POW: +30% YoY increase in profit despite receivables provisioning

Event

POW released their full FY2019 financial statements, which were largely in line with our forecasts and preliminary results. We maintain our view that the stock’s poor performance is not justified by the fundamentals of the business, and we reiterate BUY.

Our view

PATMI rose by 29.6% YoY to VND 2,490 bn. This is mainly attributable to the 8.4% YoY increase in revenue to VND 35,421 bn, in line with our forecast.  This impressive sales figure was driven by 22.5 bn kWh in unit sales (+6.6% YoY). 2019 gross margin expanded to 14.5%, up from 13.7% in 2018. In addition, net financial expenses decreased by 31% YoY to VND 877bn.

Operating expenses increased due to receivables provisioning. 2019 SG&A expenses increased by 52.1% YoY to VND 1.2tn. Thus, the SG&A/revenue ratio increased by 1ppt YoY to 3.4%, mainly because of the one-off VND 400 bn in receivables provisioning as Electricity Power Trading Company (EPTC/EVN) delayed payment for Ca Mau 1 & 2 and Vung Ang 1. According to POW, EPTC receivables for these projects reached VND 1,556 bn (equivalent to 17.8% of accounts receivable), of which VND 980bn was 6 months overdue as at 31 December 2019. We are waiting for further explanation on potential bad debts from EPTC.

FY2020 guidance. POW targets 2020 revenue at VND 35,449 bn, nearly unchanged compared YoY despite an expected 4% decrease in expected sales volume (21.6 bn kWh). POW guides for medium maintenance in two gas fired thermal power plants (Nhon Trach 1, Nhon Trach 2) plants and a hydropower plant (Dakrinh). FY2020 profit before tax guidance is targeted at VND 2,395 bn, 23.8% lower than that of 2019.

We reiterate BUY with target price of VND 17,457, implying 66.3% upside. Our target implies 2019E PE of 16.4x and 2020E PE of 12.7x, which we view as reasonable. POW is now trading at an attractive 0.9x 2019 PBV book value.

Please access the link for our complete report:20200115 POW FY2019 results final

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