POW Update – NEUTRAL

PetroVietnam Power Corporation (HoSE: POW)

For 6M2024, POW reported VND666 bn in NPAT, – 18.6% YoY, completing 80.8% of the 2024 plan.  Due to the end of the El Nino meteorological cycle and the shift to neutral/La Nina conditions – which are unfavorable for thermal power, and the operation of Nhon Trach 3&4 (NT3&4) will create lower gross margin due to high input costs, we adjust the forecast of POW’s NPAT to VND963 bn for 2024, -25.0% YoY and VND831 bn for 2025, -15.5% YoY. Using the FCFF valuation method, we achieve the fair value of POW for the next 12 months to be VND13,700/share, representing a total expected return of +9.6%, rating Neutral. 

In Q2/2024, POW’s business showed the YoY improvement  with revenue reaching VND9,407 bn, +11.6% YoY, gross profit reaching VND724 bn, +54.3% YoY, and NPAT reaching VND450 bn, +167.9% YoY. Key drivers of these results are: (1) The impact of the 2023-2024 El Nino cycle which led to lower precipitation and created favorable conditions for thermal power in expense of reducing hydropower generation. Specifically, Q2/2024 output reached over 4.8 bn kWh, +11.2% YoY; and (2) the recovery of the overall economy and electricity demand, causing the entire industry’s electricity output in the 1H2024 to increase by 12.4% YoY.

Vietnam’s first LNG thermal power project: NT3&4 is being implemented on schedule and is expected to commence commercial operation in Q4/2024 for NT3 and Q2/2025 for NT4.  

According to the latest forecast from NOAA, the El Niño cycle ended in Apr 2024 and has transitioned to a neutral phase, with ENSO indices recording 0.4, 0.2, and 0.1 in Jun, Jul, and Aug, respectively. Additionally, NOAA forecasts that Oct and Nov will have the highest probability of experiencing La Niña conditions in 2024, at 50%. This is expected to bring positive effects for hydropower, while negative impacts for thermal power as the La Niña cycle typically leads to above-average rainfall.

View details in the attachment below.