GEX Visit Note: Aggressive Expansion Plan

We visited GEX in Hanoi on 13 Aug. Management shared an impressively aggressive business expansion plan, including the targeted acquisition of Viglacera (VGC VN, Not rated), which has substantial industrial and residential land bank. In addition, GEX expects its core operations in electrical equipment manufacturing to benefit from increased investment in the national electricity grid.

Key Takeaways

• Possession of widely recognized electrical equipment brands.
• Planned acquisition of VGC, a construction material, industrial & residential property company.
• Expanding its renewable energy capacity to 500 MW over 3 years.

Business Risks

• Low entry barriers, increasing number of competitors.
• Increased leverage to fund the aggressive expansion.
• Economic slowdown may affect construction material business.

Benefiting from increased energy sector investment. The company boasts widely recognized electrical equipment brands – Cadivi, Thibidi, and HEM –along the energy value chain. Thus, GEX believes that it will benefit from increased investment in the undersupplied power sector. Government planning officials estimate that energy system investment of USD 148bn is required to ensure sufficient power for 7% annual economic growth in 2016-2030.

Expanding industrial and residential landbank. GEX discussed its plan to acquire VGC, which operates construction materials and industrial & residential real estate businesses. VGC has 11 industrial parks with total area of 4,057 ha. It is currently developing 3,000 ha of industrial park land to capture the growing FDI inflows. In addition, VGC has 386 ha of residential landbank in prime locations, mainly due to factory relocations.

Expanding its renewable energy capacity to 500 MW over the next 3 years. GEX currently has 3 hydropower plants and 1 solar power plant with total installed capacity of 122 MW. GEX is developing 3 wind farm projects, which may benefit from power purchase incentives if they are launched before Nov 1, 2021.

Capital injection required. GEX said it needs to raise USD 200 mn to facilitate its aggressive growth plan. The company plans to issue straight bonds, with a coupon of around 9%.

Please access the link for our complete report: 20190815 GEX company visit_edited

Analyst: Binh Truong, binh.truong@yuanta.com.vn