Earnings Report /
Vietnam

Power Construction No 1: Contribution from electricity and construction will offset real estate in 2021

  • Q4 20– Record-high revenue from a surge in constructions

  • 2021 outlook – Contribution from electricity and construction segments will compensate for weak real estate earnings

  • We determine the fair value of PC1 at VND 32,200 per share, offering a 16% upside; Accumulate

Rong Viet
29 March 2021
Published byRong Viet

Q4 20– Record-high revenue from surge in constructions

  • Revenue in Q4 20 surged by 50% qoq and 58% yoy because of a surge in power construction.

  • Gross profit was VND319bn, -5% qoq and +85% yoy due the to dry season in the North, leading to a fall in gross profit from electricity generation.

  • The real estate segment reported VND156bn in revenue.

  • NPAT-MI was VND132bn, -17% qoq and +145% yoy.

2021 outlook – Contribution from the electricity and construction segments will compensate for weak real estate earnings

  • Revenue from the construction segment is going to recover due to the wind power market. Backlog and revenue are estimated to reach VND3,700bn and VND4,125bn, +22% yoy and +37% yoy, respectively.

  • Electricity generation will become the major contributor: (1) hydropower is going to benefit from La Nina and the plant's full year operation; (2) wind power will start contributing revenue from Q3 and its large capacity promises long-term growth. High gross margin ensures profit and cash flows.

  • Expect low revenue from real estate. The company plans to hand over shops in early 2022.

Valuation and Recommendation

PC1 is transforming itself into an electricity generation company with capacity expanding in recent years. Being able to construct power plants itself, the company can make quick progress in construction work and enhance capex efficiency. This year, the company is going to start its 144MW wind power plant, which will be its main growth engine in the long term. Furthermore, PC1 will also benefit from the wind power market this year as a contractor. While 2021 is an off-peak year for the real estate segment, the recovery in its hydropower business will compensate for that. We expect that the real estate segment will start contributing to revenue in mid-2022 with two projects under development.

Using P/E and sum of the parts methods, we determine the fair value of PC1 at VND32,200 per share, offering a 16% upside from the closing price on 26 March 2021. This price is adjusted upward from the most recent update because we fine-tuned our earnings forecast and raised valuation multiples. We recommend Accumulate.