Initiation NT2 – HOLD

Nhon Trach 2 Thermal Power JSC (HOSE: NT2)

NT2 is a significant generator among Vietnam’s energy portfolio, located in a large industrial zone in the South: Nhon Trach – Dong Nai.  In addition, NT2 could be viewed as a promising long-term investment due to the rising energy demand given the expansion of the general economy development, as well as  the green energy transition to less carbon emission sources, particularly the replacement of coal thermals with gas turbines to serve as foundation source for the entire energy system. However, based on valuation, we issue a HOLD recommendation for NT2, with price target of 24,374 VND per share, representing an expected return of -8.1%.

Vietnam is still a developing; thus, the demand for energy, especially for industrialization, will increase consistently, which is correlated to the economy as a whole.  As a result, the electricity industry must advance in order to pave the way for economy growth as well as to ensure the national energy security.  Moreover, the government intends to seek for environmentally friendly energy to satisfy the commitments at COP 26 & 27, bringing carbon emission to net Zero by 2050.  Therefore, electricity generators which use gas as input fuel such as NT2, together with modern technology: Combined Cycle Gas Turbine – CCGT is an efficient substitute for coal-fired power generation.

According to Enso, the La Nina cycle which produces higher precipitation than many years’ average and favors the hydropower has ended.  In its place, El Nino with reversed impacts is forecast to emerge strongly in the 2023-2024 period, beginning since mid-2023.  As a result, it would build up the resonance effect, which bodes well for thermal group’s performance during the same period.

A solid advantage is a company’s financial health and transparency, as well as its history of steady dividend payments over a long period of time.  Besides, NT2 has paid off its long-term debt, and will run out of its primary plant’s depreciation by 2026, 15 years after its initial operation.