Our latest valuation for HND in the 2021’s strategy report was VND17,900. The remaining dividend of VND1,425 will be paid soon as mentioned in the AGM's proposal, offering a total return of 6%. Thus, we recommend to Accumulate this stock. We will update our target price in our next report.
Low performance in Q1 21 due to decline in volume and price
In Q1 21, HND recorded VND1,990bn (or US$87mn) in revenue, -34% yoy as volume and selling price decrease. The company provided 1,450 million kWh in Q1 21, -30% yoy because of industry difficulty. 2021 is a difficult year for thermal plants due to: (1) low demand on Covid impact; (2) over supply from renewable energy boom (Q1 21: 7.79 billion kWh, +181% yoy). Hence, thermal plants are allocated low Qc compared to the previous year.
Furthermore, the reduction in selling price also hit earnings. The new profile price is applicable this year at VND1,379, -13% yoy, in which fixed cost decreased by 32% to VND410 (2020: VND601). HND estimated its PM during 2021 was around VND1,300. Meanwhile, selling price in CGM is estimated to be low in 2021 due to a large amount from a low cost source – hydropower. HND’s ASP in Q1 21 was VND1,372, -7% yoy.
Gross profit in Q1 21 was VND24bn (or US$1mn), -94% yoy, due to the drop in selling price. This could not cover financial expenses during Q1 21, resulting in a loss of VND11bn (or US$478,000).
Brighter outlook in Q2
The company is going to provide 2.4bn kWh in Q2 21, +40% qoq because of the dry season. Thus, we estimate that Q2 21 will see the highest core performance for the year. However, in general, HND’s performance in 2021 will still be low. We forecast that the company is going to gain VND240bn, -83% yoy (or US$10mn) in NPAT versus HND's plan for VND210bn (or US$9mn).
HND is going to pay the remaining dividend of VND1,425/per share for 2020. It decided to pay 7.25%, equivalent of VND725 per share on 17 May. For 2021, it plans to pay a dividend of 4% (per face value), however HND is negotiating with GENCO2 to raise this rate to 8%. HND’s representatives expect that it can pay a dividend of VND323bn (or US$14mn, 6% of face value) in 2022, VND350bn (or US$15mn, 7% of face value ) in 2023, VND1,000bn ( or USD43mn, 20% of face value ) in 2024, VND1,200bn (or US$52mn, 24% of face value) in 2025.
During the AGM, the company also shared that it must install an environmental solving system for roughly VND1,700bn (or US$74mn) from 2022. According to the company, this investment will be passed through PC later in the year. The government has directed all thermal coal plants to install this system soon, which may impact spare cash for paying dividends.
HND is a young power plant and will become a cash cow when it completes its debt obligations in the coming years. This stock is suitable for investors who seek stable dividends and can hold for the long term.