NT2: Margin improved on lower input costs

Events

NT2 released its 1Q20 results. 1Q20 revenue slid by 8.8% YoY while PATMI was nearly unchanged due to reduced input costs. However, the gas supply issue has not yet been resolved

Key Highlights

1Q20 revenues fell by 8.8% YoY to VND 1,723 bn. The decline is mainly attributable to a fall in sales volume of 4.7% YoY to 1,170 mn kWh, according to POW’s recent operational update. NT2 did not disclose further details regarding its ASP. 1Q20 gross margin expanded on lower input cost.

1Q20 margin was 14.2%, up from 9.9% in 1Q19, mainly due to the contraction in input cost. Input material costs, which account for 78% of production costs, declined by 16.2% YoY. Nevertheless, 4Q19 PATMI was nearly unchanged at VND 179.2 bn. Investors should be reminded of the one-off VND37.1bn in other income gains in 1Q19, which was from reversals of the technology development fund and which did not repeat in 1Q20.

Significant degearing. NT2 has reduced its long-term debt by 68% YoY to VND495bn as at 1Q20, in line with our forecast. Thus, net debt/equity fell to 38% at 1Q20 from 63% at 1Q19. Also, 1Q20 interest expense decline by 45.7% YoY to VND12.8bn. Input gas disruption persists. According to NT2, the total average daily volume needed for electricity generation in the Southeast in 2019 was 22.6 Sm3, whereas the total average daily gas supply was 16.0mn Sm3. In March, the company only generated 95% of its monthly guidance for volume due to insufficient gas supply. However, this issue may be resolved by the end of 2020 when the Sao Vang Dai Nguyet gas field comes online.

Our view

We maintain our HOLD-Outperform rating with target price of VND 29,195. NT2 is trading at 1.5x 2020E P/B with forecast dividend yield of 12.6%. We make no change in our forecast in this report, but we might revisit our model after the PPA negotiation results are announced.

For the complete report, please access here:20200422 NT2 1Q20 edited

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