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PV Power (POW VN) Initiation: Electrifying Vietnam’s economic development

12/08/2019 - 08:50

20190808 POW Initiation — Electrifying Vietnam’s economic growth

POW is a leading IPP in an energy-hungry and undersupplied market where demand is set to grow more rapidly than GDP for at least the next decade. Its diversified power production capacity allows for stable production during periods of disruption for any single power generation source. Short-term catalysts include substantial reductions in depreciation and interest expenses in 2019-20E. In our view, the current 1.0x 2020E P/BV valuation offers an attractive entry opportunity. We initiate coverage with a BUY rating and expect 32.5% 12-m total shareholder returns.

Vietnam’s electricity shortage should increase to 48 bn kWh by 2025. Assuming that Electricity-to-GDP demand elasticity remains stable at 1.6x GDP growth, electricity supply would be required to increase by 11% each year to support 7% GDP growth in 2020-25E. By 2025, we estimate that Vietnam will require production of 400 bn kWh, implying a supply gap of around 48 bn kWh.

POWering up for growth. POW is investing in two new gas-fired thermal power projects, NT3 and NT4. Both should have installed capacity of 650-880 MW, increasing POW’s total installed capacity by  31% to reach 5.508 MW by 2023.

Short-term catalyst: lower depreciation. Machinery depreciation from Ca Mau 1 & 2 and Nhon Trach 1 will end in 2019 and 2020, respectively. We reckon this will add VND 875bn to 2019E PATMI and another VND 325bn in 2020E PATMI.

Yuanta vs consensus. Our 2020E EPS forecast is 5% higher than the Street. We see upside to our forecasts if and when the company resolves its input constraints, especially those related to coal.

We initiate coverage with a BUY recommendation and target price of VND 17,457 based on an EV/EBITDA multiple valuation method. Our target implies 2019E PE of 16.2x and 2020E PE of 12.7x, which we view as reasonable. Our target EV/EBITDA of 6.7x is 20% below the regional peer average.


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