INITIAL REPORT

04-Dec-18

POW (UPCOM) PetroVietnam Power Corporation (UpCOM: POW)

Golden year 2019 for thermal power plants
Rating OVERWEIGHT
Power Generating Pros:
Market price (VND) 15,600 - Demand for electricity in Vietnam is expected to grow at 10%/year while
Target price (VND) 18,600 additional generation capacity is only 4.7%/year. EVN will have to increase the
Annualized price return (%) 19.2% mobilization of current power plants to meet high demand.
Expected dividend yield (%) 1.3% - The market price of electricity is expected to rise to 783 VND/kWh (+ 69.8% YoY)
in 2018 and 901 VND/kWh (+15% YoY) in 2019, the highest level in five years.
Expected total return (%) 20.5%
- 2019 is the year of El Nino, which will favor thermal power plants. Total output of
'000
PVPower is estimated to grow 9% in 2019.
VND
Price - Volume shares - Most of PVPower power plants are located in the South of Vietnam which sees
'000
20 20,000 local electricity overdemand, ensuring the high mobilization of these plants.
15 15,000 - Ca Mau 1&2 power plants are fully depreciated (VND1,065bn per year) in 2019,
directly improving profit.
10 10,000
- PVPower is expected to be listed on HSX in Dec 2018.
5 5,000 - In 2019, net profit is estimated to skyrocket 74.8% YoY to VND4,058bn.
0 0 Cons:
03/18 06/18 09/18
- Natural gas and coal shortage strongly influence output
Stock performance (%) - Power output depends heavily on weather condition
YTD 1M 3M 12M - Exchange rate is a big risk due to high foreign currency denominated debt (EUR,
Absolute n/a 13% 13% n/a USD).
Relative n/a 9% 14% n/a Recommendation:
Source: Bloomberg, compare to VNIndex
- Using FCFF method, we evaluate the value of POW’share at VND 18,600/share
Stock Statistics 04-Dec-18 at the end of 2019; total expected return is 20.5% (include cash dividend of VND
52-week range (VND) 11.0k-17.8k 200 in 2019). Therefore, we recommend OVERWEIGHT with POW’s shares.
Shares o/s (m) 2,342
VND bn. 2016 2017 2018E 2019E 2020E
Mkt cap (VND bn.) 36,533
Mkt cap ($m) 1,568 Net revenue (VNDbn.) 28,212 29,710 33,776 36,363 35,139
Foreign % owned 72% Growth (%) 21% 5% 14% 8% -3%
Est. free float (ml. shares) 2,108 Operating profit (VNDbn.) 3,027 4,107 3,572 5,594 4,978
3m avg. daily vol. (shares) 1,876,160 Margin (%) 11% 14% 11% 15% 14%
VND/USD 23,292 Other income -304 -270 -255 -507 -370
Index: VN-Index/HNX 959/107 Net profit (VNDbn.) 1,475 2,602 2,322 4,058 3,791
Source: Bloomberg
Margin (%) 5.2% 8.8% 6.9% 11.2% 10.8%
Ownership 04-Dec-18 Outstanding shares (mn) 2,342 2,342 2,342 2,342 2,342

PetroVietnam Corporation 80% EPS (bonus-adjusted, VND) 441 954 818 1,544 1,432
KIMC 2.4% Growth (%) -50% 116% -14% 89% -7%
AIG International Management Ltd 0.3% ROE (%) (excl. minority) 4.3% 9.1% 7.7% 13.3% 11.1%
KB Asset Management Ltd 0.3% Net debt/Equity (%) 96% 78% 56% 34% 41%
Source: Bloomberg PER (x) 35.4 16.4 19.1 10.1 10.9
PBR (x) 1.5 1.5 1.4 1.2 1.1
Mr. Danh Nguyen
EV/EBITDA (x) 8.9 7.2 7.2 5.8 6.8
(+84 28) 3914 8585 - Ext: 1459
DPS (VND, as reported) 700 200 300 200 -
danh.np@kisvn.vn
Dividend yield (%) 4.5% 1.3% 1.9% 1.3% -
www.kisvn.vn

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Ownership after state 1. Core business

divestment
1.1. Overview

20.0% 0.10% PetroVietnam Power Corporation (UpCOM: POW) is used to be one member limited
company owned by PetroVietnam Corporation. In December 2017, PVPower was IPO
and changed into a joint-stock company.
51.0%
28.9%
Having power generation as the main business, PVPower is the second largest
electricity generator in Vietnam with 9.6% market share. PVPower is currently
PVN operating four gas-fired thermal power plants: Ca Mau 1&2 and Nhon Trach 1&2
having total capacity of 2,700 MW and being located in the South, which sees high
Strategic investor
electricity demand and frequent power shortage. In addition, PVPower has also
IPO
invested two large hydropower plants (including reservoirs for storing water) including
ESOP
Hua Na (180 MW) in Nghe An and DakDrink (125 MW) in Quang Ngai. By the end of
2015, Vung Ang 1 thermal power plant (1,200 MW) was transferred from PVN to
PVPower. Annual electricity output is estimated at 24bn kWh per year and all is sold
to EVN.

Capacity Designed output Commercial

Plant Location Type PPA price (*)
(MW) (TWh) operating date
Gas-fired 5.28
Ca Mau 1 Ca Mau 750 4,500 2008
thermal power USD/kW/month
Gas-fired 5.28
Ca Mau 2 Ca Mau 750 4,500 2008
thermal power USD/kW/month
Gas-fired
Nhon Trach 1 Dong Nai 450 2,500 2009 1,558 VND/kWh
thermal power
Gas-fired
Nhon Trach 2 Dong Nai 750 4,500 2011 1,603 VND/kWh
thermal power
Coal-fired
Vung Ang 1 Ha Tinh 1,200 7,200 2014 1,600 VND/kWh
thermal power
Hua Na Nghe An Hydropower 180 717 2013 896 VND/kWh
Dak Drink Quang Ngai Hydropower 125 541 2014 879 VND/kWh
Nam Cat Bac Kan Hydropower 3.2 14 2013 N/A
Total 4,208 24,472
Source: PVPower, KISVietnam estimates

(*) PPA is calculated under the assumption of Brent oil price at 65 USD/bbl, 5a coal price at VND 1.7mn/ton.

1.2 Gas-fired thermal power plants in the South

Ca Mau 1&2 gas-fired thermal power plants were put into operation in 2008 with total
capacity of 1,500 MW, consuming about 6mn m3/day natural gas from PM3 - CAA
and 46 Cai Nuoc gas fields. Backup fuel is diesel oil.

These two plants are indirectly participating in Vietnam competitive generation market
with long-term PPA contract until 2028. The PPA contract of Ca Mau 1 & 2 is special,
in which EVN rents the plants at rate based on capacity or 5.28 USD/kW/month.
Therefore, there is no risk of gas price input and output. Output of Ca Mau thermal
power is relatively stable at 7.8 bn kWh/year with profit of VNDbn 1,000/year. As Ca
Mau 1&2 will pay off its debts and the plants will be fully depreciated in 2018, The

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reduction of VND1,115bn interest and depreciation expenses (2018) will significantly

Natural gas input price of
PVPower's plants improve profit of 2019.

8.00 Nhon Trach 1 (450 MW) and Nhon Trach 2 (750 MW) power plants were put into
7.00 operation in 2009 and 2011, respectively. Both plants are well-equipped with
USD/MMBTU

technology from G7 countries. Nhon Trach 2 power plant has the heat conversion
6.00 ratio of 5.8%, higher than Nhon Trach 1 plant. Input fuel is natural gas from Nam Con
5.00 Son and Cuu Long basins. The price is floating based on MFO (average monthly
Singapore Fuel oil price, strongly linked to Brent oil price), 46% MFO + tariff for the
4.00
exact formula. Rising oil price has put a negative impact of these plants. Year to date,
3.00 gas price climbed 17%, increasing cost per kWh and reducing the competitiveness of
01/17
04/17
07/17
10/17
01/18
04/18
07/18
10/18

these plants in competitive generation market.

The cost of power generation of the two plants is currently VND 1,529/kWh for Nhon
Ca Mau 1&2 plants Trach 1 and VND 1,434/kWh for Nhon Trach 2. Natural gas accounts for about 80%
Nhon Trach 1&2 plants of total cost. With Brent oil price of USD65/bbl, the generation cost of the gas-fired
power plant is 18% higher than coal-fired power plant, making gas-fired ones less
competitive to bid in competitive generation market.

Output of POW's gas-fired thermal plants

in period of 2015 - 2020E
10,000
8,000
mn kWh

6,000
4,000
2,000
-
Ca Mau 1&2 Nhon Trach 1 Nhon Trach 2

Designed output 2015 2016 2017 2018E 2019E 2020E

Source: PVPower prospectus and KIS Vietnam estimates

Accounting for 64% of PVPower power generation capacity, gas-fired thermal power
plants in the South have maintained very high mobilization rates (80-120% of
capacity) in the recent years. In 2019-2020, we estimate that the high mobilization
rate will be maintained for the following reasons:

- Lack of generation capacity in the South: because local power plants only
meet 80% of demand, the area needs electricity transmission from the North
and the Central. Meanwhile, many power projects in the South are seriously
delayed. For example, Duyen Hai 1 plant is deferred in 36 months, Duyen Hai
3 – Expansion in 24 months and Song Hau 1 in 24 months.

- Advantage of transmission: The power loss of transmission of 500 kV

transmission lines from the North to the South is 7-9%. Power plants in the
south will be prioritized by EVN to mobilize more to reduce transmission costs.

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Utilization of POW's gas-fired power plant in period of 2015

- 2020E
150%

100%

50%

0%
Ca Mau 1&2 Nhon Trach 1 Nhon Trach 2

2015 2016 2017 2018E 2019E 2020E

Source: PVPower prospectus and KIS Vietnam estimates

In the future, PVPower will invest in two thermal power plants: Nhon Trach 3 and 4
with total capacity of 1,5000 MW. Nhon Trach 3&4 power plants will use liquefied
natural gas imported from Thi Vai storage terminal. PVPower will use VND 9,870bn
of its equity and VND 23,030bn from loans to develpop these two projects. These
plants are expected to break ground in 2019 and come into commercial operation in
early 2023. Nhon Trach 3&4 power plants will be the main driver of PVPower in
midterm, rasing generating capacity to 5,780 MW (+35.6%).

Nhon Trach 3&4 power plant

Location Dong Nai Province
Capacity 1,500 MW
Input Imported LNG, 1.2 mn tons/year
Designed output 9 bn kWh/year
Technology Combined cycle gas turbines
Total investment capital VND32,900bn
Capital structure Equity/Debt: 30%/70%
Progress Conducting Pre-Fesibility study
Expected commercial operating date 2023
Soure: PVPower

1.3 Vung Ang 1 coal-fired thermal power plant

Having handed over to PVPower from PVN by the end of 2015, Vung Ang coal-fired
thermal plant (1,200 MW) uses direct injection technology of G7 countries (less
technical problems than Chinese technology) and has a designed output of 7.2bn
kWh/year. Input coal is domestically provided by Vinacomin at about 3mn tons/year.

Having operated since Dec 2014, Turbine 1 was broken because of some rare
incidents and stopped operation until Sept 2016. In 2016, the plant generated only
2.9bn kWh, equivalent to 40% of its designed capacity.

Most of 2017, despite of having been replaced, PVPower did not put the Turbine into
operation. After the construction of the transmission line and the upgrade of the
protection system, in September 2017, Turbine 1 was officially put into operation
again. Electricity output of Vung Ang I in 2017 reached 4.4bn kWh, 61% of the
designed capacity. With the operation of both units, electricity output of Vung Ang 1

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plant is estimated at 5.5bn kWh (+25% YoY) in 2018 and reaches 6.5bn kWh (+18%
Cost per kWh of coal-fired YoY) in 2019, which is the main growth driver of PVPower in the coming time.
thermal plants

1,500 Vung Ang 1 power plant's output in period 2016 - 2020E

1,200 8,000 100%

6,480
5,984
VND/kWh

5,487
900 6,000 90% 83% 80%
4,386 76%

mn kWh
60%
600 4,000 2,900 61%
40% 40%
300 2,000 20%
- - 0%
2016 2017 2018E 2019E 2020E

Output Utilization rate

Fuel cost Total cost Source: KIS Vietnam estimates

The production cost of Vung Ang 1 thermal plant is estimated at VND1,258/kWh,

similar to new coal-fired plants and lower than old ones. As Vung Ang 1 plant is very
new, financial expenses is a huge burden. Accordingly, interest expenses and loss
from currency translation are estimated at VND972bn in 2018. For PVPower, foreign
currency denominated debts account for 80% of total debts. The total outstanding
debts of Vung Ang thermal power plant at the end of 2017 accounted for 47% of total
loans of PVPower.

1.4 Hua Na & Dak Drink hyropower plants

Dak Drink hydropower plant has the capacity of 125 MW, the largest plant of Tra Khuc
hydropower system. Meanwhile, Hua Na hydropower plant (capacity of 180 MW) is
located in the upstream of Chu river - Nghe An. Both plants have reservoirs, which
are favorable for storing water in rain season and using for power generation in dry
season. Annual output of two plants is about 1.2bn kWh.

Output of the hydropower plants, 2015 - 2020E

1,000
800
mn kWh

600
400
200
-
Hua Na Dak Drink

Designed output 2015 2016 2017 2018E 2019E 2020E

Source: PVPower, KIS Vietnam estimates

Hua Na and Dakrink hydropower plants are expected to divest in the period 2019 –
2020. PVPower will only focus on developing thermal power projects.

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2. Business result in 9M2018

VND bn. 9M2017 9M2018
Output 15,489 15,955 3.0%
Ca Mau 1&2 5,643 5,188 -8.1%
Nhon Trach 1 2,451 2,275 -7.2%
Nhon Trach 2 2,953 3,520 19.2%
Vung Ang 1 3,422 3,960 15.7%
HuaNa 507 623 22.8%
Dak Drink 513 390 -24.1%
Revenue 22,413 24,789 10.6%
COGS 18,664 21,334 14.3%
Gross profit 3,749 3,456 -7.8%
SG&A 480 539 12.3%
EBITDA 6,493 5,881 -9.4%
Depreciation 3,224 2,965 -8.0%
Operating profit 3,269 2,916 -10.8%
Net interest expenses 1,020 983 -3.6%
Other incomes -76 -123 n.a
Net income 2,009 1,671 -16.8%
Minorities interest 219 259 18.3%
Net attributable profit 1,790 1,412 -21.1%
Source: PVPower’s financial statements

PVPower's total output in 9M2018 was 15,955mn kWh (+3.0% YoY), missing the
expectation despite of less rainfall than the same period.

Gas-fired plant

The output of Ca Mau 1&2 plants in 9 months decreased by -8.1% YoY due to periodic
maintenance in 1Q2018.

Nhon Trach 1 and Nhon Trach 2 power plants use the same Cuu Long and Nam Con
Son gas pipeline systems. Due to air compressor incident in Lan Tay - Nam Con Son
from April to June 2018, natural gas supply capacity for power generation were
reduced. Natural gas output was equal to the same period of last year despite higher
demand. 1H2018, output of Nhon Trach 1 plant only reached 1.6bn kWh (+2.5% YoY)
and Nhon Trach 2 thermal power plant reached 2.6bn kWh (+11.9% YoY).

3Q2018, the lack of natural gas limits output of gas-fired thermal power plant even
though less rainfall. The output of Nhon Trach 1 dropped -26.4% while Nhon Trach 2
achieved 926mn kWh (+45.8% YoY) due to overhaul of Nhon Trach 2 in Sep 2017.
9M2018, the output of Nhon Trach 1 reached 2.3bn kWh (-7.2% YoY) and Nhon Trach
2 reached 3.5bn kWh (+19.2% YoY).

Coal-fired plant

In 9M2018, Vung Ang 1 coal-fired power plant achieved 3.96bn kWh (+15.7%) due to
the operation of both turbines (in the same period, Turbine 1 did not operate). In
3Q2018, output fell 17.6% YoY due to coal shortage which happened in most of
domestic thermal power plants.
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Hydropower

Dak Drink hydropower plant output dropped to 390mn kWh (-24.1% YoY) due to a
major maintenance in July – Sept 2018. Hua Na hydropower plant output reached
623mn kWh (+22.8% YoY) because 3Q2018 saw more rain volume than last year,
resulting in more water inflow (+167% YoY) through the plant.

Competitive market price recovered well (+72% YoY), positively impacting the
profitability of these plants. However, the gross profit of PVPower in 9M2018
decreased 7.8% YoY to VND3,456bn due to the following two reasons:

- Generation output recovered slowly (+3.0% YoY) due to shortage of coal and
natural gas.
- EVN had to compensate VND1trn for Vung Ang 1 plant because of not
mobilizing all Qc in 2017, which did not happen again in 9M2018.

Moreover, F/X losses were VND447bn (+172% YoY) and interest expenses were
VND988bn (-3.4% YoY), reducing net income of 9M2018 to VND1,412bn (-21.1%
YoY).
After 01 Jul 2018 when PVPower was officially converted into a joint-stock company,
PVN has required PVPower to pay interim cash dividend for the earnings of 6 months
before the IPO (VND 1,656bn), which puts a high cashflow pressure in the short term.

3. 2019 outlook - Golden year for thermal power plants

3.1. Shortage of electricity supply makes price peak in 2019
According to the Decision No 219/QD-TTg approving business plan of the period 2016
- 2020 of EVN, electricity consumption is expected to increase at 10%/year from 2018
to 2020. To meet demand, electricity generation capacity must increase by 4,000-
5,000 MW/year. However, the construction progress of many power projects is very
slow. We estimate that additional capacity in the next 2 years accounts for only 40-
50% of demand increase.

Power generation capacity, 2016 - 2020

5,000 4,520 4,571
3,725 3,738
4,000
2,716 2,500
3,000 2,305 2,222 2,394
2,135
MW

2,000
1,000
-
2016 2017 2018F 2019F 2020F

Planned capacity (Master plan VII adjusted) Actual additional capacity

Source: According to Power Plan VII (revised) and KISVietnam estimates

Vietnam average reserve margin (*) in the past 3 years was only 10%, lower than 25-
40% of the region and recommendation level 25%-30% of International Energy
Agency (IEA). Demand has been growing quickly while electricity capacity has slightly
increased only 5%/year, making reserve margin decrease to a very thin level. We
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(*) reserve margin= estimate reserve margin is only 3% in 2019 and drops to 1% in 2020 similar to the
(Usable capacity – peak demand) /Usable level of the El Nino in 2015, resulting in high competitive market price and utilization
capacity
of thermal power plants.
Reverse margin represents the
redundancy between the power plant
capacity and power demand in the system.
Power reserve margin of Vietnam for the period of 2015 - 2020E
50,000 16%
SMP price 14%
14%
12%
1,000 901 40,000
842 12%
783
800 725 30,000 10%
627 8%
VND/kWh

MW
600 8%
452
20,000 6%
400
3% 4%
200 10,000 2%
1% 2%
0
- 0%
2015 2016 2017 2018 2019E 2020E

Reserve margin Peak demand Usable capacity

Source: MoIT and KIS Vietnam estimates

The market price of electricity in 2018 is quite favorable as it recovers +72% YoY
(2017 saw the all-time low competitive price) due to the following reasons:

- Neutral weather, with less rainfall over the same period of 2017, resulted in
lower output of hydropower plants, which usually make very low bids thanks
to their low cost production.
- Many power supply incidents in 1H2018 such as the gas shortage of Nam
Con Son, the shutdown of one turbine of Duyen Hai thermal power plant, the
shortage of coal in Vinh Tan power complex, etc resulted in the shortage of
power in the South. EVN had to mobilize high-cost power source to meet
demand.

We estimate that electricity prices will increase at least 15% in 2019 to a 5-year high
due to the following reasons:

- Less rainfall than 2018. We estimate the output of hydropower to decrease

10bn kWh, which will increase the average generation cost of the bidders of
Vietnam competitive generation market.
- Total generation expenses of all domestic power plants increase at least
VND20,735bn, of which VND6,587bn is from FX losses under PPA contract,
VND734bn amortization of the past accumulated FX loss, VND12,410bn from
increasing input gas price due to changing pricing mechanism and
VND1,004bn from water resources fee.

3.2. El Nino is coming

At the end of 3Q2018, the rainy season in the South, North and Central Highland
ended. The water level of hydropower reservoirs in these regions are equivalent to
80% of the designed capacity of the plants (compared to 100% of 2017). The central
Coast is in the beginning of its own rainy season. While the current water level of the

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local reservoirs is 20-40% of the designed capacity of the corresponding plants, there
is a high probability that the water level will be unable to reach 100% like last year
because the rainy season is expected to end early and rainfall will drop 20-50%
compared to the average of the past many years.

According to the Vietnam Meteorological and Hydrological Administration, the effect

of El Nino will start from November 2018 with the probability of 60-70% and extend
until 2019

Rainfall compared to the

4Q2018 1Q2019
average for many years
Approximate to the
The North Down 10 - 25%
average
The Central Down 20 – 50% Down 20 – 50%
Central Highlands and The
Down 20 – 50% Almost no rain
South
Source: Vietnam Meteorological and Hydrological Administration

Thus, we estimate that 2019 output of hydropower plants will decline by about 10bn
kWh, which means more mobilization from thermal power plants by at least 15% YoY.

3.3. Improving gas supply

Natural gas supply in South East Vietnam

10,000

8,000
billion m3

6,000

4,000

2,000

Cuu Long Nam Con Son LNG

Source: KIS Vietnam estimates

Input gas shortage is the biggest risk of PVPower. Domestic natural gas capacity is
showing signs of decline, leading to an unchanged gas supply in 9M2018 although
the demand for power generation increased 25% YoY.

By the end of 2018, Wild Orchid mine will come into operation with a capacity of
500mn m3/year, which increases the supply of natural gas in South East Vietnam by
6% in 2019. Therefore, we estimate that the gas input for Nhon Trach 1 and Nhon
Trach 2 also increase by 6% YoY despite the fact that El Nino is very favorable for
thermal power plants.

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From 2020 onwards, Sao Vang - Dai Nguyet and White Lion - phase 2 gas mines will
increase their gas output by 10%/year to compensate the shortfall of the capacity of
the existing gas fields. However, after 2021, output will be significantly reduced and
new gas mines or imported LNG are needed for domestic demand.

Gas field project Reserves Capacity Exploitation year

Wild Orchid 3bn m3 0.5 bn m3/year 4Q2018
Sao Vang – Dai Nguyet 16bn m3 1.6 bn m3/year 3Q2020
White Lion – 2nd phase 24bn m3 1 bn m3/year 4Q2021
Source: KISVN estimates

3.4 Increasing mobilization of coal thermal power

In 11 months of 2018, domestic coal supply reached 26.9 mn tons (+26% YoY) but
still not enough coal for coal-fired thermal power plants. The main reason was that
group of gas-fired thermal power plants operated lower than EVN's projections,
leading to a sharp increase in mobilization of coal-fired thermal power plants. This
resulted in coal shortage in 3Q2018 and most of coal-fired power plants did not store
enough coal for generation (except Pha Lai Thermal Power Plant). The output of Vung
Ang 1 power plant was down 18% YoY.

Since the end of Oct 2018, Vinacomin Group has prioritized the supply of coal to
Southern power plants (including Vung Ang 1 thermal power plant of PVPower). In
2019, Vinacomin Group aims to supply at least 40mn tonnes of coal (up 10% YoY) to
meet coal demand for domestic thermal powers.

In conclusion, we strongly believe that 2019 will be a golden year for thermal power
plants as many factors favor:

- In the context of limited additional power capacity, the increasing demand for
electricity continues to increase the mobilization of the existing power plants.

- Competitive generation market price is going to reach 5-year high.

- Hydropower output decreases due to El Nino.

With the proportion of thermal power accounting for 93% of the generation capacity,
PVPower will be a big beneficiary in 2019. We estimate that the power output of Nhon
Trach 1 and 2 plants will grow by 6% and Vung Ang 1 will grow 18%. Total output of
PVPower is estimated at 24 bn kWh (+12% YoY).

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4. 2018 – 2019 forecasts

VND bn. 2016 2017 2018F 2019F
Output (mn kWh) 20,829 20,457 21,711 23,692
Ca Mau 1&2 8,128 7,525 7,073 8,014
Nhon Trach 1 3,563 2,731 3,012 3,192
Nhon Trach 2 5,223 4,337 4,707 5,011
Vung Ang 1 2,900 4,386 5,487 6,480
HuaNa 577 734 795 514
Dak Drink 438 744 617 482
Revenue 28,212 29,710 33,776 36,363
COGS 24,429 24,787 29,364 29,905
Gross profit 3,783 4,923 4,412 6,458
Ca Mau 1&2 945 900 1,002 2,290
Nhon Trach 1 695 26 158 320
Nhon Trach 2 1,351 1,393 977 1,269
Vung Ang 1 (837) 1,909 1,418 2,145
HuaNa 253 374 316 175
Dak Drink 211 262 516 234
SG&A 756 815 839 864
EBITDA 7,343 8,423 7,846 8,803
Depreciation 4,316 4,316 4,274 3,209
Operating profit 3,027 4,107 3,572 5,594
Net interest expenses 1,070 1,103 793 578
Other incomes -304 -270 -255 -507
Net income 1,475 2,602 2,322 4,058
Minorities interest 443 368 368 368
Net attributable profit 1,032 2,233 1,954 3,690
Source: POW’s financial statements and KIS Vietnam forecasts

In 2018, due to coal and natural gas shortage, total domestic electricity output
decreases despite less rainfall compared to 2017. PVPower output is expected to
increase only 6%, reaching 21.7bn kWh.
Gross profit is estimated at VND4,412bn (-10.4% YoY) because there is no abnormal
profit of VND1,000bn from Vung Ang Plant like in 2017. If excluding the abnormal
profit, gross profit grew 12.5% YoY. The growth came from most of power plants due
to the higher competitive generation market price and the recovery of output.
FX loss is estimated at VND535bn (+98% YoY) due to VND devaluation of 3% against
USD. Financial expenses are estimated at VND1,679bn (-7.4% YoY). Finally, net
profit for 2018 is estimated at VND2,322bn (-10.7% YoY).
In 2019, the following factors will lead the profit growth of PVPower:
- Ca Mau 1&2 thermal power plant are fully depreciated, increasing profit by VND
1,065bn.
- The output of Nhon Trach 1&2 increase 6% YoY and Vung Ang 1 increases 18%
YoY.
PVPower revenue for 2019 is estimated at VND 36,363bn (+7.7% YoY). Gross profit
is estimated at VND6,458bn (+46.4% YoY).

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INITIAL REPORT – POW KIS VIETNAM SECURITIES CORP.

Free cash flow of PVPower is very high, repaying VND6,000bn debt annually. FX loss
and interest expenses will diminish over time. Assuming exchange rate to drop 2%
p.a, F/X loss in 2019 is estimated at VND 364bn (-68% YoY), financial expenses was
VND1,269bn (-24.4% YoY).
We estimate net profit in 2019 to skyrocket 74.9% YoY to VND4,058bn.

5. Valuation
Based on FCFF method, we estimate the fair price of POW at VND18,600/share at
the end of 2019. Total expected 1-Y return is 20.5%, compared to the current market
price of VND 15,600/share. Our recommendation is OVERWEIGHT.

VND bn. 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
EBIT(1-T) 5,034 4,480 4,622 4,768 5,972 6,360 6,753 6,922 7,094 7,858
+ Depreciation 3,209 3,209 3,209 3,209 4,868 4,602 4,335 4,335 4,335 3,643
- Working capital 216 -102 77 80 1,951 149 155 160 165 171
- Capex 388 10,789 13,770 6,361 590 607 625 644 663 683
Free cash flow 7,640 -2,998 -6,016 1,536 8,299 10,206 10,308 10,453 10,600 10,646
WACC 12.2% 10.2% 10.4% 10.7% 11.1% 11.6% 12.1% 12.7% 13.5% 14.4%
COE 15%
COD 4.50%
PV of Free cash flow 6,812 -2,399 -4,368 1,013 4,866 5,295 4,714 4,192 3,702 3,233
Total PV of FCF 27,061
Growth 3%
Terminal value 91,379
PV of terminal value 27,753
Total PV of FCF &TV 54,814
Net debt 11,150
Equity value 43,665
No of shares 2,342
Price per share 18,600

Assumption table Unit

PPA Nhon Trach 1 VND/kWh 1,558
PPA Nhon Trach 2 VND/kWh 1,603
PPA Vung Ang 1 VND/kWh 1,600
PPA Hua Na VND/kWh 896
PPA Dak Drink VND/kWh 879
PPA Nhon Trach 3&4 VND/kWh 2,522
Nhon Trach 1 ‘s average output mil kWh/year 2,962
Nhon Trach 2 ‘s average output mil kWh/year 4,674
Vung Ang 1 ‘s average output mil kWh/year 5,984
Hua Na ‘s average output mil kWh/year 624
Dark Drink ‘s average output mil kWh/year 613
Nhon Trach 3&4 ‘s average output mil kWh/year 9,348
Nhon Trach 3&4 ‘s commerical operating date 2023
Capex for Nhon Trach 3&4 project bn USD 1.4
Qm/Qc for hydropower power plant 30%/70%
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INITIAL REPORT – POW KIS VIETNAM SECURITIES CORP.

Qm/Qc for coal-fired thermal power plant 10%/90%

Qm/Qc for gas-fired thermal power plant 15%/85%
Brent oil (2019) USD/bbl 65
Average SMP price (2019) VND/kWh 901
USD/VND depreciation rate 2%/year
EUR/VND depreciation rate 2%/year

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INITIAL REPORT – POW KIS VIETNAM SECURITIES CORP.

FINANCIALS MODEL Mkt cap: VND 36,534bn. CASH FLOWS AND

2016 2017 2018E 2019E
Unit: VND bn. 2016 2017 2018E 2019E BS ITEMS (VND bn.)
Net Revenue 28,247 29,762 33,776 36,363 Increase in WC 2,682 917 339 216

Sales growth (%) 21% 5% 14% 8% Capex 372 1,672 377 388

Power generating 27,244 28,913 32,927 35,514 Other cash flow items -622 -355 -488 -422

Services 155 43 43 43 Free cash flow 3,359 4,683 5,769 5,825

Trading goods 666 798 798 798 Share issues 0 -1 0 0

Others 181 9 9 9 Dividends paid 1,683 429 703 468

COGS 24,429 24,787 29,364 29,905 Increase in net debt -1,676 -4,253 -5,066 -5,356

SG&A 756 815 839 864 Net debt, end of year 25,826 21,572 16,506 11,150
EBITDA 7,343 8,423 7,846 8,803 Enterprise value 62,993 58,820 54,122 49,134
EBITDA margin (%) 26% 28% 23% 24% Total equity 26,797 27,724 29,305 32,820
Depreciation 4,316 4,316 4,274 3,209 Minority interests 2,741 2,822 3,190 3,559
Operating profit 3,027 4,107 3,572 5,594 Shareholder’s equity 24,055 24,902 26,115 29,262
Operating margin (%) 11% 14% 11% 15% BVPS (VND) 10,272 10,633 11,151 12,495
Net interest expense 1,070 1,103 793 578 Net debt / equity (%) 96% 78% 56% 34%
Interest cover (x) 2.8 3.7 4.5 9.7 Net debt / EBITDA (x) 3.5 2.6 2.1 1.3
Other profit/loss -304 -270 -255 -507 Total assets 69,732 60,583 56,674 54,416
F/X losses -296 -329 -535 -364 Net debt = debts – cash & equivalent
Tax 178 132 201 451 KEY RETURN AND
2016 2017 2018E 2019E
Effective tax rate (%) 11% 5% 8% 10% VALUATION RATIOS
Net profit 1,475 2,602 2,322 4,058 ROE (%)
4% 9% 8% 13%
(excl. minority interest)
Net margin (%) 5% 9% 7% 11% ROA (%) 2% 4% 4% 7%
Minorities 443 368 368 368 ROIC (%) 4% 7% 6% 10%
Net attributable profit 1,032 2,233 1,958 3,690 WACC (%) 9% 10% 11% 12%
Number of shares (m) 2,342 2,342 2,342 2,342 PER (x) 35.4 16.4 19.1 10.1
EPS (VND, bonus- PBR (x) 1.5 1.5 1.4 1.2
441 954 818 1,544
adjusted)
PSR (x) 1.2 1.2 1.0 0.9
EPS growth (%) -50% 116% -14% 89%
EV/EBITDA (x) 8.9 7.2 7.2 5.8
DPS (VND) 700 200 300 200
EV/Sales (x) 2.3 2.1 1.7 1.4
Payout ratio (%) 163% 19% 37% 13%
Dividend yield (%)
EBITDA = Net revenue – (COGs -Depr’n&Amort’n)– SG&A expenses 4.5% 1.3% 1.9% 1.3%
(bonus-adjusted)
EBIT = EBITDA – Depr’n&Amort’n
Net interest expenses = interest expenses – interest income
Other profit/loss consists of other financial income/expenses, profit share
from JVs/associates and other income/loss
Payout ratio = Dividend paid / Net attributable profit

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Contacts:
HCM City Head Office Hanoi Branch
Level 3, Maritime Bank Tower Level 6, CTM Tower
180-192 Nguyen Cong Tru St., District 1, HCM City 299 Cau Giay, Cau Giay District, Hanoi
Tel: (+84 28) 3914 8585 Tel: (+84 4) 3974 4448
Fax: (+84 28) 3821 6898 Fax: (+84 4) 3974 4501

Institutional Sales

Ms. Uyen Lam

Head of Institutional Sales
(+84 28) 3914 8585 (x1444)
uyen.lh@kisvn.vn
Our Recommendation System
OVERWEIGHT: where we believe prospective 12 months VND total return (including dividends) will be 15% or more.
NEUTRAL: where we believe it will be -5% to 15%.
UNDERWEIGHT: where we believe it will be -5% or less.

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