VNDirect expected the FY22F output of PVPower Corporation (POW) to drop modestly (-2.3% yoy), and then rebound 26.8–31.2% yoy in FY23/24F thanks to the new NT3 thermal plant. However, its strong outlook has already been priced in.
Gradual recovery in output and ASP in the CGM
VNDirect believes POW’s power output will gradually recover from FY22F onward when Vietnam experiences 2 modest growth years in power consumption in FY20/21F (2.9-3.8% yoy), far lower than the forecasted level in the Power Development Plan 8 draft (PDP8 draft). We expected POW’s power output would benefit from a substantial recovery of power consumption from FY22F onward, with an estimated CAGR electricity demand of 8.2% in the FY22-30F period when Vietnam’s economy returns to its growth state post-pandemic.
Besides, the average selling price (ASP) in the Vietnam competitive generation market (VCGM) recorded a downward trend from March to April as hydropower was preferred to mobilization. The ASP in the VCGM market is also expected to rise when hydropower steps out of its ideal condition in March 2022. Hence, thermal power plants are expected to take over the role of serving as the background sources in the coming years.
The POW gas-fired segment will return.
Thanks to the promising future of this energy segment, we believe FY21 to be the low-base for gas-fired output. Under the PDP8 draft, gas-fired power capacity will grow at 9.1% CAGR and account for 24% of total capacity in FY20-45F. Hence, we see a vast potential for gas-fired power to be mobilized at a higher rate in the coming years, thanks to the intense power demand growth and favorable government orientation”, VNDirect said.
Besides, Nhon Trach 2 has fulfilled its debt obligation since mid-21, VNDirect expects a review of its fixed selling price in FY22F, creating an advantage for the company to be mobilized at higher output. Ca Mau 1 & 2 have completed a new PPA with EPTC/EVN in 4Q21, in which the plants will participate in the VCGM in FY22. Having lower gas prices and lower depreciation costs will improve the plants’ competitiveness due to more attractive offering prices when joining the generation market. Nhon Trach 3 & 4 progression updates At the moment, the Samsung C&T and LILLAMA consortium contractors have won the bidding for the EPC package for Nhon Trach 3 & 4 Power Plants. The total value of the package is estimated at more than VND24,147bn (equivalent to US$1,044bn). However, the consortium wins the EPC package at US$942.9m (equivalent to VND21,421bn), with a higher capacity of 1,624MW (812MW/plants compared to 750MW in the previous plan).
For FY22/23F, POW gas-fired power output is expected to increase by 22.1%/16.4% yoy to 9.7/11.3bn kWh, respectively. The ASP remained at a high of 1,828/1,814VND/kWh due to the high forecasted Brent oil price of around US $83/75 per barrel in FY22/23F due to the high forecasted Brent oil price in FY22/23F.In FY24F, VNDirect includes the additional output of 4.6bn kWh from Nhon Trach 3 gas-fired power plants, leading to a total gas-fired power output of 17.1bn kWh (50.9% yoy). ASP also rose by 4.1% yoy to 1,888VND/kWh in FY24F. Hence, total gas-fired revenue for FY22/23/24F will grow 18.9%/15.5%/57.0% yoy to VND17,770/20,524/32,220bn, respectively.
Coal-fired power output will slump
According to the longer-than-expected technical issue of Vung Ang 1 engine unit 1, it will greatly affect the POW coal-fired volume until 3Q22F. Hence, VNDirect forecasts that Vung Ang 1 thermal power plant’s output will slump 33.8% yoy to 3.6bn kWh in FY22F before recovering 57.1% yoy in FY23F when the 2 engine units fully come back to operation. In FY24F, this stock company forecasts Vung Ang 1 output will remain stable and reach around 5,7bn kWh while assuming ASP will rise at 2%/year, leading to total FY22/23/24F revenue of VND5,849bn/9,375bn/9,562bn, adjusting -30.3%/ 60.3%/2.0% yoy, respectively.
VNDirect revised up its TP for POW by 28% versus its previous report as (1) it rolled forward its DCF valuation to FY22F and (2) it adjusted FY22/23/24F EPS by – 37.1%/-12.3%/29.6% respectively. However, the recent share price rally has already factored into the outlook. Thus, it was downgraded to “hold” as the upside is limit ed. Its 1-year target price is based on an equal combination of DCF and an EV/EBITDA multiple: Using 10-year DCF valuation (WACC: 11.8% COE: 15.1%, LTG: 1.0%) to reflect our conservative view on POW’s growth; target EV/EBITDA multiple of 9.5x (up from 7.1x in our previous forecast) to reflect the power sector’s average FY22F EV/EBITDADownside risks include: fuel (coal, LNG) supply shortages, which could reduce output volume; and longer production times.-than-expected Nhon Trach 3 & 4 completion times. Potential upside risks include higher-than-expected power output.