REE Update – OUTPERFORM

REE CORPORATION (HOSE: REE)

We forecast that the shift in the meteorology cycle from El Nino to La Nina in 2024 will support the business results of REE’s energy segment, which contributes 47.0% of REE’s revenue and 42.9% of profit, with hydropower accounting for more than 50% of output. In addition, the real estate and M&E segments are also forecast to be favorable, contributing to REE’s profit recovery in 2024 (+3.8% NPAT). This profit recovery cycle will continue during the period 2024-2026 with a CAGR of 19.8%. Therefore, we recommend OUTPERFORM with a target price for 2024 at VND 70,900/share. 

In 2023, REE recorded a sharp decline in revenue and profit in most of its core business segments (energy, real estate, and M&E), and failed to meet its targets due to a number of factors, in the context of the gloomy economy. In particular, the El Nino effect caused a sharp decline in average annual rainfall, which in turn affected the business results of the energy segment where hydropower accounted for over 50%, therefore, affected REE’s revenue and net profit.

At the end of Q1/2024, REE reported business results with NPAT reaching only VND 549 bn, -48.0% YoY, and parent company’s NPAT reaching VND 481 bn, -35.4% YoY, achieving 19.9% of the 2024 plan. However, we believe that the impact of El Nino will start to diminish from the second half of 2024. From then on, the recovery prospects for the hydropower segment will be more obvious. 

For the period 2024-2026, we expect REE’s performance to improve somewhat due to:

(1) The end of the El Nino cycle, with expectations of increased precipitation, hydropower plants will post positive results again (+16.5% output & 10.6% revenue)

(2) Etown 6 (36,780 m2 of leasable floor area, rental price of USD 30/m2 for Grade A office) will be officially put into operation from Q3/2024 and the more positive general economic environment will contribute to growth in the office leasing segment.

(3) Sale opening and profit booking from the residential real estate project The Light Square, Bo Xuyen – Thai Binh.

(4) REE’s partners and customers in the M&E segment will face less difficulties in their financial situations. Therefore, REE will no longer have to make provisions and record positive results.