Equity Analysis /
Vietnam

Power Construction No 1: One of few companies shielded from Covid-19; Buy

  • PC1 benefits from the disbursement of both public and private investment

  • Company is confident that it will sign a total of VND3,700bn of new work this year

  • Buy with a target price of VND26,800, which is equivalent to a very large upside of 106%

Rong Viet
16 April 2020
Published byRong Viet

Among our coverage, PC1 is one of the few companies shielded from the Covid-19 pandemic. Overall, its core businesses remain active because of the construction and manufacturing industry’s characteristics – the segments maintained the same volume in Q1 versus over the same period last year. 

As a contractor for many important power generation and transmission projects, PC1 benefits from the disbursement of both public and private investments. Most of the works that PC1 participates in are not in residential areas, nor are there large numbers of workers, so progress is still guaranteed. However, revenue and profit in the quarter may have slowed down, so the amount of work done in the last weeks of March will roll over to Q2. 

The company’s bidding and new signing activities in Q1 were relatively slow, which we attribute to Covid-19. PC1 signed about VND350bn in the first quarter. In addition, it has been negotiating many high-value contracts in the renewable energy segment. We believe that construction demand in the renewable energy sector can pick up because of the new circulation on electricity price subsidy for projects started before 23 November 2019 and operating before 31 December 2020. This is also a peak time for commencement of some wind power projects for commercial operation before 1 November 2021 in order to enjoy subsidised electricity purchase prices. Therefore, PC1 is quite confident that they will sign a total of VND3,700bn of new work this year. 

The revenue guidance for the construction segment was said to be adjusted down by 10%, but the backlog would still be enough for the company to record VND3,400bn in revenue this year. The power generation segment will still grow in 2020 due to the operation of the Mong An Hydropower Plant (HPP) from the beginning of the year and two new hydropower plants expected to generate electricity in Q3 20. Although Trung Thu HPP will reduce its output by about 20% for the whole year due to low water level, the shortage of revenue is insignificant compared to the contribution from new capacity. According to the company’s plan, power generation revenue will exceed VND700bn in 2020, up 30% compared to 2019. At the same time, this will continue to be the segment with the largest profit margin, reaching a net margin of over 25%, contributing profits and stable cash flow to consolidated results. 

The real estate segment is probably the one most affected by Covid-19. As planned, the remaining 130 units (about 30% of the projects) of PCC1 Thanh Xuan Apartment was going to be launched for sale in Q1. However, being unable to hold sale events, PC1 said it will not be able to sell the lots until later in the year. This is quite similar to our forecast, whereby 70% of the project value has been sold and will be handed over in Q2 and Q3 and will be eligible for recognition in 2020, the rest will be recorded in 2021. PC1 is also constructing foundations and piles of PCC1 Vinh Hung Apartment Project and is expected to open for sale later this year. 

Based on the forecast presented in the 2020 quality report, we estimate that Q1 20 business result will turn out similar to Q1 19. Specifically, we estimate that in Q1 20 revenue will be VND1,252bn (-2% yoy), and profit after tax will be VND92bn. 

We have a Buy recommendation on PC1 with a target price of VND26,800, which is equivalent to a very large upside of 106%. PC1 is currently trading at a forward P/E of 5.8x and P/B of only 0.6x. We remain optimistic about the upside in the long-term and believe that the current market price is very attractive compared to the intrinsic value of the business.