Equity Analysis /

PetroVietnam Power: Attractive long-term outlook; Buy

    Son Phan
    Son Phan

    Utilities, Natural Rubber

    Vu Nguyen
    Vu Nguyen

    Autos & Parts

    Rong Viet
    5 September 2019
    Published byRong Viet

    PetroVietnam Power Corporation (HSX: POW) is the second-largest power producer in Vietnam with a portfolio of 4.2GW, representing 9% of total capacity of the national power system. Gas-fired thermal power makes up the largest proportion of its activity with 64% of total capacity. Coal-fired thermal power accounts for 30% and hydropower for 6%. Having the majority of its capacity located in the South, a major consumption region, the company has comparative advantages. This is especially true if the liberalisation process in the power industry allows for more competition and offer opportunities for well-run businesses to improve profitability.

    In the short term, despite the risks of policy changes and input material prices, the decline in currency depreciation and debt outstanding will help POW improve its earnings and cash flow. Furthermore, the Nhon Trach 3&4 project is expected to become a driver of long-term growth, given that electricity shortages in the South is inevitable with several big projects not making progress.

    We combine the discounted cash flow and comparable methods to value POW. Based on that, we come to a target price of VND17,900/sh, and anticipate a cash dividend of VND300/sh in the next 12 months. This translates to a 41% total return from the closing price on 3 September 2019. We therefore have a Buy recommendation on this stock.

    Investment rationale:

    • Stable growth in power demand and limited new supply support existing power plants in the middle term.
    • POW owns huge plants concentrated in the key economic region in the South.
    • New plants with advanced technology ensure stable operations.
    • Low investment capex and strong cash flows will help POW strengthen its financial position, while the firm still pays cash dividend.

    Risks: (1) Input materials supply for thermal power plants; (2) exchange rate volatility.