Initiation QTP – BUY

QTP is one of several important thermal energy-generating facilities in North of Vietnam. The company’s location in one of four key economic zones including Ha Noi – Bac Giang – Quang Ninh – Hai Phong, in tandam with rising energy demand and lack of alternative supply-energy plants in the region, provides a solid foundation for the company production prospects. We issue a BUY recommendation on QTP with a target price of  18,315 VND, representing a 35.0% total expected return.

Vietnam is still a developing country; thereby, its energy demand is soaring in line with the economic development. Hence, the electricity industry must progress at a rate that is both parallel to and slightly ahead of the economy such as infrastructures and especially capacities.  However, the Northern region’s expansion of energy supply sources appeared to be falling behind.  This was more clearly demonstrated by the number of new renewable energy (RE) projects have been developed in other regions such as Central and South. Therefore, it creates a disequilibrium as a consequence driven by the law of supply and demand, which strengthens the thermal power circumstances amid Northern region energy mix at the expense of alternative supply sources.

According to ENSO, the La Nina effect, which resulted in above precipitation than many years’ average and favored hydropower over thermal group, has passed. In contrast, El Nino cycle, which has the opposite impact will intensify in 2023-2024 period. As a result, it further bodes well for the thermal power as resonance effect, specifically QTP, to post a robust result in 2023.

Anually, the financial situation of QTP has improved. We anticipate the company will pay off its remaining debt 1,092 bn VND by 2023; resulting in an increase in net earnings, cash flows and cash dividend payment to shareholders. Otherwise, the company can re-invest its surplus in other enterprises, similar to how PPC has done. This would even build up cash flows and dividend payment in the long-term.