.9% yoy to VND107bn thanks to 32% yoy drop in short-term debt. Overall, POW 1Q22 NP recorded a sharp rise of 41.9% yoy to VND721bn.

Gas-fired power surge to offset the drop of coal-fired power in 2022F

Thanks to demand rise in 2022, and Vietnam might step in power shortage phase in hot weather. We believe gas-fired power will contain several spaces to be mobilized at higher rate, after 2021 modest output. POW’s gas-fired power output will increase 28.9% yoy to 10,578m kWh and ASP will linger at high level of around VND2,015/kWh. Hydropower output will maintain its high mobilization of 1,154m kWh as La Nina phase stay longer-than-expected. Coal-fired power output will suffer from sharp drop of 24.5% yoy due to coal-fired power shortage situation and unit 1 Vung Ang 1 technical issue (until Sep 2022). Overall, the surge in gas-fired power will offset output loss of Vung Ang 1, helping revenue to increase 13.4% yoy to VND30,592bn in 2022F after rebound 13.3% yoy to VND34,662bn in 2023F when all the plants return to work in full capacity. NP will surge 31.1% yoy and 17.8% yoy in 2022-23F to VND2,332bn and VND2,749bn, respectively.

Potential one-off gain from divestments during 2022 – 23F

POW is divesting Viet Lao Power JSC with a potential one-off of VND308bn, expected to finish the procedure in 2Q22. The company also has a roadmap to divest EVN International JSC, along with the potential one-off profit from incident insurance and business interruption insurance for Vung Ang 1.

Reiterate Add with higher target price of VND20,400

We revise up our TP for POW by 6.2% following 32.2%/8.1%/9.9% EPS upgrade over FY22-24F. Re-rating catalyst is higher oil price and faster-than-expected Vung Ang 1 repair. Downside risks are longer-than-expected Nhon Trach 3&4 completion time and lower gas-fired power output.

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