PV Power (HOSE: POW) | Initiation Report, BUY - 1Y Upside +43.4%

Company Overview

The PetroVietnam Power Corporation (POW) was established in 2007 under Decision No. 1468/QD-DKVN by the National Vietnam Oil and Gas Group (PetroVietnam), primarily operates in the fields of electricity production, transmission, and trading.

Currently, POW manages and operates seven power plants with a total designed capacity of 4,205 megawatts, encompassing gas-fired, coal-fired, hydropower, and solar power plants. POW supplies approximately 21 bn kWh to the National Energy Grid annually, accounting for 5 - 10% of the country's commercial electricity output, ranking second after the Vietnam Electricity (EVN) Group.

POW was privatized in 2018 and was listed on UPCoM at the same time, followed by its listing on the Ho Chi Minh Stock Exchange (HoSE) in 2021

Financial Performance

POW financial performance experienced fluctuations over the past few years. POW’s electricity sales declined in 2020 and 2021 (-16.0% and -17.4% respectively) due to natural gas shortages during Covid-19 but rebounded significantly from 2022. In 2023, POW's revenue reached VND28,329 bn (+0.4% YoY), while net profit after tax (NPAT) fell sharply by 49.7% to VND1,283 bn due to (i) Vung Ang 1, Ca Mau 2, and Nhon Trach 2 underwent maintenance and overhauls; (ii) the El Niño phenomenon significantly reduced electricity output at hydropower plants Hua Na and Dakdrinh; (iii) rising fuel costs, particularly for natural gas, substantially increased the cost of goods sold.

As of 9M2024, POW recorded revenue of VND21,686 bn (+0.7% YoY), with Ca Mau 1 & 2 revenue achieved VND 8,335 bn (+6% YoY), accounted 38.4% of total revenue, and Vung Ang 1 revenue of VND 7,822 bn (+29% YoY), accounting for 36.1% of total revenue.  Revenue of the thermal power plants Nhon Trach 1 and 2 arrived at VND 535 bn and VND 4,151 bn, declined -68% and -21% YoY, respectively, due to limited contracted power allocation and production disruptions in Q1/2024.

At the end of 3Q/2024, POW’s total assets rose 14.7% to VND 80,692 bn, with construction-in-progress costs, for NT3 & 4 plants, increased to VND 18,328 bn, accounting for 23% of total assets. The total design capacity of the NT3and NT4 is 1,624 Megawatts (MW), 38.2 % additional to the current capacity, with 95% of EPC progress has been reached by December 2024 and NT3 is expected to be officially operated in mid-2025.

Investment Thesis

We initiate a BUY recommendation for POW for its (1) strong earnings growth from increased capacity over the next 3-5 years and (2) attractive valuation.

Vietnam is seeing a steady increasing electricity demand from both residential and industrial usages to fuel high GDP growth, while power supply capacity is facing constrains. The government issued the Power Development Plan 8 to provide a framework to quickly develop national energy production and transmission network in Vietnam to adapt the rise of energy demand toward 2030. This would benefit POW as the leading gas power producer in Vietnam.

Strong earnings cycle ahead: We project POW to achieve strong earnings growth at CAGR 37.5%/year from 2025-2027 based on:

o       Vung Ang 1 as a key growth driver for POW in 2025.

o       Ca Mau 1 & 2 are expected to achieve impressive dispatch capacity from 2025 onward.

o       NT3 and NT4 start operating in 2025, with maximum output to reach 9 billion kWh.

o       Nhon Trach 1 and Nhon Trach 2 are expected to perform better thanks to the added gas supply from new fields in the Southeast region in late 2025 and 2026.

Attractive Valuation: Due to modest profit in 2024, POW’s share price has declined from its peak of VND 15,100 in July 2024 to VND 11,750 as of 17 January 2025. At the current price, POW is trading at 0.75x book value, which is quite attractive for a leading energy company. We forecast POW to achieve 31.4% earnings growth in 2025, while net profit after tax in 2027 will be more than double that of 2024, with a 2025–2027 CAGR of 37.5%/year. This impressive growth makes the stock appear quite undervalued, both in the short term (1 year) and over a longer-term horizon (over 3 years).