FY23 Sector Strategy: The Race For Growth

Equities | Vietnam
Utilities - Electricity
Sector Focus 20 December 2022
FY23 sector strategy: The race for growth

▪ We remain positive on Vietnam’s electricity sector given rising demand and the
Truong Thu My arrival of ‘PDP 8’ (the govt’s power dev’t plan for 2021-30), which we believe will
Director, Head of Energy & Utilities be a catalyst for long-term growth and share prices of listed electricity utilities.
my.tt@hsc.com.vn
+84 24 3933 4693 Ext. 4806
▪ Accounting for the possible return of El Niño in late 2023 or early 2024 and higher
interest rates over the period, we revise down our FY23-24 sector aggregate core
earnings forecasts by 2% and 13%, respectively; we also cut TPs by 20% on avg.
▪ We have Buy ratings on three out of five stocks in our electricity sector coverage,
namely PC1, POW, and PGV, an Add rating on GEG, and a Hold rating on REE.
Our undisputed top pick is Buy-rated PC1 (upside 48%) as it is the largest and
most direct beneficiary of PDP 8.
Electricity: Demand increases to outpace generation output

Vietnam faces electricity shortages for the 2023-30 period, as demand is currently
projected to grow at an average rate of 8.0-9.0% per year (to support annual GDP
growth of 6.0%), while average domestic generation output is projected to grow at
around 8% annually based on new generation capacity projected in PDP 8. That said,
we note that higher utilization rates can likely be coaxed out of existing generation
capacity, and this, together with increasing imports, should cover the shortage.
PDP 8: Paving the path for growth

We believe the official introduction of PDP 8 and a series of new energy policies in
the coming months will set the frame for new capacity investment in the coming years.
The PDP 8 projects that installed capacity will grow to around 137 GW in 2030 (from
74 GW in 2021), while the country’s total capex for new power generation capacity
and transmission systems during 2021-30 will come to around VND2,910tn, roughly
67% higher than that during 2011-20. This will facilitate all power generators in
expanding their generation capacity and pushing demand for electricity constructors.
Increasing interest rates to hit bottom lines

A high gearing ratio is typical for companies in our utilities sector as electricity
generators normally finance additions to generation capacity with long-term debt at a
debt/equity ratio of 70:30. The highly regulated nature of the industry makes their debt
less risky. However, their bottom lines are vulnerable to any interest rate hikes.
Overall, after factoring our new house interest rate assumptions and the possible
return of the El Niño weather effect in late 2023 or early 2024, we revise down our
FY23-24 aggregate net earnings forecasts for our five covered electricity companies
by 2% and 13%, respectively. Our new forecasts suggest a sector-aggregate 3-yr net
earnings CAGR of 12% – even though they are based on company estimates that are
below consensus by 18% on average.
Most negatives priced in, leading to attractive valuation

Following share price falls averaging 26% over the past 3M and underperforming the
VN Index by 14%, our coverage now trades at an average 1-yr rolling forward P/E of
11.9x, 0.3 SD below the average of 13.7x (calculated over the last three years); this
looks to be attractive entry point for long-term investment, in our view. We retain Buy
ratings on PC1 (our top pick, with upside of 48%), POW (upside 25%), and PGV
(upside 30%), but downgrade GEG to Add (from Buy) and REE to Hold (from Add).
Price Rating TP (VND) Up/(down) P/E (x) EV/EBITDA (x) Div. yield (%)
Ticker (VND) New Old New Chg (%) side (%) 2021F 2022F 2021F 2022F 2021F 2022F
Gialai Electricity GEG 13,300 Add Buy 15,000 (45.7) 12.8 14.4 11.2 10.2 9.74 0 3.01
Power Construction PC1 21,200 Buy - 31,300 (9.58) 47.6 8.25 15.6 25.7 18.8 - 0
Power Generation Joint Stock Corp.PGV
3 17,900 Buy - 22,300 (45.3) 24.6 6.34 8.95 7.63 5.53 2.79 7.26
PetroVietnam Power POW 11,450 Buy - 14,900 (22.4) 30.1 15.1 18.3 5.30 5.33 2.62 2.62
Refrigeration Electrical Eng. REE 79,000 Hold Add 82,300 (2.83) 4.18 15.2 11.7 13.9 9.17 0.30 1.27
Share prices as of 16 December 2022.
Source: Companies, FactSet, HSC Research
www.hsc.com.vn Powered by FactSet RMS Partners Page 1
Please refer to the disclosures of potential conflict of interest and the disclaimer at the end of this report
Document downloaded by Dung Luong (Mirae Asset)

Sector Focus - Utilities - Electricity 20 December 2022
Contents
Demand growth to outpace supply, leading to opportunities 3
Snapshot of Vietnam’s electricity sector 3
FY23-30 view: Strong demand to outpace domestic output 6
A number of changes expected to happen in FY23 9
Fundamental impacts on our electricity coverage 12
Four key factors to impact 12
Overall: Cutting earnings forecasts for FY22-24 13
Valuation & recommendation 15
Summary and methodology 15
Valuation context 16
Included research reports

Power Construction (PC1) 17
Power Generation Joint Stock Corp. 3 (PGV) 23
PetroVietnam Power (POW) 29
Gialai Electricity (GEG) 35
Refrigeration Electrical Eng. (REE) 41
www.hsc.com.vn Page 2

Demand growth to outpace supply, leading to opportunities
Going forward, we concur with government projections that electricity consumption

will continue to increase much faster than GDP given the high electricity intensity of
the economy. Given this, generation capacity expansion is crucial to maintaining
economic growth in the coming years. PDP 8 coming out in early 2023 will set the
frame for new capacity investment while the new energy pricing schemes will
facilitate progress. On this theme, we like PC1 the most as it is the largest and most
direct beneficiary; moreover, its share price has corrected by 38% over the last 3M
(when the PDP 8 missed its expected timeline in Aug-22) and is now trading on 1-
year rolling forward P/E of 7.7x, second lowest in the electricity universe after PGV.
Snapshot of Vietnam’s electricity sector

Demand recovers post-pandemic
In Oct-22, Vietnam’s gross consumption of electricity (including station use and system
loss) came to 226 billion kWh, up 6.2% y/y. Electricity demand has been recovering
strongly as business activity rebounds post-pandemic (Figure 1).
Figure 1: Electricity consumption since Jan-21, Vietnam
Electricity consumption recovers strongly in 2022 after falling for 4 months straight in late 2021.
Electricity consumption Growth
billion kWh
30 25%
20%
25
15%
20 10%
5%
15
0%
10 -5%
-10%
5
-15%
0 -20%
Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22
Source: EVN
Figure 2: Domestic generation output by fuel Figure 3: Domestic generation output structure
Hydro output was boosted by La Niña effects... …while thermal declined due to coal shortage and high prices
Hydro Coal Gas Renewable Hydro Coal Gas Renewable
billion kWh
80 100% 10%
13% 13% 11% 16% 14% 12%
70 12% 8% 9% 9%
80% 12% 12% 11%
60
50 60% 41% 41% 34%
39%
40 50% 54% 45%
30 40%
20 40% 45%
20% 38% 36%
10 24% 24% 26%
0 0%
1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22
Source: EVN Source: EVN, HSC Research
Among all types of power, hydro enjoyed growth as the La Niña effects spurred
hydroelectricity output, resulting in EVN (Vietnam Electricity Corporation – the
monopoly in electricity transmission and distribution of Vietnam) switching to
hydroelectricity to take advantage of cheap pricing. Meanwhile, coal-fired output was
hit by coal shortages and gas-fired output was hurt by high crude oil prices following

the Russian invasion of Ukraine. Renewables performed decently thanks to the new
wind capacity coming into operation in Oct-21 (Figures 2-3).
Fuel input prices increased boosting EVN’s input cost
YTD the average price of natural gas and coal for power generation increased
approximately 23% y/y and 6% y/y, respectively (Figure 4). According to our
calculations, those input prices were translated into an 8% increase in the average
thermal power generation cost. However, due to the coal-fired electricity shortage and
increasing demand, the competitive generation market (CGM) price was up 45% y/y
(Figure 5).
Figure 4: Natural gas input prices for electricity generation (USD/MMBTU)
YTD the average price of natural gas increased approximately 23% y/y
12
10
0
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
Source: PGV
Figure 5: EVN’s electricity input price (VND/kWh)

In FY22, CGM prices are strong due to the shortage of coal and increasing demand
CGM price PPA price
2,000
1,500
1,000
500
0
Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22
Source: EVN
Figure 6: EVN’s total expenses vs. average selling price (VND/kWh)

Increased input prices on unchanged selling prices caused loss to EVN in 2022
Input cost System loss
Transmission cost Distribution cost
SG&A expenses Average selling price
2,000
1,500
1,000
500
0
FY19 FY20 FY21 FY22F
Source: HSC Research

Following this, EVN’s average input cost has increased around 14% y/y. Taking into
account the system loss, transmission cost, distribution cost, and SG&A cost, we
estimate that EVN’s total expenses for a commercial kWh comes to around
VND2,018/kWh, well above its average selling price of VND1,876/kWh, causing the
electricity monopolist a loss of around VND31tn in 2022 (Figure 6).
Domestic electricity retail prices had not increased since 2019 despite increases in
fuel input prices as the government subsidized households and enterprises during the
pandemic. That said, an increase in electricity retailing price in 2023 is unavoidable.
New capital investment is delayed
While demand recovered strongly, generation capacity growth was almost static.
Throughout the year, only 4 GW of new capacity (mainly coal) come into operation.
By end-2022, total generation capacity of the country will come to 78 GW, just 5.3%
growth from that of 74 GW by end-2021 (Figure 7).
The key reason is the delay of PDP 8, which is set to create a new frame for power
development and investment in Vietnam. Power investors have delayed investments
over concerns that pre-PDP 8 energy policies would be derailed as soon as the revised
PDP 8 is introduced.
Figure 7: Electricity generation capacity by type during 2017-2022, Vietnam
Generation capacity did not increase much in 2022 due to the delay of PDP 8
Hydro Coal
Gas Solar
GW
Wind Total capacity growth (%)
100 30%
80
20%
60
40
10%
20
0 0%
FY17 FY18 FY19 FY20 FY21 FY22
Source: EVN, HSC Research
Figure 8: Generation capacity vs. load demand by region as of FY22-end, Vietnam

MW North Central South
Generation capacity 27,017 9,569 41,913
Hydro 12,250 5,449 3,806
Coal-burned 13,870 30 11,930
Gas fired and oil fired - - 8,858
RE 673 3,250 16,971
Other 224 840 348
Load demand 21,055 2,980 20,730
Supply-demand balance 1.2 3.2 2.0
Raw reserve ratio (excluding RE) 19.4% 112.0% 20.3%
Uneven capacity distribution burdens the transmission system

With a total generation capacity of 78 GW as of end-FY22 vs. total load demand of
about 46GW, leaving supply-demand balance at 1.7x, Vietnam power system appears
to be in good shape with generation capacity larger than load demand. However, a
closer look (Figure 8) reveals that:
• The North is short of capacity – demand balance comes to 1.2x, leaving the region
with a thin reserve ratio of 19.4%, well below the healthy reserve ratio of 30-40%.
• The South is crowded with renewable energy (RE). The concentration of RE
capacity in the South has in fact made it difficult to fully utilize due to gridline
congestion and transmission system overloading. Moreover, the variable and

intermittent nature of solar and wind power also causes significant fluctuations and
poor voltage quality to the power system.
The imbalance between generation capacity and load demand in the regions, together
with the overcrowded RE segment in in the South, puts a heavy burden on the
transmission grid system, especially from the South to Central Vietnam and from
Central Vietnam to the North. This leads to problems in network operations such as
overloading, network congestion and poor voltage quality.
As previously mentioned, an effective power system requires a reserve capacity of
around 30-40%. The purpose of reserve capacity is to maintain the reliability of the
electricity system as it ensures that there is always more supply available than
demand. If the system has a capacity which is exactly equal to its demand, there can
be electricity shortages when just one power plant cannot operate as usual or there is
a sudden surge in demand.
Meanwhile because its output depends on weather conditions, a power system with
high portion of RE capacity and small/limited storage capacity requires a reserve ratio
of around 50-70%.
Energy policies: FIT for solar and wind ended, no new pricing schemes
introduced so far
The favorable FIT (feed-in-tariff) schemes for solar and wind ended on 31 Dec-20 and
31 Oct-21, respectively. No alternative pricing schemes have been introduced since.
This (lack of effective pricing schemes) means no solar or wind project has been able
to sign a PPA (power purchase agreement) with EVN since then, including 452 MWp
of solar and 3,480 MW of wind which were ready for commercial operation but missed
the FIT deadline.
FY23-30 view: Strong demand to outpace domestic output

Demand is projected to grow at a CAGR of 8.2%
Vietnam’s economic growth has been fueled by significant electricity consumption.
Between 2010 and 2021, Vietnam’s electricity consumption increased from 100bn
kWh to 252bn kWh (Figure 9), leading to an annual average growth rate of 9.1%. The
country’s GDP meanwhile grew at an average of 5.7% during the same period, leaving
electricity intensity, i.e., the percentage change in energy consumption to achieve one
per cent change in national GDP, at 1.61, the highest among APEC (Asia-Pacific
Economic Cooperation) economies.
Vietnam’s electricity consumption will continue to rise tremendously in the coming year
to support the government’s target of 6-7% on GDP growth up to 2026 and above
5.5% thereafter. In 2030, we believe electricity consumption will be double 2021’s
levels, reaching over 511bn kWh and implying a CAGR of 8.2% for 2021-2030. As
domestic generation capacity is projected to grow to 137 GW in 2030 from 74 GW in
2021 on a CAGR of 7.0%, we believe (1) existing generation capacity will be pushed
to reach to higher utilization rates, and (2) energy imports will increase to meet
demand (Figure 10).
Figure 9: Electricity consumption and GDP growth during 2010-2021, Vietnam
Vietnam’s economic growth was fueled by significant electricity consumption
Electricity consumption
Billion kWh Electricity consumption growth (%)
300 GDP growth (%) 14%
250 12%
10%
200
8%
150
6%
100
4%
50 2%
0 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: GSO, MOIT

Figure 10: Electricity demand during 2021-2030, Vietnam

Import will increase as consumption growth outpaces domestic generation output
Domestic electricity output
Billion kWh Import
600 Electricity consumption growth (%) 12%
Import as % of total consumption
500 10%
400 8%
300 6%
200 4%
100 2%
0 0%
FY21 FY22F FY23F FY24F FY25F FY26F FY27F FY28F FY29F FY30F
Source: MOIT, HSC Research
Generation capacity expansion is to be led by fossil fuels

The total installed generation capacity in Vietnam was 74 GW as of 2021-end. Broken
down, coal-fired capacity accounted for 30%, RE (including solar, wind, waste-to-
energy, and biomass) accounted for 29%, hydropower 28%, gas-fired 12%, and
imported capacity 1%. PDP 8 estimates that in order to meet the country’s electricity
demand, total generation capacity will need to be around 137 GW by 2030 (Figures
11-12).
While Vietnam committed to net-zero emissions by 2050 (PM statement in COP26 in
Glasgow) domestic economic growth remains a priority. Hence, from now to 2030, the
country will continue to develop domestic fossil fuel capacity to meet the energy
demand requirements to grow its economy. In terms of fuel mix towards 2030 we see
that:
• Coal will remain a key fuel for electricity generation, but its portion of the total
generation capacity will be controlled.
• LNG is chosen as a viable option besides coal to meet the country’s increasing
demand. Gas-fired generation is chosen as a bridge to a carbon-neutral
environment and as an effective interim means to handle the intermittent nature of
renewable generation.
• RE capacity will be controlled to ensure the economic efficiency of RE projects,
stability of the grid, and the power system. Most RE projects are in the South where
the transmission system is weak and doesn’t have enough reserve capacity to
absorb all output from new RE projects. Controlling RE capacity portions in total
generation capacity will help to reduce that crowding-out effect and increase the
capacity factor of existing RE projects.
Figure 11: Installed generation capacity by 2021, Vietnam Figure 12: Installed generation capacity by 2030, Vietnam
Total generation capacity is 74 GW in with coal being the largest Total generation capacity is 137 GW in with coal remaining the
fuel in electricity generation in 2021 largest fuel in electricity generation in 2030
Import Import
1% 1%
Hydro
RE Hydro RE
19%
28% 29% 26%
Coal
Gas 30%
Coal
Gas 24%
30%
12%
Source: EVN Source: MOIT

Figure 13: Coal demand for electricity generation, Vietnam Figure 14: Gas demand for electricity generation, Vietnam
Domestic supply is limited; imports are estimated to meet 60% Domestic supply is limited; imports are estimated to meet 60%
of total demand by 2030, up from 30% currently of total demand by 2030, up from 0% currently
Domestic Import Domestic Import
Billion Billion
1.2
tonnes MMBTU
10
1.0 8
0.8
6
0.6
0.4 4
0.2 2
0.0 0
21
22
23
24
25
26
27
28
29
30
21
22
23
24
25
26
27
28
29
30
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Source: HSC Research Source: HSC Research
Fuel supply: An increasing dependence on imports

Vietnam’s domestic supplies of natural gas and coal are limited. Domestic natural gas
supply for power generation depends on the progress of the country’s gas projects.
As it stands, domestic natural gas supply could increase from 9bn cbm currently to
around 13bn cbm in 2030 in the best-case scenario. Meanwhile, domestic coal supply
for power generation is capped at 32-35mn tonnes per year.
As gas and coal-fired generation capacity is projected to grow strongly in the coming
years, the volume of imported natural gas (in the form of LNG) and coal will increase
significantly. As such, imported natural gas to total gas demand is set to gradually rise
from 0% in 2022 to 60% in 2030, while imported coal's contribution to total coal
demand will increase from 30% in 2022 to around 60% in 2030 (Figures 13-14).
Vietnam is speeding up infrastructure construction to import more coal and, for the first
time, LNG, in the coming years.
In the long-term, we believe that the increasing dependence on fuel imports will affect
the pricing of domestic retail electricity, thus creating market driven pricing rather than
the current subsidized system.
Capex for new capacity will surge
Vietnam government projects that the total capex requirement for new power
generation capacity and transmission systems during 2021-2030 will come to around
VND2,910tn, about 67% higher than that during 2011-2020 (Figure 15). This considers
the potential investment cost declines following technological improvements and the
economies of scale from wind and solar, the cost to manage solar panels at the end
of the project’s life, as well as the investment cost increases to meet higher
environment and emission requirements of the coal and gas power projects.
We estimate that EVN and other state-owned power producers, namely PetroVietnam
and Vinacomin, will be able to cover about 30-35% of the total capex needs. The
balance will be covered by the private sector. Hence, total capital requirement to be
raised from private sector (domestic and foreign) is about VND1,890-2,040tn. In order
to mobilize such a large capex from the private sector, it’s crucial to raise EVN’s
electricity purchasing prices (and retail prices) to levels that are profitable to all both
private investors and EVN.

Figure 15: Capex for power system, Vietnam

Total capex for new power generation capacity and transmission systems during 2021-
2030 will come about 67% higher than that during 2011-2020
Generation capacity Transmission and distribution
VNDtn
1,600
1,400
1,200
1,000
800
600
400
200
0
FY11-15 FY16-20 FY21-25 FY26-30
Source: MOIT
A number of changes expected to happen in FY23

PDP 8 will be introduced in 1Q23
PDP 8 is the master plan that will guide Vietnam’s energy development for at least the
next ten years. PDP 8 is different from previous power development plans in two key
ways:
• First, it’s an all-inclusive energy plan. It takes into account both the energy demand
of the largest power consumers including industrial production, construction,
transportation, residential use, and energy demand of each region following the
regional economic strategy.
• Second, PDP 8 is being developed as an open plan. It only identifies the list of
major and important national power sources and transmission grids. Then every
year, the Ministry of Industry and Trade will develop an Implementation plan of the
PDP to promptly update and adjust aspects to meet the country's electricity needs.
This allows authorities the flexibility to change and adapt to external changes such
as Vietnam’s commitment to limit CO2 emissions, international funding flows, or
new investors/stakeholders joining the market.
The introduction of PDP 8 will create a new framework for power development and
investment in Vietnam. This will facilitate all power generators in expanding their
generation capacity and pushing demand for electricity constructors, and hence,
ensure sufficient power for economic growth in the coming years.
New pricing schemes for solar and wind will be introduced
For the solar and wind capacity those were ready for commercial operation but missed
the FIT deadline, there will be a transitional pricing scheme that is less favorable than
FITs with key points as following:
• Electricity selling prices denoted in VND instead of USD as in FITs.
• Electricity selling prices are re-negotiated every two years instead of fixed for 20
years as in FITs.
For the new solar and wind investment, an auction regime is likely to be introduced.
The framework will be that authorities first work out the projects that suit the
province/region electricity demand and transmission capacity, then select solar/wind
power investors by the electricity prices and other terms investors offer.
Meanwhile a DPPA (direct power purchase agreement) mechanism is also being
taken into consideration. The DPPA will allow energy producers to sell electricity to
corporate consumers instead of going through a state-owned electric utility company.
Electricity producers can either build transmission lines to deliver electricity to the
user’s point or use EVN’s transmission system, paying transmission fees by electricity
volume and distance.

While they are not finalized yet, the new pricing proposals reveal that Vietnam’s
government is serious about controlling RE expansion while seeking for cost-effective
renewables. RE investors’ earnings for each kWh will decline with the new pricing
schemes, but the bottom lines of RE projects may even increase when capacity is
compatible with the transmission capability and curtailment ends. Furthermore, RE is
also becoming more price-competitive compared to fossil fuels.
LCOE (levelized cost of electricity) of solar and wind are declining thanks to the
growing competitiveness of the market, the establishment of mature supply chains in
regional hubs, economies of scale and advancements in technology while that of fossil
fuel energy, including coal, natural gas, and LNG, will continue to increase following
the increasing contribution of imported fuels and higher environmental standards
(Figure 16).
Figure 16: Levelized cost of electricity by source, Vietnam (USD/kWh)
Solar and wind are getting more price-competitive over fossil-fuels
Hydro Gas Coal
Solar Onshore wind Offshore wind
200
150
100
50
0
FY15 FY18 FY21 FY24 FY27 FY30
Figure 17: Average electricity retail prices in 1H22 by country (USD/kWh)
0.25
0.20
0.15
0.10
0.05
0.00
os
na
..
nd
n
ne
si
di
h.
si
di
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pa
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la
ay
ne
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bo
ut
ap
pi
Ja
C
ai
et
So
al
do
ilip
am
ng
Th
Vi
M
In
Ph
Si
C
Source: www. globalpetrolprices.com/electricity_prices/
Electricity retail prices will increase

Vietnam electricity retail prices have not changed since Mar-19, averaging
VND1,867/kWh, which is lower than most other countries in the region (Figure 17).
Meanwhile the country’s average electricity cost has increased 11% during the same
period, reaching VND2,018/kWh. This causes EVN a loss of around VND31tn in 2022
and drains the electricity monopolist’s resources for investing in transmission and
distribution system. Hence, the government has been given a green light to increase
electricity retail prices. We believe this will take place sometime in 1Q23.
La Niña will end
The most recent forecast of the US Climate Prediction Center indicates La Niña will
persist in the Northern Hemisphere’s 2022-23 winter, and then transition to ENSO-
neutral from February-April 2023.
As a reminder, La Niña is a weather effect that typically brings increased and extreme
rainfall across Southeast Asia and eastern Australia. The current La Niña is in fact the

third La Niña event in a row since Mar-20. It looks like climate changes make La Niña
(and its counterpart El Niño) events more frequent and intense and possibly more
difficult to predict.
To explain further, the El Niño-southern oscillation (ENSO) is a recurring climate
pattern involving changes in the temperature of waters in the central and eastern
tropical Pacific Ocean. On periods ranging from about 3-7 years, the surface waters
across a large swath of the tropical Pacific Ocean warm or cool by anywhere from 1°C
to 3°C, compared to normal. This oscillating warming and cooling pattern, referred to
as the ENSO cycle, directly affects rainfall distribution in the tropics and can have a
strong influence on weather across many parts of the world. El Niño and La Niña are
the extreme phases of the ENSO cycle; between these two phases is a third phase
called ENSO-neutral.
Following this, we expect lower rainfall in 2023 compared to that in 2022. Hydro output
will decline and other power sources, especially coal-fired energy, will be mobilized to
generate higher output to cover the shortage from hydro.
Figure 18: Generation capacity by end-FY22 (MW), Vietnam Figure 19: Generation capacity breakdown by FY22, Vietnam
electricity utilities electricity utilities
PGV and POW has the largest generation capacity REE and PC1 has the largest portion of hydro
Hydro Thermal Wind Solar
Hydro Thermal Wind Solar
6,000
100.0% 1%
0% 1%
14%
5,000
80.0% 17% 46%
4,000 59%
60.0% 89%
3,000 92%
40.0% 69%
2,000 26%
54%
20.0%
1,000
7% 15% 10%
0.0%
0 POW REE PC1 GEG PGV
POW REE PC1 GEG PGV
Source: Company data Source: Company data
Higher interest rates will hit bottom lines of all electricity generators
A high gearing ratio is typical for the utilities sector as generators normally finance
generation capacity with long-term debt at a debt/equity ratio of 70:30 (Figure 20). The
highly regulated nature of the industry makes this debt less risky. However, high
gearing at floating interest rates exposes profitability to increases in interest rates.
Since 3Q22, domestic interest rates have been increasing following a monetary
liquidity shortage. While we believe the interest rate rise will mildly ease in 2H23, we
believe a new level of interest rates has been set for the coming 2-3 years. Thus, it
may lead to higher interest payments, and hence a lower bottom line for all electricity
companies.
Figure 20: Debt-to-equity ratio, Vietnam electricity utilities
3.5
3.1
3.0
2.5 2.2 2.3
2.0
1.5
0.7 0.8
1.0
0.5
0.0
POW REE PC1 GEG PGV
Source: Company data

Fundamental impacts on our electricity coverage

While the introduction of PDP 8 and new energy policies are likely to be a boost for
the whole sector, only electricity constructors like PC1 will enjoy the fruit immediately
(in 2023) – others will only have the gates opened for their new capacity investments
near-term. On the other hand, the possible return of El Niño in late 2023 or early 2024
will hit those with a sizeable hydro portion like PC1, REE, and GEG. Meanwhile,
increasing interest rates will hit the bottom line of all electricity players.
Four key factors to impact

Impact of PDP 8’s introduction
While the introduction of PDP 8 and new energy policies (likely in 1Q23) is a boost for
the whole sector, only electricity constructors like PC1 will enjoy the fruit immediately
in 2023; others will have the gates opened for their new capacity investment and the
gains will only be enjoyed a few quarters later when the new capacity comes online.
We have always assumed that the PDP 8 and the new pricing schemes for RE will be
introduced in late 2022 or 1Q23, so this will not have any impact on our earnings
estimates unless the introduction time is delayed further.
Impact of La Niña ending on electricity generation output
For FY22, we revise up our electricity volume estimates for all hydro projects following
the strong waterflow and rainfall YTD, while revise down electricity volume of thermal
projects due to coal shortages and high fossil fuel prices for electricity generation.
For FY23-24, we follow the forecast of the US Climate Prediction Center that La Niña
will persist into the Northern Hemisphere winter in 2022-23, transition to ENSO-neutral
in February-April 2023, and then El Niño (a weather effect, generally occurring a two-
to seven-year intervals, that typically leads to decreased cloud cover resulting in
warmer and drier-than-average conditions in Southeast Asia and large parts of
Australia.
Hence, we cut our hydro output estimates of all hydro projects in 2023 and cut further
in 2024. We also revise up electricity output of thermal projects, especially the coal-
fired sources, as we believe EVN will mobilize higher output to cover the shortages
from hydro.
REE and PC1 see the largest electricity volume estimate cut due to their significant
hydro capacity, while PGV and POW is somehow benefited, with only 10% hydro in
total generation capacity, and the hydro volume decline will be more than covered by
its increased thermal volume.
Figure 21: Electricity generation output estimates, Vietnam electricity utilities
Old estimates New estimates Revision vs. old forecasts
kWh mn FY22F FY23F FY24F FY22F FY23F FY24F FY22F FY23F FY24F
REE 3,500 3,450 3,300 3,704 3,333 2,989 5.8% -3.4% -9.4%
GEG 1,090 1,345 1,380 1,062 1,301 1,337 -2.6% -3.3% -3.1%
PC1 1,180 1,150 1,100 1,201 1,122 1,004 1.8% -2.4% -8.8%
POW 14,905 18,650 19,550 13,135 17,755 20,455 -11.9% -4.8% 4.6%
PGV 28,695 28,500 28,499 27,445 28,500 28,799 -4.4% 0.0% 1.1%
Aggregate 49,320 54,050 56,085 46,547 52,010 54,583 -5.7% -2.0% 1.4%
Impact of increasing interest rates on earnings

Given the high gearing nature of electricity generators, all electricity companies under
our coverage are affected by the recent interest rate rise. Among the five companies,
POW and PC1 are less affected thanks to their relatively low debt-to-equity ratios while
GEG, and PGV are hit badly.

Figure 22: Interest expense estimates, Vietnam electricity utilities

Old estimates New estimates Revision vs. old forecasts
VNDbn FY22F FY23F FY24F FY22F FY23F FY24F FY22F FY23F FY24F
REE 801 758 593 829 826 641 3.5% 8.9% 8.1%
GEG 589 746 777 619 829 855 5.1% 11.1% 10.0%
PC1 548 799 771 573 871 838 4.6% 9.0% 8.7%
POW 391 348 380 403 378 407 3.1% 8.6% 7.1%
PGV 1,377 1,192 1,113 1,487 1,502 1,393 8.0% 26.0% 25.1%
Aggregate 3,707 3,843 3,634 3,912 4,406 4,134 5.5% 14.6% 13.8%
Figure 23: Interest expenses as % of pre-tax earnings, Vietnam electricity utilities

New estimates As % of PBT
VNDbn FY22F FY23F FY24F FY22F FY23F FY24F
REE 829 826 641 24.5% 28.2% 20.7%
GEG 619 829 855 127.6% 235.1% 240.0%
PC1 573 871 838 114.2% 83.9% 72.9%
POW 403 378 407 20.8% 17.1% 17.3%
PGV 1,487 1,502 1,393 52.8% 45.3% 43.8%
Aggregate 3,912 4,406 4,134 42.9% 44.7% 40.8%
Impacts of increased electricity retail prices

Increases in electricity retail price don’t have any direct impact on electricity
generators’ bottom line.
Overall: Cutting earnings forecasts for FY22-24

Overall, after factoring in new interest rate assumptions and the possible return of El
Niño in late 2023 or early 2024, we revise down our aggregated estimates for our five
covered electricity companies for FY23 and FY24 forecasts by 2% and 13%,
respectively. Our new forecasts suggest a sector aggregate 3-yr net earnings CAGR
of 11.5%, that is below consensus by 18% on average.
PC1 is the only case that has net profit revised up in FY23. This is because one of its
residential real estate projects is delayed into 2023 and hence FY22 is cut hard while
FY23 is boosted.
Below are details of our revised forecasts. Details of earning forecast revision for each
company will be presented in the company pieces.
Figure 24: Revenue and adjusted net profit forecasts, Vietnam electricity utilities
We expect FY21-24 net profit CAGR of 11.5%, a 4.9% downward revision from 16.6% in previous forecast
FY22F FY23F FY24F CAGR FY21A-24F
VNDbn Adjusted Adjusted Adjusted Adjusted
Revenue Revenue Revenue Revenue
net profit net profit net profit net profit
REE 8,491 2,409 8,636 2,135 9,075 2,303 16.0% 7.7%
GEG 2,187 291 2,744 274 2,899 276 28.0% 8.4%
PC1 8,763 462 11,396 754 12,423 771 23.9% 16.7%
POW 25,776 1,587 33,184 1,700 38,960 1,823 16.6% 21.4%
PGV 46,047 3,248 48,183 2,675 49,375 2,554 9.4% 3.4%
Aggregate 91,264 7,997 104,144 7,538 112,733 7,727 18.8% 11.5%

Figure 25: New earnings estimates, vs old estimates and Bloomberg consensus, Vietnam electricity utilities
Our new forecasts are below consensus by 18% on average
New estimates Revision vs. old forecasts Vs. Bloomberg consensus
VNDbn
FY22F FY23F FY24F FY22F FY23F FY24F FY22F FY23F FY24F
REE 2,409 2,135 2,303 5.5% -15.6% -14.2% -8.2% -17.9% -17.2%
GEG 291 274 276 -6.7% -18.8% -25.9% -9.2% -30.6% -40.8%
PC1 462 754 771 -17.8% 29.2% -10.2% -15.3% -2.25% -18.4%
POW 1,587 1,700 1,823 -2.6% -5.0% -6.1% -2.7% -26.2% -34.4%
PGV 3,248 2,675 2,554 21.7% -3.8% -11.2% 0.0% 0.0% 0.0%
Aggregate 7,997 7,538 7,727 0.0% -2.8% -13.5% -7.1% -15.4% -22.1%

Valuation & recommendation

Most of our covered utilities names have underperformed the VN Index over the past
12M, and especially over the last 3M. Following this, the sector is now trading at a 1-
year rolling forward P/E of 11.5x, 0.4 SD below the mean. Despite cuts to forecasts
and the use of a more conservative valuation assumption, leading to lower TPs,
valuations of most still look very cheap (REE, a recent outperformer, is the
exception). Our new targets value the sector at an FY23 P/E of 14.4x, based on
average upside of 25% to our covered names. Our top picks are those with highest
the upside to TP: PC1 (52%), POW (33%), and PGV (23%). We downgrade GEG to
Add (from Buy) with 15% upside and REE to Hold (from Add) with 3% upside.
Summary and methodology

We summarize our new ratings and TP for our five covered electric utilities in Figure
26, below. While we are maintaining our positive view on the sector (and now have
three Buy ratings amongst our covered names), we are also cutting TPs by 25.2%, on
average, reflecting several factors (as shown in detail in Figure 27).
Figure 26: TPs and rating, HSC electricity coverage universe
Valuation
Company Price (VND) Rating TP (VND) Upside/downside
method
REE 79,000 Hold 82,300 4.2% SOTP
GEG 13,300 Add 15,000 12.8% DCF
PC1 21,200 Buy 31,300 47.6% SOTP
POW 11,450 Buy 14,900 30.1% DCF
PGV 17,900 Buy 22,300 24.6% DCF
Figure 27: Changes to target prices decomposed, Vietnam electricity utilities

Key factors leading to our change in TPs are higher WACC and earnings forecast revision
Revision Explained by changes to
Forecast Updated Roll fwd Forecast Updated Roll fwd
VND New TP Old TP Amount Pct.
changes WACC val. basis changes (%) WACC (%) val. basis
REE 82,300 84,700 (2,400) -2.8% 200 (3,000) 400 0.2% -3.5% 0.5%
GEG 15,000 27,600 (12,600) -45.7% (8,100) (3,900) (600) -29.3% -14.1% -2.2%
PC1 31,300 34,617 (3,317) -9.6% (3,317) - - -9.6% 0.0% 0.0%
POW 14,900 19,200 (4,300) -22.4% (1,800) (2,800) 300 -9.4% -14.6% 1.6%
PGV 22,300 40,800 (18,500) -45.3% (9,800) (6,500) (2,200) -24.0% -15.9% -5.4%
Figure 28: WACC calculations compared, Vietnam electricity utilities

Beta COE COD WACC
REE 1.0 13.0% N/a N/a
GEG 1.3 15.7% 8.8% 10.9%
PC1 1.3 15.4% 7.9% 10.5%
POW 1.3 15.4% 6.8% 11.1%
PGV 1.0 13.0% 3.8% 10.3%
Source: Bloomberg, HSC Research
We continue to use discounted cashflow (DCF) for electricity generation to capture the
strong cashflows nature of electricity utilities. For those that have other businesses
besides electricity generation (like PC1 and REE) we use the sum-of-the-parts (SOTP)
method in which electricity generation and other non-real estate businesses are valued
by DCF while real estate is value by net asset value (NAV).
We apply the following assumptions:
• Risk-free rate: 5.0% (revised up from 3.5% previously), reflecting our in-house view
of Vietnam long-term bond yield.
• Equity risk premium: Unchanged at 8.0% across our coverage.
• Beta: 1-year beta as calculated by Bloomberg, updated on 7 December.

• Terminal growth rate: Unchanged, varies from 0.0-3.0% for the different companies.
Valuation context
In the past 3M, four out of five electricity names under our coverage have
underperformed the VN Index by 14% (down 26% on average). The worst performers
in the last three months have been PC1 (down 38.4%), GEG (down 37.0%), and PGV
(down 30.5%).
After the recent significant weaknesses, our electricity coverage universe is trading on
a 1-year rolling forward P/E of 11.9x, 0.3 SD below the mean. If excluding REE, the
outperforming stock, the other four are on a 1-year rolling forward P/E of 11.6x, 0.9
SD below their mean.
Figure 29: Share price performance (%)
Ordinary share Relative to Index
1M 3M 12M 1M 3M 12M
REE 17.2 (6.1) 35.2 3.2 10.2 91.2
GEG 30.4 (37.0) (32.0) 14.8 (26.1) (3.8)
PC1 57.0 (38.4) (41.2) 38.2 (27.7) (16.8)
POW 13.4 (19.6) (33.4) (0.2) (5.8) (5.9)
PGV 5.9 (30.5) (52.2) (6.8) (18.5) (32.4)
Average 24.8 (26.3) (24.7) 9.8 (13.6) 6.5
Source: Bloomberg
Figure 30: 1-year rolling forward P/E

All, except REE, look cheap compared to historical average
Average since
Consensus HSC Stdv vs. average
Jan-19
REE 10.8 13.1 8.9 1.7
GEG 11.0 15.6 20.7 (1.4)
PC1 7.5 7.7 10.7 (0.6)
POW 11.8 15.8 18.4 (0.4)
PGV 7.4 7.4 9.6 (0.9)
Average 9.7 11.9 13.7 (0.3)
Source: Bloomberg

Equities | Vietnam | Utilities - Electricity
Power Construction (PC1 - HSX)
Company Focus 20 December 2022
Buy (unchanged) Fundamentals remain strong; Buy

Target price: VND31,300 (from VND34,617)
Up/downside: 47.6%
▪ We maintain our Buy rating on PC1 but trim our SOTP-derived TP by 10%
Share price (VND) (as of 16 Dec 2022) 21,200 to VND31,300 as we account for the impact of La Niña ending and interest
Bloomberg code PC1 VN rate hikes. Our TP implies an adjusted FY23 P/E of 11.2x.
52-week range (VND) 12,650-42,565
Trading value (5D) (VNDmn) 20,810 ▪ We raise our FY23 adj. EPS by 29% while cutting those mildly for FY22 and
Market cap. (VNDbn) 5,733 FY24 reflecting a delayed real estate project delayed, new mining revenue,
Market cap. (USDmn) 243 interest rate increases, and El Niño returning in late 2023 or early 2024.
Shares outstanding (mn) 270
Total FOL share room (mn) 133 ▪ The stock, after falling 38% in the past 3M, now trades on a 1-year rolling
Current FOL share room (mn) 105 fwd. P/E of 7.7x, 0.6 SDs below its historical mean of 10.7x. We view this
Foreign ownership limit 49.0% as a good time to buy given PC1’s leading position in utilities construction.
Foreign owned ratio 10.3%
Free float 61.2%
Major shareholder Trinh Van Tuan (21.0%) Event: La Niña’s end, interest rate hikes, and a real-estate
Source: Company, HSC Research estimates project pushed back
Share price performance PC1’s FY22-24 prospects are mixed given that: (1) its Dinh Cong real estate
45,000
PC1 (VND) VN30 Index (rebas ed)
project has been delayed until 2023; (2) its nickel/copper mine will only see its
40,000 first revenue in 1Q23; (3) lower hydro output is likely as La Niña is forecast to
35,000
30,000 end in early 2023; and (4) interest expense has risen on rate hikes of roughly
25,000
20,000
250 bps since Sep-22.
15,000
10,000 Impact: Raising FY23 EPS 29% but cutting FY22/FY24
We cut our earnings estimates for the non-real estate businesses in FY23-24
Volume
Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22

due to tougher hydrological conditions and higher interest rates, while we push
Share price (%) -1 mth -3 mth -12 mth revenue from Dinh Cong real estate to FY23 from FY22 previously.
Ordinary shares 57.0 (38.4) (41.2)
Relative to index 38.2 (27.7) (16.8) Consequently, we cut our FY22 adjusted EPS by 18% and raise our FY23
Relative to sector - - - adjusted EPS by 29% as earnings from the Dinh Cong real estate offset the
Source: Company, FactSet negative impact of La Niña ending and higher interest rates. We also cut our
FY24 EPS by 10% assuming El Niño returns in late FY23 or early FY24.
HSC vs. consensus
EPS adj. (VND) HSC Cons % diff Our new forecasts suggest an aggregate 3-year net earnings CAGR of 16.7%,
2022F 1,709 2,017 (15.3) which is below consensus by 11% on average.
2023F 2,789 2,854 (2.3)
2024F 2,851 3,493 (18.4) Valuation and recommendation
Source: Bloomberg, HSC Research estimates
PC1 shares declined 38% and underperformed the VN Index by 28% over the
Company description last 3M following the delay of PDP 8’s introduction (the expected time was 31-
From a leading player in construction of electricity Aug). PC1 now trades on a 1-year rolling fwd. P/E of 7.7x, 0.6 SDs below its
projects , PC1 is expanding itself to investment historical average of 10.7x.
and generation of renewable energy. Besides,
PC1 also has exposure in real estate Following the FY23-24 earnings revisions we cut our target price by 10% to
development. VND31,300 (upside 48%). We reiterate our Buy rating.
Year end: December 12-20A 12-21A 12-22F 12-23F 12-24F

EBITDA adj. (VNDbn) 561 224 725  1,128  1,044 
Reported net profit (VNDbn) 513 695 368  754  771 
EPS adj. (VND) 1,896 1,795 1,709  2,789  2,851
DPS (VND) - - 0 600  800 
BVPS (VND) 14,745 17,384 18,370 21,107  23,949 
EV/EBITDA adj. (x) 14.3 55.6 18.8 12.0 12.5
P/E adj. (x) 11.2 11.8 12.4 7.60 7.44
Analysts Dividend yield (%) - - 0 2.83 3.77
Truong Thu My P/B (x) 1.44 1.22 1.15 1.00 0.89
Director, Head of Energy & Utilities EPS adj. growth (%) 43.3 (5.34) (4.79) 63.2 2.22
my.tt@hsc.com.vn Ret. on avg. equity (%) 13.8 16.0 7.61 14.1 12.7
+84 24 3933 4693 Ext. 4806 Note: Use of ▲ ▼ indicates that the item has changed by at least 5%.
This corporate report is meant to be read in conjunction with an associated sector report

Company Focus - Power Construction (PC1) 20 December 2022
Strong fundamentals; maintain Buy

We maintain our Buy rating on PC1 but lower our TP to VND31,300 (upside 48%) as
we cut our earnings estimates for non-real estate businesses due to tougher
hydrological conditions and higher interest rates. PC1 looks set to benefit from the
country’s increasing demand for electricity and attendant capex for electricity
developments as soon as the PDP 8 is introduced. The stock has declined 38% and
underperformed the index by 28% over the last 3M following the delay of PDP 8’s
introduction, but we believe the share will rebound strongly given that PDP 8 is likely
to be introduced in 1Q23.
Key assumption changes

We revise the following key assumptions:
• We revise our electricity revenue forecast up 6% in FY22 but down 0.3% and 3.8%,
respectively, in FY23-24 following our assumption that La Niña will end in early
2023 and El Niño will return in late 2023 or early 2024.
• We keep construction revenue unchanged in FY22 and FY23 but revise it up 4% in
FY24 as we believe the introduction of PDP 8, together with a set of new energy
policies, will boost investment.
• We revise revenue from industrial manufacturing up 14.6% in FY23 following our
latest update that the nickel/copper mine will run at 80% capacity in 2023. In our
previous research, we assumed a utilization rate of 60% only.
• We book earnings from the Dinh Cong real estate project in 2Q23 instead of 4Q22
previously following the current progress of the project.
• We revise up revenue from the trading segment 69-132% during FY22-24 following
the segment’s performance in 9M22.
• We revise FY2-24 interest expenses forecast by 4.6-9.0% following the recent hike
in domestic interest rates since Sep-22, and our house’s view that interest rates for
electricity generators will increase by an average of 150 bps in 2023 (vs. that of
2022) then slightly decline in 2024.
Figure 31: Earnings forecasts new vs. old, PC1
Old forecasts New forecasts Revision Growth y/y
VNDbn FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24
Sales 8,639 9,992 11,725 8,763 11,396 12,423 1.4% 14.0% 6.0% -10.8% 30.0% 9.0%
Net profit 562 584 859 368 754 771 -34.6% 29.2% -10.2% -47.1% 105.2% 2.2%
Adj. for forex loss - - - 95 - - N/a N/a N/a N/a N/a N/a
Adj. net profit 562 584 859 462 754 771 -17.8% 29.2% -10.2% -4.8% 63.2% 2.2%
Figure 32: Sales forecasts, new vs. old, PC1

Electricity 1,526 1,555 1,500 1,617 1,551 1,444 6.0% -0.3% -3.8% 77.4% -4.1% -6.9%
Construction 5,036 5,791 6,410 5,036 5,791 6,659 0.0% 0.0% 3.9% -25.0% 15.0% 15.0%
Industrial
878 1,370 2,090 878 1,570 2,090 -0.1% 14.6% 0.0% 35.0% 78.9% 33.1%
manufacturing
Real estate 763 830 1,050 293 1,450 1,093 -61.6% 74.7% 4.1% 176% 395% -24.7%
Trading & others 436 446 675 941 1,035 1,138 116% 132% 68.6% -35.0% 10.0% 10.0%

Figure 33: Sales breakdown by segment, PC1 (VNDbn) Figure 34: Interest expenses, PC1 (VNDbn)
Sales growth to be led by construction during FY22-25 Effective interest rates should peak in FY23 then ease
Electricity Construction Interest expenses
Industrial manufacturing Real estate Interest expenses as % of PBT
Trading & Others Revenue growth (%) Average interest rate (%)
20,000 60% 1,000 150%
800
15,000 40%
100%
600
10,000 20%
400
50%
5,000 0%
200
0 -20% 0 0%
FY21 FY22 FY23 FY24 FY25 FY21 FY22 FY23 FY24 FY25
Figure 35: Electricity revenue by source, PC1 (VNDbn) Figure 36: Industrial manufacturing revenue, PC1 (VNDbn)
Hydro output should decline in FY23-24 as La Niña ends Revenue from the mining business expected to come in 1Q23
Hydro Wind Steel tower Nickel - Copper ore
2,000
2,500
1,500 2,000
1,500
1,000
1,000
500
500
0 0
FY21 FY22F FY23F FY24F FY25F FY21 FY22 FY23 FY24 FY25

Valuation and recommendation

We maintain our Buy rating on PC1, though reduce our TP 10% to VND31,300
(upside: 52%) following changes to earnings forecasts. PC1 is now trading on a 1-
year rolling fwd. P/E of 7.6x, 0.7 SDs below its historical average of 10.8x. At our TP,
PC1 will trade at an FY23 P/E of 11.2x, justified by its strong earnings momentum
supported by the introduction of PDP 8 in 1Q23.
Conclusions and methodology

We value PC1 using a sum of the parts methodology, in which electricity generation
and other businesses are valued by DCF, while real estate is valued by net asset value
(NAV).
• For all businesses that use DCF valuation, we apply a WACC of 10.5% (vs. 10.1%
previously). Details are as follows:
o Beta of 1.3.
o Cost of equity of 15.4%, reflecting a 5.0% risk-free rate and 8.0% equity risk
premium, unchanged from our previous report.
o Cost of debt of 7.9%, reflecting interest rate of 9.5% (vs. 9.0% previously) and
CIT rates at 17.0% (same as previous report).
• For the real estate business, we calculate the net profit that PC1 can earn from
each project and discount the value to FY22-end using the same WACC in DCF
valuation for other businesses to get the NAV of each project. We meanwhile
exclude the Nomura Hai Phong Industrial Zone stage 2 given that the prospects
of the project are unclear during these tough times for the real estate sector.
Figure 37: Calculations of UFCF for businesses ex-real estate, PC1
PC1 typically generates strong cashflow
EBIT 1,153 1,579 1,732 1,973 1,887 1,995
Unlevered net income 975 1,326 1,447 1,637 1,557 1,636
Plus: D&A 437 605 717 863 1,039 1,252
Less: Capex (400) (849) (910) (10) (492) (771)
Less: WC increase (280) (327) (191) (398) 13 (285)
UFCF 732 755 1,062 2,092 2,117 1,832
Discount factor 0% 100% 90% 82% 74% 67%
Figure 38: DCF valuation of other businesses, PC1 Figure 39: CAPM-based WACC calculation, PC1
Other businesses, except real estate, are valued at VND29,300 WACC comes to 10.5%
VNDbn
Sum of PV FY23-27 6,226 Risk-free rate 5.0%
Terminal growth 3.0% Equity risk premium 8.0%
Terminal value 16,834 Beta 1.3
Total PV 17,511 Cost of equity 15.4%
Plus: Cash 2,639 Interest rate 9.5%
Less: Gross debt (10,429) CIT 17.0%
Less: Minority Interest (1,808) Cost of debt 7.9%
EV 7,913 Weight of equity 35.0%
Shares o/s (mn) 270 Weight of debt 65.0%
Fair value (VND/share) 29,300 WACC 10.5%

Figure 40: NAV valuation of real estate projects, PC1

PC1 Định Công PC1 Vinh Hung PC1 Thang Long
Total area (sqm) 15,100 5,160 22,000
Commercial area (sqm) 4,200 1,264 5,390
Sales area (sqm) 33,600 21,163 55,697
Selling price (VNDmn/sqm) 29 28 28
Total revenue (VNDbn) 958 593 1,560
Net profit (VNDbn) 187 116 304
NAV/share 690 387 921
Figure 41: Target price calculation, PC1

Our target price comes to VND31,300 per share
VND
Core business 29,300
Real estate 2,000
Target price (VND/share) 31,300
Figure 42: Sensitivity of TP to key assumptions, PC1

Our base case assumes a 3% terminal growth rate and a 5.0% on risk-free rate
VND Risk free rate
4.0% 4.5% 5.0% 5.5% 6.0%
2.0% 28,700 27,300 26,000 24,690 23,490
2.5% 31,500 29,900 28,500 27,090 25,690
Terminal growth rate
3.0% 34,600 32,900 31,300 29,690 28,190
3.5% 38,200 36,300 34,500 32,690 31,090
4.0% 42,400 40,200 38,100 36,190 34,290
Valuation context
PC1 shares have declined 38% over the past 3M, underperforming the VN Index by
28% following the delay of PDP 8’s introduction. However, we believe the shares will
bounce back strongly given that PDP 8 is likely to be introduced in 1Q23. At its current
price, PC1 trades on a 1-year rolling forward P/E of 7.7x on our FY22-23 forecasted
EPS, 0.6 SDs below its average of 10.7x (calculated since Sep-21). On our TP, PC1
trades on an FY23 P/E of 11.2x, falling to 11.0x in FY24.
Compared to other companies in electricity utilities, PC1 trades on a discount of about
35% on a 1-year rolling forward FY23 P/E. In the electricity utilities space, we like PC1
the most as it offers highest upside to our TP.
Figure 43: Rolling one year forward P/E adjusted, PC1 Figure 44: Std. dev. from average 1-yr rolling fwd. P/E, PC1
Currently trading on a P/E of 7.6x… …0.7 standard deviations below its 10.8x P/E average
Street Actual Us
2.5
25
2.0
20 1.5
1.0
15 0.5
0.0
10
(0.5)
5 (1.0)
(1.5)
0 (2.0)
Sep-19 Feb-20 Jul-20 Dec-20May-21 Oct-21 Mar-22 Aug-22 Sep-19 Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22
Source: Bloomberg, HSC Research Source: Bloomberg, HSC Research

Financial statements and key data

Income statements (VNDbn) 12-20A 12-21A 12-22F 12-23F 12-24F Cash flow statements (VNDbn) 12-20A 12-21A 12-22F 12-23F 12-24F
Sales 6,679 9,828 8,763 11,396 12,423 EBIT 840 851 1,161 1,733 1,761
Gross profit 1,162 1,156 1,453 2,132 2,196 Depreciation & amortisation 280 364 437 605 717
SG&A (338) (297) (272) (399) (435) Net interest (207) (39.7) (709) (824) (797)
Other income 28.3 28.0 (20.0) 0 0 Tax paid (108) (132) (74.7) (166) (190)
Other expenses (11.4) (36.2) 0 0 0 Changes in working capital (160) (677) (216) (343) (132)
EBIT 840 851 1,161 1,733 1,761 Others 547 455 769 1,335 1,478
Net interest (207) (39.7) (709) (824) (797) Cash flow from operations 633 93.2 495 1,131 1,403
Associates/affiliates 18.0 85.6 29.1 129 185 Capex (933) (3,991) (400) (849) (910)
Other non-operational - - - - - Acquisitions & investments (581) (1,218) (1,206) (215) (16.5)
Exceptional items - - - - - Disposals 378 3.32 0 0 0
Pre-tax profit 652 896 482 1,038 1,149 Others 280 257 0 0 0
Taxation (108) (132) (74.7) (166) (190) Cash flow from investing (856) (4,949) (1,606) (1,064) (927)
Minority interests (31.3) (69.3) (39.6) (117) (188) Dividends (15.1) (23.7) 0 0 0
Exceptional items after tax - - - - - Issue of shares 437 422 0 0 0
Net profit 513 695 368 754 771 Change in debt 711 5,284 1,154 237 (212)
Other financing cash flow 0 (0.49) 0 0 0
Net profit adj'd 513 485 462 754 771 Cash flow from financing 1,133 5,682 1,154 237 (212)
EBITDA adj. 561 224 725 1,128 1,044
Cash, beginning of period 568 1,476 2,292 2,335 2,639
EPS (VND) 1,896 2,570 1,360 2,789 2,851 Change in cash 909 826 43.2 304 264
EPS adj. (VND) 1,896 1,795 1,709 2,789 2,851 Exchange rate effects (1.14) (9.69) 0 0 0
DPS (VND) - - 0 600 800 Cash, end of period 1,476 2,292 2,335 2,639 2,903
Basic shares, average (mn) 270 270 270 270 270
Basic shares, period end (mn) 270 270 270 270 270 Free cash flow (300) (3,898) 94.7 282 493
Fully diluted shares, period end (mn) 270 270 270 270 270
Balance sheets (VNDbn) 12-20A 12-21A 12-22F 12-23F 12-24F Financial ratios and other 12-20A 12-21A 12-22F 12-23F 12-24F
Cash 1,476 2,292 2,335 2,639 2,903 Operating ratios
Short-term investments 62.9 144 150 165 182 Gross margin (%) 17.4 11.8 16.6 18.7 17.7
Accounts receivable 3,390 3,124 3,054 3,277 3,363 EBITDA adj. margin (%) 8.39 2.28 8.27 9.90 8.40
Inventory 730 904 731 1,112 1,227 Net profit margin (%) 7.68 7.07 4.20 6.62 6.21
Other current assets 57.2 126 103 102 113 Effective tax rate (%) 16.5 14.7 15.5 16.0 16.5
Total current assets 5,715 6,589 6,373 7,295 7,787 Sales growth (%) 14.3 47.2 (10.8) 30.0 9.02
EBITDA adj. growth (%) 28.7 (60.0) 223 55.7 (7.47)
PP&E 4,181 9,585 9,575 9,800 10,011 Net profit adj. growth (%) 43.3 (5.34) (4.79) 63.2 2.22
Intangible assets 1.89 955 929 948 930 EPS growth (%) 43.3 35.5 (47.1) 105 2.22
Investment properties 221 221 221 221 221 EPS adj. growth (%) 43.3 (5.34) (4.79) 63.2 2.22
Long-term investments 3.17 212 4.82 4.82 4.82 DPS growth (%) - - - nm 33.3
Associates/JVs 78.2 426 1,537 1,537 1,537 Dividend payout ratio (%) - - 0 21.5 28.1
Other long-term assets 521 698 622 806 878
Total long-term assets 5,006 12,098 12,888 13,317 13,582 Efficiency ratios
Return on avg. equity (%) 13.8 16.0 7.61 14.1 12.7
Total assets 10,722 18,687 19,261 20,612 21,370 Return on avg. CE (%) 13.1 8.56 8.51 11.9 11.8
Asset turnover (x) 0.70 0.67 0.46 0.57 0.59
Short-term debt 1,586 2,800 2,454 3,191 3,479 Operating cash/EBIT (x) 0.75 0.11 0.43 0.65 0.80
Accounts payable 1,100 1,756 1,759 1,759 1,759 Inventory days 48.3 38.0 36.5 43.8 43.8
Other current liabilities 425 1,123 314 442 481 Accounts receivable days 224 131 153 129 120
Total current liabilities 3,744 5,799 4,838 5,838 6,207 Accounts payable days 72.8 73.9 87.8 69.3 62.8
Long-term debt 2,171 6,238 7,738 7,238 6,738 Leverage ratios

Deferred tax 14.6 326 0 0 0 Net debt*/equity (%) 69.4 145 163 - -
Other long-term liabilities 4.64 4.73 0 0 0 Debt/capital (%) 39.6 48.7 54.3 - -
Long-term liabilities 2,191 6,568 7,738 7,238 6,738 Interest coverage (x) 4.07 21.4 1.64 2.10 2.21
Debt/EBITDA (x) 7.57 18.7 14.4 - -
Total liabilities 5,952 12,406 12,604 13,095 12,958 Current ratio (x) 1.53 1.14 1.32 1.25 1.25
Shareholders' funds 3,987 4,701 4,968 5,708 6,477 Valuation

Minority interests 782 1,580 1,690 1,808 1,935 EV/sales (x) 1.20 1.27 1.55 1.19 1.05
Total equity 4,770 6,281 6,658 7,517 8,412 EV/EBITDA adj. (x) 14.3 55.6 18.8 12.0 12.5
P/E (x) 11.2 8.25 15.6 7.60 7.44
Total liabilities and equity 10,722 18,687 19,261 20,612 21,370 P/E adj. (x) 11.2 11.8 12.4 7.60 7.44
P/B (x) 1.44 1.22 1.15 1.00 0.89
BVPS (VND) 14,745 17,384 18,370 21,107 23,949 Dividend yield (%) - - 0 2.83 3.77
Net debt/(cash)* 2,282 6,745 7,856 7,790 7,313
Note: *Excluding short-term investments.
Source: Company, HSC Research estimates

Power Generation Joint Stock Corp. 3 (PGV - HSX)
Buy (unchanged) Valuation remains compelling; Buy

Up/downside: 24.6%
▪ We maintain our Buy rating on PGV but cut our TP 45% to VND22,300 as
Share price (VND) (as of 16 Dec 2022) 17,900 we evaluate the impact of recent interest rate increases on PGV’s FY22-24
Bloomberg code PGV VN earnings.
52-week range (VND) 16,400-42,400
Trading value (5D) (VNDmn) 18,090 ▪ Our EPS estimate for FY22 is raised 22% on strong 9M22 results, but those
Market cap. (VNDbn) 20,110 for FY23-24 are cut 1% and 9%, respectively, suggesting growth of 41% in
Market cap. (USDmn) 855 FY22, declining to 16% in FY23 and then 5% in FY24.
Shares outstanding (mn) 1,123
Total FOL share room (mn) 550 ▪ PGV currently trades on a 1-year rolling forward P/E of 7.4x, 0.9 SDs below
Current FOL share room (mn) 550 its average P/E of 9.6x since Jan-21. We continue to like PGV based on its
Foreign ownership limit 49.0% large and diversified generation capacity.
Foreign owned ratio 0%
Free float 5.53%
Major shareholder EVN (94.5%) Event: Interest rate increases weigh on bottom line
PGV reported a strong 9M22 core earnings beat, driven by robust hydro power
Share price performance and high competitive generation market (CGM) prices. However, strong growth
PGV (VND) VN30 Index (rebas ed) over FY23-24 is looking tougher given (1) lower hydro output as the La Niña
weather effect (bringing increased rain) is forecast to end in early 2023; and (2)
45,000
40,000
35,000 higher interest expenses as interest rates have increased by roughly 250bps
30,000
25,000
since Sep-22.
Impact: Lifting core earnings this year, but cutting FY23-24
20,000
15,000
We revise up our FY22 adjusted earnings forecast by 22% but cut those over
Volume
Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 FY23-24 by 5% on average. Our new forecasts suggest an FY21A-24F core
Share price (%) -1 mth -3 mth -12 mth earnings CAGR of 3.5%.
Relative to index (6.76) (18.5) (32.4) Valuation and recommendation
Relative to sector - - -
Source: Company, FactSet
Having fallen 31% in absolute terms and underperformed the VN Index by 19%
over the last three months, PGV now trades on a 1-year rolling forward P/E of
HSC vs. consensus 7.4x, 0.9 SDs below its historical average of 9.5x.
EPS adj. (VND) HSC Cons % diff
2022F 2,891 2,891 0.0
We now roll forward our valuation basis to end-FY23. This, combined with the
2023F 2,381 2,381 0.0 downward revisions in FY23-24 earnings and use of a more conservative risk-
2024F 2,274 2,274 0.0 free rate (of 5.0%, vs 3.5% previously), cuts our DCF-derived price by 45% to
Source: Bloomberg, HSC Research estimates VND22,300 (upside 25%). Maintain Buy.
Company description
The 2nd biggest genco in Vietnam with installed
capacity of 5,983 MW including hydro, gas-burned,
coal-burned, and solar.

EBITDA adj. (VNDbn) 8,814 8,170 9,721  9,182 8,893
Reported net profit (VNDbn) 1,786 3,096 2,246  2,675 2,554 
EPS adj. (VND) 1,954 2,104 2,891  2,381 2,274 
DPS (VND) 18.1 500 1,300  1,500  1,500 
BVPS (VND) 13,639 15,116 15,755 16,624 17,401
EV/EBITDA adj. (x) 7.64 7.63 5.53 5.33 4.99
P/E adj. (x) 9.16 8.51 6.19 7.52 7.87
Analysts Dividend yield (%) 0.10 2.79 7.26 8.38 8.38
Truong Thu My P/B (x) 1.31 1.18 1.14 1.08 1.03
Director, Head of Energy & Utilities EPS adj. growth (%) 25.3 7.70 37.4 (17.6) (4.52)

Company Focus - Power Generation Joint Stock Corp. 3 (PGV) 20 December 2022
Valuation is cheap, though earnings growth

dampened by interest rate increases
We maintain our Buy rating on PGV but lower our TP to VND22,300 (upside 25%) as
we (1) cut our earnings estimates in FY23-24 (due to tougher hydrological conditions
and higher expected interest rates) and (2) adopt more conservative valuation
assumptions. The stock has declined 31% and underperformed the index by 19%
over the last three months following the delay of PDP 8’s introduction. This said, on
current depressed valuations PGV looks a compelling Buy, in our view, given that it
is set to benefit from the country’s increasing demand for electricity.

• We revise up our FY22 hydro volume following strong hydrographic conditions
YTD. We keep our FY23 hydro volume unchanged while cutting our FY24 hydro
volume forecast by 8%, on our assumption that La Niña will end in early 2023 and
El Niño will return in late 2023 or early 2024. PGV’s hydro power plant Buon Kuop
is a big one (586 MW), with a large reserve lake so we believe it will manage to
save water for reasonable output in FY23.
• We revise down our gas power volume forecast for FY22 by 7% as we believe EVN
will cut output from gas-fired power plants during times of high crude oil prices. For
FY23-24, we keep our gas power volume forecasts unchanged following limitations
on natural gas supply from Nam Con Son basin.
• Regarding coal power volume, we revise down FY22 volume by 4% following coal
shortages while revising up FY24 by 4% as we believe EVN will need to mobilize
more thermal supply to cover the shortage of hydro power during the El Niño
weather effect.
• We revise up our FY22-24 interest expenses forecast by an average of 19.7%
following our house’s view that interest rates for electricity generators will increase
by 150 bps on average in 2023 (vs. that of 2022), and then will slightly decline in
2024.
Figure 45: Earnings forecasts, new vs. old, PGV
Sales 48,133 50,834 51,721 45,919 48,053 49,242 -4.6% -5.5% -4.8% 21.8% 4.6% 2.5%
Net profit 2,517 2,782 2,878 2,248 2,675 2,554 -10.7% -3.8% -11.2% -27.4% 19.1% -4.5%
Adj’d for forex loss 152 - - 1,001 - - N/a N/a N/a N/a N/a N/a
Adjusted net profit 2,669 2,782 2,878 3,249 2,675 2,554 21.7% -3.8% -11.2% 40.8% -17.6% -4.5%
Figure 46: Electricity volume forecasts, new vs. old, PGV

kWh Old forecasts New forecasts Revision Growth y/y
mn FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24
Total 28,695 28,500 28,499 27,445 28,500 28,799 -4.4% 0.0% 1.1% 1.6% 3.8% 1.0%
Hydro 2,800 2,600 2,600 2,950 2,600 2,400 5.4% 0.0% -7.7% 11.5% -11.9% -7.7%
Coal 13,750 13,750 13,750 13,250 13,750 14,250 -3.6% 0.0% 3.6% -4.4% 3.8% 3.6%
Gas 12,100 12,100 12,100 11,200 12,100 12,100 -7.4% 0.0% 0.0% 7.1% 8.0% 0.0%
Solar 45 50 49 45 50 49 0.0% 0.0% 0.0% -15.1% 11.1% -2.1%

Figure 47: Electricity revenue by source, PGV (VNDbn) Figure 48: Interest expenses, PGV (VNDbn)
Coal and gas power together account for 95% of total sales Average interest rates to peak at 4.8% in FY23
Hydro Coal Gas Solar Growth Interest expenses
Interest expenses as % of PBT
60,000 25% Average interest rate
2,000 60%
50,000 20%
15% 1,500
40,000 40%
10%
30,000 1,000
5%
20,000 20%
0% 500
10,000 -5%
0 -10% 0 0%
Figure 49: Electricity volume by source, PGV (kWh mn) Figure 50: Electricity gross margin by source, PGV
Coal and gas power account for 90% of total sales volume Overall GPM is defined by average of coal and gas around 8%
Hydro Coal Gas Solar Growth Hydro Coal
Gas Solar
35,000 5%
30,000 80%
0% 70%
25,000
60%
20,000 -5%
50%
15,000 40%
-10%
30%
10,000
-15% 20%
5,000 10%
0 -20% 0%


We maintain our Buy rating on PGV but cut our target price by 45% to VND22,300
(upside 25%) as we revise down our FY23-24 forecasts, adopt our more conservative
‘house’ risk-free rate, and roll forward our valuation basis to end-2023. Following a
31% fall in the past 3M, PGV is trading on a 1-year rolling forward adjusted P/E of
7.4x, 0.9 SDs below its average of 9.6x (since Jan-21).

In our DCF valuation, we use a beta of 1.0, a risk-free rate of 5.0%, a risk premium of
8.0%, and a WACC of 10.3%. (In our previous valuation from May-22, we used a beta
of 1.0, a risk-free rate of 3.5%, a risk premium of 8.0%, and a WACC of 8.5%.)
We show the calculations and assumptions underlying our valuation work in Figures
51-53 below. We also show sensitivities to our risk-free rate and terminal growth
assumption in Figure 54.
Figure 51: DCF calculation, PGV
EBIT 4,938 4,399 4,109 4,017 4,001 3,998
Unlevered net income 3,999 3,519 3,288 3,213 3,201 3,199
Plus: D&A 4,783 4,784 4,783 4,784 4,784 4,783
Less: Capex (530) (537) (543) (549) (555) (560)
Less: WC increase (2,182) (2,076) (2,088) (976) (1,085) (583)
UFCF 6,071 5,689 5,440 6,471 6,344 6,839
Discount factor 0% 100% 91% 82% 75% 68%
Figure 52: DCF valuation, PGV Figure 53: CAPM-based WACC calculation, PGV
Our target price comes to VND22,300 per share WACC comes to 10.3%
VNDbn
PV of FY23-27 UFCF 25,309 Risk-free rate 5.0%
Plus: Cash 2,880 Average interest rate 4.8%
Less: Minority interests (385) Cost of debt 3.8%
Equity value 25,089 Weight of equity 70.0%
Shares o/s (mn) 1,123 Weight of debt 30.0%
Fair value/share (VND) 22,300 WACC 10.3%
Figure 54: Sensitivity of TP to key assumptions, PGV

Our base case assumes a 0.0% terminal growth rate and a 5.0% on risk-free rate
VND Risk free rate
4.0% 4.5% 5.0% 5.5% 6.0%
-2% 20,300 18,800 17,400 16,100 14,900
-1.0% 22,900 21,200 19,600 18,100 16,800
0.0% 26,100 24,100 22,300 20,600 19,000
1.0% 30,000 27,700 25,500 23,500 21,700
2.0% 35,000 32,100 29,500 27,200 25,000
Valuation context
PGV’s price has declined 31% over the last three months, underperforming the VN
Index by 19%. Currently, PGV trades on a 1-year rolling forward P/E of 7.4x, 0.9 SDs
below its historical average of 9.6x. At our new TP, PGV’s FY23 P/E is 9.4x.

Figure 55: Rolling one year forward P/E adjusted, PGV Figure 56: Std. dev. from avg. 1-year rolling fwd. P/E, PGV
Currently trading on a P/E of 7.4x… …which is 0.9 standard deviations below its 9.6x P/E average
16 2.0
14 1.5
12
1.0
10
0.5
8
0.0
6
4 -0.5
2 -1.0
0 -1.5
Jan-21 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22


Sales 40,367 37,695 46,047 48,183 49,375 EBIT 4,157 3,665 4,938 4,399 4,109
Gross profit 4,760 4,346 5,674 5,266 4,998 Depreciation & amortisation (4,657) (4,505) (4,784) (4,784) (4,784)
SG&A (603) (681) (737) (867) (889) Net interest (1,949) 86.0 (2,375) (1,210) (1,080)
Other income - - - - - Tax paid (273) (537) 535 679 648
Other expenses - - - - - Changes in working capital (7,279) (5,461) (1,848) (447) (547)
EBIT 4,157 3,665 4,938 4,399 4,109 Others - - - - -
Net interest (1,949) 86.0 (2,375) (1,210) (1,080) Cash flow from operations 1,105 1,032 8,172 7,991 7,665
Associates/affiliates 85.2 119 253 206 212 Capex (366) (949) (530) (537) (543)
Other non-operational (1.38) (3.66) 0 0 0 Acquisitions & investments (2,356) (912) (1,406) (216) (227)
Exceptional items - - - - - Disposals 2,116 1,024 0 0 0
Pre-tax profit 2,292 3,866 2,816 3,395 3,241 Others 412 401 306 330 349
Taxation (477) (733) (535) (679) (648) Cash flow from investing (194) (435) (1,629) (423) (421)
Minority interests (29.2) (37.8) (34.2) (40.7) (38.9) Dividends (19.4) (89.6) (1,461) (1,685) (1,685)
Exceptional items after tax 0 0 0 0 0 Issue of shares 0 0 0 0 0
Net profit 1,786 3,096 2,246 2,675 2,554 Change in debt (1,829) (927) 3,500 (1,000) (1,000)
Other financing cash flow 642 206 (8,096) (5,393) (2,972)
Net profit adj'd 2,090 2,308 3,248 2,675 2,554 Cash flow from financing (1,206) (811) (6,057) (8,078) (5,657)
EBITDA adj. 8,814 8,170 9,721 9,182 8,893
Cash, beginning of period 2,901 2,607 2,393 2,880 2,369
EPS (VND) 1,669 2,823 2,000 2,381 2,274 Change in cash (294) (214) 487 (511) 1,587
EPS adj. (VND) 1,954 2,104 2,891 2,381 2,274 Exchange rate effects (0.00) (0.00) 0 0 0
DPS (VND) 18.1 500 1,300 1,500 1,500 Cash, end of period 2,607 2,393 2,880 2,369 3,956
Basic shares, average (mn) 1,070 1,097 1,123 1,123 1,123
Basic shares, period end (mn) 1,070 1,123 1,123 1,123 1,123 Free cash flow 739 83.1 7,643 7,454 7,122
Fully diluted shares, period end (mn) 1,070 1,097 1,123 1,123 1,123
Short-term investments 4,309 4,113 4,318 4,534 4,761 Gross margin (%) 11.8 11.5 12.3 10.9 10.1
Inventory 4,320 3,690 4,441 4,720 4,881 Net profit margin (%) 4.42 8.21 4.88 5.55 5.17
Other current assets 99.4 118 110 117 121 Effective tax rate (%) 20.8 18.9 19.0 20.0 20.0
Total current assets 21,173 20,734 22,731 23,233 25,495 Sales growth (%) (8.50) (6.62) 22.2 4.64 2.47
EBITDA adj. growth (%) (4.75) (7.31) 19.0 (5.54) (3.15)
PP&E 48,212 44,275 40,029 35,790 31,559 Net profit adj. growth (%) 25.3 10.4 40.7 (17.6) (4.52)
Intangible assets 105 590 583 575 565 EPS growth (%) 108 69.1 (29.2) 19.1 (4.52)
Investment properties 0 0 0 0 0 EPS adj. growth (%) 25.3 7.70 37.4 (17.6) (4.52)
Long-term investments 708 721 520 520 520 DPS growth (%) nm 2,655 160 15.4 0
Associates/JVs 1,538 1,727 1,979 2,053 2,133 Dividend payout ratio (%) 1.09 17.7 65.0 63.0 66.0
Other long-term assets 1,164 1,215 1,385 1,450 1,486
Asset turnover (x) 0.55 0.53 0.67 0.74 0.79
Other current liabilities 1,676 2,789 7,439 7,877 7,950 Accounts receivable days 101 114 99.3 97.7 96.9

Deferred tax 0 0 0 0 0 Net debt*/equity (%) 330 249 190 154 124
Other long-term liabilities 349 333 350 368 386 Debt/capital (%) 69.7 64.5 54.4 49.0 45.7
Long-term liabilities 46,196 40,091 34,607 29,125 23,643 Interest coverage (x) 2.13 N/a 2.08 3.64 3.80
Debt/EBITDA (x) 5.76 5.47 3.76 3.40 3.17

Minority interests 370 381 385 389 393 EV/sales (x) 1.67 1.65 1.17 1.02 0.90
P/E (x) 10.7 6.34 8.95 7.52 7.87
P/B (x) 1.31 1.18 1.14 1.08 1.03
BVPS (VND) 13,639 15,116 15,755 16,624 17,401 Dividend yield (%) 0.10 2.79 7.26 8.38 8.38
Net debt/(cash)* 48,183 42,262 33,680 28,797 24,238

PetroVietnam Power (POW - HSX)
Buy (unchanged) New capacity calls for re-rating; retain Buy

Up/downside: 30.1%
▪ We maintain our Buy rating on POW but trim our DCF-derived TP by 22%
Share price (VND) (as of 16 Dec 2022) 11,450 to VND14,900 as we recognize the impact of La Niña ending and interest
Bloomberg code POW VN rate hikes. Our TP implies an adjusted FY23 P/E of 20.5x.
52-week range (VND) 9,580-20,150
Trading value (5D) (VNDmn) 11,360 ▪ We cut our FY22-24 adjusted EPS by 2.6%, 5.0%, and 6.1%, reflecting
Market cap. (VNDbn) 26,814 interest rate increases and El Niño returning in late 2023 or early 2024.
Market cap. (USDmn) 1,136
Shares outstanding (mn) 2,342 ▪ The stock currently trades on a 1-year rolling forward P/E of 15.8x, 0.4 SDs
Total FOL share room (mn) 1,148 below its historical mean of 18.4x. This said, we think a higher multiple is
Current FOL share room (mn) 1,047 justified given increasing electricity demand and an additional 1,500 MW of
Foreign ownership limit 49.0% LNG capacity that will come online in late 2024 or early 2025.
Free float 18.8%
Major shareholder PetroVietnam Group (79.9%) Event: Interest rate increases and the end of La Niña
POW’s 9M core earnings were a little below expectations due to a coal
Share price performance shortage. Now the coal shortage has been resolved, however, FY23-24 still
POW (VND) VN30 Index (rebas ed) look tough given (1) lower hydro output as La Niña (bringing more rain) is
forecast to end in early 2023; and (2) higher interest expenses as interest rates
22,000
20,000
18,000
16,000
have increased by roughly 250 bps since Sep-22.
14,000
12,000
10,000
Impact: Cutting FY22-24 EPS by an average of 4.6%
We cut our FY22-24 net earnings forecast by 2.6%, 5.0%, and 6.1%,
8,000
respectively. Our new forecasts suggest an aggregate FY21A-24F net earnings

Volume
Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 CAGR of 21.4%, which is below consensus by 20% on average.
Share price (%) -1 mth -3 mth -12 mth
We note that the key difference between our estimates and consensus relate
Relative to index (0.20) (5.75) (5.88)
to our assumptions on interest rates as well as La Niña ending. We assume
Relative to sector - - - that interest rates for electricity generators will increase by 150 bps on average
Source: Company, FactSet in 2023 (vs. that of 2022), and then will slightly decline in 2024. We also assume
that La Niña will end in early 2023 and El Niño will return in late 2023 or early
HSC vs. consensus 2024.
2022F 678 696 (2.7) Valuation and recommendation
2023F 726 984 (26.2)
2024F 778 1,186 (34.4) Our DCF-derived target price is cut by 22% to VND14,900 (from VND19,200),
Source: Bloomberg, HSC Research estimates as we apply a more conservative risk-free rate assumption, revise down FY22-
24 estimates, and roll forward our valuation basis to end-FY23. Our new TP
Company description suggests 30% upside from the current market price and implies an FY23
POW owns and operates 4.2 GW generation adjusted P/E of 20.5x.
capacity, about 6% of the country’s installed
capacity, with another 1.5 GW of LNG power The stock is currently trading on a 1-year rolling forward adjusted P/E of 15.8x,
capacity to come into operation in late FY24-25. versus its average of 18.4x (calculated since Sep-19). We think a higher
multiple is justified given increasing electricity demand and an additional 1,500
MW of LNG capacity under construction that will come into operation in late
2024 or early 2025, adding new revenue and income. Reiterate Buy.

EBITDA adj. (VNDbn) 6,586 4,512 5,117 5,213 5,647
Reported net profit (VNDbn) 2,365 1,779 1,467  1,700  1,823 
EPS adj. (VND) 1,118 435 678 726  778 
DPS (VND) 300 300 300 300 300
BVPS (VND) 12,186 12,659 12,391 12,771 13,202
EV/EBITDA adj. (x) 4.88 5.99 5.33 5.87 7.59
P/E adj. (x) 10.2 26.3 16.9 15.8 14.7
Truong Thu My P/B (x) 0.94 0.90 0.92 0.90 0.87
Director, Head of Energy & Utilities EPS adj. growth (%) (7.50) (61.1) 55.9 7.11 7.21

Company Focus - PetroVietnam Power (POW) 20 December 2022
New capacity justifies revaluation; Maintain Buy

We maintain our Buy rating on POW while cutting our DCF-based target price by
22% to VND14,900, suggesting upside of 31%. Earnings prospects look modest in
FY23-24 after strong growth in FY22. POW trades on a 1-year rolling forward
adjusted P/E of 15.8x, 0.4 SDs below its average P/E of 18.4x (since Sep-19). We
retain our view that POW deserves revaluation due to the addition of 1,500 MW of
LNG capacity under construction that will come into operation in late 2024 or early
2025.

• We revise down our hydro volume forecast for FY22-24 by 8% on average, on our
assumption that La Niña will end in early 2023 and El Niño will return in late 2023
or early 2024.
• We revise down our gas power volume forecast for FY22-23 by 10% on average,
as we believe EVN will try to cut output from gas-fired power plants in times of high
crude oil prices. We revise up FY24 gas power volume by 5% as we believe EVN
will have to mobilize more thermal power to cover the shortage of hydroelectricity
during El Niño.
• Regarding coal power volume, we revise down FY22 volume by 13% following coal
shortages while revising up FY24 by 8% as we believe EVN will need to mobilize
more thermal supply to cover the shortage of hydro power during El Niño.
• We revise up our FY22-24 interest expenses forecast by an average of 6.3%
following our house’s view that interest rates for electricity generators will increase
by 150 bps on average in 2023 (vs. that of 2022), and then will slightly decline in
2024.
Figure 57: Earnings forecasts, new vs. old, POW
VNDbn
Sales 29,884 35,023 37,364 25,776 33,184 38,960 -13.7% -5.3% 4.3% 4.9% 28.7% 17.4%
Net profit
1,958 1,790 1,940 1,467 1,700 1,823 -25.1% -5.0% -6.1% -17.5% 15.9% 7.2%
(reported)
Adj. for forex loss (328) - - 120 - - N/a N/a N/a N/a N/a N/a
Adj. net profit 1,630 1,790 1,940 1,587 1,700 1,823 -2.6% -5.0% -6.1% 55.9% 7.1% 7.2%
Figure 58: Electricity volume forecasts, new vs. old, POW

kWh mn
Total 14,905 18,650 19,550 13,135 17,755 20,455 -11.9% -4.8% 4.6% -10.7% 35.2% 15.2%
Hydro 1,400 1,350 1,300 1,430 1,250 1,050 2.1% -7.4% -19.2% 20.7% -12.6% -16.0%
Gas 9,700 11,795 12,245 8,400 11,000 12,900 -13.4% -6.7% 5.3% 5.5% 31.0% 17.3%
Coal 3,800 5,500 6,000 3,300 5,500 6,500 -13.2% 0.0% 8.3% -40.6% 66.7% 18.2%
Solar 5 5 5 5 5 5 0.0% 0.0% 0.0% 246% 0.0% 0.0%

Figure 59: Electricity revenue by source, POW (VNDbn) Figure 60: Interest expenses, POW (VNDbn)
Gas-fired power accounts for around 65% of total sales during Interest expenses increase in FY25 as construction debts for
FY21-24, increasing to 70% in FY25 1,500 MW of LNG kick in
Hydro Gas Interest expenses
Coal Solar Interest expenses as % of PBT
Revenue growth (%) Average interest rate (%)
60,000 40% 1,000 40%
800
30%
40,000 20%
600
20%
400
20,000 0%
10%
200
0 -20% 0 0%
Figure 61: Electricity volume by source, POW (kWh mn) Figure 62: Operating generation capacity, POW (MW)
Gas-fired volume accounts for around 60% total volume during An additional 750 MW of LNG comes into operation in late
FY21-23, and increase to 65% in FY25 FY24, with another 750 MW coming in FY25
Hydro Gas Coal Solar Hydro Gas Coal Solar
30,000 7,000
25,000 6,000
5,000
20,000
4,000
15,000
3,000
10,000
2,000
5,000 1,000
0 0
Source: HSC Research Source: POW, HSC Research


We maintain our Buy rating on POW but cut our target price by 22% to VND14,900
(upside 30%) as we revise down our FY22-24 forecasts, apply a more conservative
risk-free rate, and roll forward our valuation basis to end-2023. Currently, POW is
trading on a 1-year rolling forward adjusted P/E of 15.8x, 0.4 SDs below its average
of 18.4x (since Sep-19). We believe a re-rating is justified due to new LNG capacity
of 1,500 MW arriving in late 2024 or early 2025.

8.0%, and a WACC of 11.1%. In our previous valuation from Aug-22, we used a beta
of 1.1, a risk-free rate of 3.5%, a risk premium of 8.0%, and a WACC of 9.5%. We
show the calculations and assumptions underlying our valuation work in Figures 63-
65 below. We also show sensitivities to our risk-free rate and terminal growth
assumption in Figure 66.
Figure 63: DCF calculation, POW
EBIT 2,337 2,593 2,768 3,624 4,059 3,988
Plus: D&A 2,844 2,854 3,114 4,098 4,834 4,849
Less: Capex (1,105) (6,754) (16,520) (8,266) (154) (154)
Less: WC increase (1,559) (1,070) (589) (2,401) (982) 141
UFCF 2,290 (2,630) (11,497) (3,271) 7,413 8,485
Discount factor 0% 100% 90% 81% 73% 66%
Figure 64: DCF valuation, POW Figure 65: CAPM-based WACC calculation, POW
VNDbn
PV of FY23-27 UFCF 761 Risk-free rate 5.0%
Plus: Cash 5,627 Average interest rate 7.5%
Less: Minority Interest (3,010) Cost of debt 6.8%
Shares o/s (mn) 2,342 Weight of debt 50.0%
Figure 66: Sensitivity of TP to key assumptions, POW

Our base case assumes a 2.0% terminal growth rate and a 5.0% risk-free rate
VND Risk-free rate
4.0% 4.5% 5.0% 5.5% 6.0%
1.0% 14,500 13,800 13,000 12,400 11,700
1.5% 15,600 14,700 13,900 13,200 12,500
2.0% 16,700 15,800 14,900 14,100 13,400
2.5% 18,000 17,000 16,100 15,200 14,300
3.0% 19,500 18,400 17,300 16,300 15,400
Valuation context
Currently, POW is trading on a 1-year rolling forward adjusted P/E of 15.8x, 0.4 SDs
below its average P/E of 18.4x (since Sep-19). We believe a revaluation is justified
due to new LNG capacity of 1,500 MW arriving in late 2024 or early 2025. Indeed, at
our target price, POW would trade on an FY23 adjusted P/E of 20.5x, but the higher
valuation is deserved.

Figure 67: Rolling 1-year forward P/E adjusted, POW Figure 68: Std. dev. from avg. 1-year rolling fwd. P/E, POW
Currently trading on a P/E of 15.8x… …0.4 standard deviations below its 18.4x average
Street Actual Us 2.5

35 2.0
30 1.5
25 1.0
20 0.5
0.0
15
(0.5)
10
(1.0)
5 (1.5)
0 (2.0)
Sep-19 Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22 Sep-19 Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22


Sales 29,732 24,565 25,776 33,184 38,960 EBIT 3,390 2,285 2,273 2,359 2,533
Gross profit 4,580 2,543 3,055 3,371 3,760 Depreciation & amortisation (2,824) (2,818) (2,844) (2,854) (3,114)
SG&A (1,209) (138) (812) (1,012) (1,227) Net interest (560) 26.1 (365) (174) (203)
Other income 30.4 19.9 30.0 0 0 Tax paid (212) (287) (188) (215) (229)
Other expenses (10.5) (140) 0 0 0 Changes in working capital 1,638 1,960 (1,559) (1,070) (589)
EBIT 3,390 2,285 2,273 2,359 2,533 Others 827 (1,412) (455) 195 454
Net interest (560) 26.1 (365) (174) (203) Cash flow from operations 7,908 5,389 2,551 3,949 5,079
Associates/affiliates 44.1 8.62 25.8 29.7 30.9 Capex (147) (274) (1,105) (6,754) (16,520)
Other non-operational - - - - - Acquisitions & investments (601) (299) 0 0 0
Exceptional items - - - - - Disposals 523 589 0 0 0
Pre-tax profit 2,875 2,319 1,934 2,215 2,361 Others 374 305 250 288 305
Taxation (212) (287) (188) (215) (229) Cash flow from investing 149 320 (855) (6,466) (16,215)
Minority interests (298) (254) (279) (300) (309) Dividends (1,025) (710) (703) (703) (703)
Net profit 2,365 1,779 1,467 1,700 1,823 Change in debt (5,172) (3,845) (3,300) 2,930 10,271
Other financing cash flow 0 0 0 0 0
Net profit adj'd 2,619 1,018 1,587 1,700 1,823 Cash flow from financing (6,072) (4,555) (4,003) 2,228 9,568
EBITDA adj. 6,586 4,512 5,117 5,213 5,647
Cash, beginning of period 5,083 7,070 8,224 5,916 5,627
EPS (VND) 1,010 760 626 726 778 Change in cash 1,986 1,154 (2,307) (290) (1,568)
EPS adj. (VND) 1,118 435 678 726 778 Exchange rate effects 0.92 (0.00) 0 0 0
DPS (VND) 300 300 300 300 300 Cash, end of period 7,070 8,224 5,916 5,627 4,059
Basic shares, average (mn) 2,342 2,342 2,342 2,342 2,342
Basic shares, period end (mn) 2,342 2,342 2,342 2,342 2,342 Free cash flow 7,761 5,115 1,445 (2,806) (11,441)
Fully diluted shares, period end (mn) 2,342 2,342 2,342 2,342 2,342
Short-term investments 789 531 0 0 0 Gross margin (%) 15.4 10.4 11.9 10.2 9.65
Inventory 1,728 1,838 1,509 2,172 2,613 Net profit margin (%) 7.95 7.24 5.69 5.12 4.68
Other current assets 115 502 243 334 452 Effective tax rate (%) 7.39 12.4 9.70 9.70 9.70
Total current assets 16,897 16,897 14,371 16,708 16,967 Sales growth (%) (16.0) (17.4) 4.93 28.7 17.4
EBITDA adj. growth (%) (12.4) (31.5) 13.4 1.88 8.32
PP&E 34,799 32,230 30,497 34,404 47,818 Net profit adj. growth (%) (7.50) (61.1) 55.9 7.11 7.21
Intangible assets 66.9 34.0 28.1 21.7 14.6 EPS growth (%) (5.76) (24.8) (17.5) 15.9 7.21
Investment properties 0 0 0 0 0 EPS adj. growth (%) (7.50) (61.1) 55.9 7.11 7.21
Long-term investments 569 384 126 126 126 DPS growth (%) nm 0 0 0 0
Associates/JVs 459 425 447 469 493 Dividend payout ratio (%) 29.7 39.5 47.9 41.3 38.5
Other long-term assets 1,260 2,980 1,672 2,527 3,407
Asset turnover (x) 0.54 0.46 0.52 0.65 0.63
Other current liabilities 4,497 3,549 2,908 3,681 4,453 Accounts receivable days 104 96.2 108 105 102
Total current liabilities 16,480 16,712 12,946 17,150 20,583 Accounts payable days 67.5 120 79.3 88.9 96.0

Deferred tax 0 0 0 0 0 Net debt*/equity (%) 18.8 0.81 1.55 12.8 51.9
Long-term liabilities 5,514 2,874 1,580 3,586 13,593 Interest coverage (x) 6.06 N/a 6.23 13.5 12.5
Debt/EBITDA (x) 2.00 1.66 1.24 1.81 3.56

Minority interests 2,729 2,487 2,736 3,010 3,311 EV/sales (x) 1.08 1.10 1.06 0.92 1.10
P/E (x) 11.3 15.1 18.3 15.8 14.7
P/B (x) 0.94 0.90 0.92 0.90 0.87
Net debt/(cash)* 5,340 234 437 3,802 16,020

Gialai Electricity (GEG - HSX)
Add (from Buy) Interest rate increases hit; d/g to Add

Up/downside: 12.8%
▪ We are downgrading our rating on GEG to Add (from Buy) and cutting our
Share price (VND) (as of 16 Dec 2022) 13,300 TP 46% to VND15,000 as we recognize the impact of recent interest rate
Bloomberg code GEG VN increases on GEG’s FY22-24 earnings.
52-week range (VND) 9,540-28,400
Trading value (5D) (VNDmn) 13,090 ▪ We cut our EPS estimates for FY22-24 by 7%, 19%, and 26%, respectively,
Market cap. (VNDbn) 4,282 which suggests growth of 34% in FY22, a decline of 6% in FY23, and growth
Market cap. (USDmn) 181 of 1% in FY24.
Shares outstanding (mn) 322
Total FOL share room (mn) 158 ▪ GEG currently trades on a 1-year rolling forward P/E of 15.6x, a full 1.4 SDs
Current FOL share room (mn) 43.7 below its average P/E of 20.7x since Sep-19. We continue to like the name
Foreign ownership limit 49.0% given its leadership role in nascent but growing renewables here.
Free float 40.5%
Major shareholder AVH Pte. Ltd (35.1%) Event: Interest rate increases weigh on bottom line
GEG’s FY22-24 prospects are tough as the domestic interest rate has
Share price performance increased by roughly 250 bps since Sep-22. Given its high gearing ratio of 2.3x,
GEG (VND) VN30 Index (rebas ed) GEG’s bottom line will be hit so much that the new 100 MW wind project
expected to come into operation in 1Q23 won’t help much.
30,000
28,000
26,000
24,000
Impact: Cutting FY22-24 EPS by 17% on average

22,000
20,000
18,000
16,000
14,000
12,000
10,000 We cut our GEG FY22-24 net earnings forecasts by 7%, 19%, and 26%,
respectively. Our new forecasts suggest a 3-year net earnings CAGR of 8.4%,
8,000
which is below consensus CAGR of 26.9%. The key difference between our
Volume
Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 estimates and the consensus is the expected interest rate: we assume that
Share price (%) -1 mth -3 mth -12 mth interest rates for electricity generators will increase by 150 bps on average in
Ordinary shares 30.4 (37.0) (32.0) 2023 (vs. that of 2022) and then slightly decline in 2024.
Relative to index 14.8 (26.1) (3.81)
Relative to sector - - - Valuation and recommendation
Having underperformed the VN Index by 26% over the last three months, GEG
HSC vs. consensus now trades on a 1-year rolling forward P/E of 15.6x, 1.4 SDs below its historical
EPS adj. (VND) HSC Cons % diff average of 20.7x.
2022F 905 996 (9.2)
2023F 850 1,225 (30.6) We now roll forward our valuation basis to end-FY23. This, combined with the
2024F 859 1,451 (40.8) downward revisions in our FY23-24 earnings and a more conservative risk-free
Source: Bloomberg, HSC Research estimates rate, slashes our DCF-derived price by 46% to VND15,000 (upside 13%). We
downgrade our rating on GEG to Add (from Buy).
Company description
GEG is a leader in Vietnam’s nascent RE industry
with 300 MWp of solar and 130 MW of wind as of
2021-end. GEG has an ambitious new capacity
pipeline for the period 2022-2030.

EBITDA adj. (VNDbn) 994 986 1,410  1,984  2,009 
Reported net profit (VNDbn) 257 283 383  274  276 
EPS adj. (VND) 877 710 905  850  859 
DPS (VND) 400 0 400  500  600 
BVPS (VND) 10,566 11,050 12,205 14,688  14,927 
EV/EBITDA adj. (x) 7.56 11.1 10.7 7.82 7.49
P/E adj. (x) 15.2 18.7 14.7 15.6 15.5
Analysts Dividend yield (%) 3.01 0 3.01 3.76 4.51
Truong Thu My P/B (x) 1.26 1.20 1.09 0.91 0.89
Director, Head of Energy & Utilities EPS adj. growth (%) (2.45) (19.0) 27.4 (6.03) 1.03

Company Focus - Gialai Electricity (GEG) 20 December 2022
Estimates cut on higher interest rates; d/g to Add

We downgrade GEG to Add (from Buy) and cut our DCF-based target price by 46%
to VND15,000, suggesting upside of 13%. Given its high gearing ratio, GEG’s bottom
line is hit disproportionately because of recent interest rate increases. Earnings
prospects look modest in FY23-24 after strong growth in FY22. However, GEG looks
very cheap still, trading on a 1-year rolling forward adjusted P/E of 15.6x, 1.4 SDs
below its average P/E of 20.7x (since Sep-19). Moreover, GEG is a leader in
renewables, and this should position it well for additional opportunities.

• We trim our hydro volume forecast for FY22-24 by 3% on average on our
assumption that La Nina will end in early 2023 and El Nino will return in late 2023
or early 2024.
• We tighten our wind power volume forecast for FY22-24 by 5.5% on average as we
now assume average operation hours of wind projects to be 3,200 hours per year
vs. 3,400, previously.
• We raise our FY22-24 interest expenses forecast by 8.8% on average following our
house’s view that interest rates for electricity generators will increase by 150 bps
on average in 2023 (vs. that of 2022) and then slightly decline in 2024.
Figure 69: Earnings forecasts, new vs. old, GEG
Sales 2,269 2,917 3,092 2,187 2,744 2,899 -3.6% -5.9% -6.3% 58.3% 25.5% 5.6%
Net profit 312 337 373 383 274 276 22.7% -18.8% -25.9% 35.3% -28.5% 1.0%
Adj. for divestment gain - - - (92) - - N/a N/a N/a N/a N/a N/a
Adj. net profit 312 337 373 291 274 276 -6.7% -18.8% -25.9% 34.2% -6.0% 1.0%
Figure 70: Electricity volume forecasts, new vs. old, GEG

kWh mn FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24 FY22 FY23 FY24
Total 1,090 1,345 1,380 1,062 1,301 1,337 -2.6% -3.3% -3.1% 32.5% 22.5% 2.8%
Hydro 330 320 280 328 310 265 -0.6% -3.1% -5.4% -4.4% -5.5% -14.5%
Solar 390 385 380 393 385 379 0.7% 0.1% -0.2% -1.8% -1.8% -1.5%
Wind 370 640 720 342 605 693 -7.7% -5.4% -3.7% 479% 77.3% 14.5%
Figure 71: Electricity revenue by source, GEG (VNDbn) Figure 72: Interest expenses, GEG (VNDbn)
Wind power is the key growth driver thanks to new capacity Average interest rates to peak at 9.3% in FY23; interest
added payment are the biggest cash expenses due to high gearing
Hydro Solar Wind Growth (% y/y) Interest espenses
Interest expenses as % of PBT
3,000 50% Average interest rate (%)
1,000 250%
2,500 40%
800 200%
2,000 30%
600 150%
1,500 20%
1,000 10% 400 100%
500 0% 200 50%
0 -10% 0 0%

Figure 73: Electricity volume by source, GEG (kWh mn) Figure 74: Electricity gross margin by source, GEG
Wind increases its share in total generation volume, accounting GPMs of solar and wind are relatively stable while hydro’s
for more than 50% since FY24 afterwards depends on weather conditions
Hydro Solar Wind Growth (% y/y) Hydro Solar Wind
1,400 35% 75%

1,200 30%
25% 60%
1,000
20% 45%
800
15%
600 30%
10%
400 5% 15%
200 0%
0 -5% 0%


We downgrade GEG to Add (from Buy) and cut our target price by 46% to VND15,000
(upside 15%) as we revise down our FY23-24 forecasts and roll forward our valuation
basis to end-2023. The stock looks cheap, trading on a 1-year rolling forward P/E of
15.6x, 1.4 SDs below its historical average of 20.7x.

8.0%, and a WACC of 10.9%. (In our previous valuation from Aug-22, we used a beta
of 1.1, a risk-free rate of 3.5%, a risk premium of 8.0%, and a WACC of 9.5%.) We
show the assumptions and calculations underlying our valuation in Figures 75-77
below. We also show sensitivities to our risk-free rate and terminal growth assumption
in Figure 78.
Figure 75: DCF calculation, GEG
EBIT 1,105 1,182 1,211 1,164 1,130 1,088
Plus: D&A 592 829 830 831 833 834
Less: Capex (4,542) (1,561) (254) (204) (165) (133)
Less: WC increase (71) (229) (64) 15 15 15
UFCF (2,949) 221 1,680 1,806 1,751 1,804
Discount factor 0% 100% 90% 81% 73% 66%
Figure 76: DCF valuation, GEG Figure 77: CAPM-based WACC calculation, GEG
VNDbn
PV of FY23-27 UFCF 5,686 Risk-free rate 5.0%
Plus: Cash 124 Interest rate 9.5%
Less: Minority interest (385) Cost of debt 8.8%
Shares o/s (mn) 322 Weight of debt 70.0%
Figure 78: Sensitivity of TP to key assumptions, GEG

Our base case assumes a 3.0% terminal growth rate and a 5.0% on risk-free rate
VND Risk-free rate
4.0% 4.5% 5.0% 5.5% 6.0%
2.0% 12,800 11,900 11,100 10,300 9,500
2.5% 14,800 13,900 12,900 12,000 11,200
3.0% 17,100 16,000 15,000 14,000 13,000
3.5% 19,700 18,500 17,300 16,200 15,200
4.0% 22,700 21,300 20,000 18,800 17,600
Valuation context
GEG’s price has declined 37% over the last three months, underperforming the VN
Index by 26%. Currently, GEG trades on a 1-year rolling forward P/E of 15.6x, 1.4 SDs
below its historical average of 20.7x. At our new TP, GEG’s FY23 P/E is 17.6x.

Figure 79: Rolling one year forward P/E adjusted, GEG Figure 80: Std. dev. from avg. 1-year rolling fwd. P/E, GEG
Currently trading on a P/E of 13.6x… …which is 1.4 standard deviations below its 20.7x P/E average
Street Actual Us
3
35
2
30
25 1
20 0
15
(1)
10
5 (2)
0 (3)
Sep-19 Feb-20 Jul-20 Dec-20May-21 Oct-21 Mar-22 Aug-22 Sep-19 Feb-20 Jul-20 Dec-20 May-21 Oct-21 Mar-22 Aug-22


Sales 1,493 1,381 2,187 2,744 2,899 EBIT 645 651 960 1,155 1,179
Gross profit 761 767 1,121 1,356 1,392 Depreciation & amortisation (354) (417) (592) (829) (830)
SG&A (116) (116) (161) (202) (213) Net interest (341) (371) (485) (812) (833)
Other income - - - - - Tax paid (13.6) (43.3) (40.3) (22.9) (23.2)
Other expenses - - - - - Changes in working capital (189) 85.3 (154) (229) (64.3)
EBIT 645 651 960 1,155 1,179 Others (34.5) (45.0) (102) (65.5) (158)
Net interest (341) (371) (485) (812) (833) Cash flow from operations 421 694 771 854 931
Associates/affiliates 0 6.32 10.0 10.2 10.4 Capex (779) (3,916) (4,542) (1,561) (254)
Other non-operational - - - - - Acquisitions & investments (414) (233) 0 0 0
Exceptional items 4.66 82.3 0 0 0 Disposals 43.8 65.1 0 0 0
Pre-tax profit 309 369 485 353 356 Others 212 132 0 (15.2) (13.9)
Taxation (13.6) (43.3) (40.3) (22.9) (23.2) Cash flow from investing (937) (3,952) (4,542) (1,576) (268)
Minority interests (37.6) (42.6) (62.3) (56.0) (56.6) Dividends (35.6) (140) 0 (129) (199)
Net profit 257 283 383 274 276 Change in debt (90.4) 3,305 3,457 304 (457)
Other financing cash flow (0.62) (3.70) (1.58) (1.58) (1.58)
Net profit adj'd 254 217 291 274 276 Cash flow from financing 547 3,378 3,638 825 (658)
EBITDA adj. 994 986 1,410 1,984 2,009
Cash, beginning of period 105 135 256 124 227
EPS (VND) 957 925 1,189 850 859 Change in cash 30.1 120 (132) 104 5.08
EPS adj. (VND) 877 710 905 850 859 Exchange rate effects (0.09) 0.02 0 0 0
DPS (VND) 400 0 400 500 600 Cash, end of period 135 256 124 227 232
Basic shares, period end (mn) 289 306 322 322 322 Free cash flow (359) (3,222) (3,770) (706) 677
Cash 135 256 124 227 232 Operating ratios
Short-term investments 0 0 0 0 0 Gross margin (%) 50.9 55.5 51.3 49.4 48.0
Accounts receivable 1,434 772 936 1,078 1,115 EBITDA adj. margin (%) 66.6 71.4 64.5 72.3 69.3
Inventory 152 146 213 278 301 Net profit margin (%) 17.2 20.5 17.5 9.97 9.54
Other current assets 57.6 142 81.3 106 115 Effective tax rate (%) 4.41 11.7 8.30 6.50 6.50
Total current assets 1,779 1,316 1,354 1,689 1,764 Sales growth (%) 28.8 (7.51) 58.3 25.5 5.62
EBITDA adj. growth (%) 20.7 (0.82) 43.0 40.7 1.28
PP&E 5,872 10,946 14,896 15,628 15,052 Net profit adj. growth (%) 0.94 (14.5) 34.2 (6.03) 1.03
Intangible assets 16.7 21.2 22.5 23.9 25.2 EPS growth (%) (11.6) (3.31) 28.5 (28.5) 1.03
Investment properties 0 0 0 0 0 EPS adj. growth (%) (2.45) (19.0) 27.4 (6.03) 1.03
Long-term investments 0 0 0 0 0 DPS growth (%) nm (100) nm 25.0 20.0
Associates/JVs 0 100 102 104 106 Dividend payout ratio (%) 41.8 0 33.6 58.8 69.9
Other long-term assets 105 89.0 99.6 115 118
Asset turnover (x) 0.21 0.14 0.15 0.16 0.17
Short-term debt 601 408 875 1,098 1,159 Operating cash/EBIT (x) 0.65 1.07 0.80 0.74 0.79
Accounts payable 376 440 446 446 446 Inventory days 75.7 87.0 73.0 73.0 73.0
Other current liabilities 83.4 89.5 70.1 86.6 91.2 Accounts receivable days 715 459 321 283 270
Total current liabilities 1,101 1,006 1,453 1,678 1,746 Accounts payable days 187 262 153 117 108

Deferred tax 0 0 0 0 0 Net debt*/equity (%) 120 203 276 238 224
Other long-term liabilities 0.33 1,031 619 371 223 Debt/capital (%) 48.9 57.0 66.6 65.3 64.5
Debt/EBITDA (x) 3.81 6.65 7.06 5.78 5.48

Minority interests 411 360 385 412 441 EV/sales (x) 5.03 7.90 6.91 5.65 5.19
P/E (x) 13.9 14.4 11.2 15.6 15.5
P/B (x) 1.26 1.20 1.09 0.91 0.89
BVPS (VND) 10,566 11,050 12,205 14,688 14,927 Dividend yield (%) 3.01 0 3.01 3.76 4.51
Net debt/(cash)* 3,666 6,847 10,837 11,237 10,776

Refrigeration Electrical Eng. (REE - HSX)
Hold (from Add) D/g to Hold on recent share price surge

Up/downside: 4.2%
▪ We cut our FY23-24 earnings forecasts by 14-16%, mainly on weaker hydro
Share price (VND) (as of 16 Dec 2022) 79,000 segment performance following La Niña ending in early 2023 and the
Bloomberg code REE VN possible return of El Niño in late 2023/early 2024.
52-week range (VND) 54,783-99,000
Trading value (5D) (VNDmn) 78,600 ▪ In line with our lower forecasts and a higher risk-free rate assumption, we
Market cap. (VNDbn) 28,077 cut our SOTP-based target price by 3% to VND82,300.
Market cap. (USDmn) 1,189
Shares outstanding (mn) 355 ▪ REE is trading on a 1-year rolling fwd. adjusted P/E of 13.1x, 1.7 SDs above
Total FOL share room (mn) 174 its historical mean of 8.9x. Clearly dear, we cut our rating to Hold (from
Current FOL share room (mn) 174 Add).
Foreign ownership limit 49.0%
Free float 42.3% Event: Reviewing FY22-24 outlook
Major shareholder Platinum Victory (32.9%)
REE reported a strong 9M earnings beat, led by the hydro segment thanks to
favorable hydrological conditions. However, FY23-24 looks tough given (1)
Share price performance weak demand for air-conditioners following a less positive economic outlook in
REE (VND) VN30 Index (rebas ed) 2023; (2) lower hydro output as La Niña is forecasted to end in early 2023; and
(3) higher interest expenses as interest rates have increased by roughly 250
100,000
90,000
80,000
70,000
bps since Sep-22.
60,000
50,000
40,000
Impact: Revising up FY22F, but cutting FY23F-24F
We revise up our FY22 net earnings forecast by 5.5% while cutting our FY23-
30,000
24 earning forecasts by 15% on average. Our new forecasts suggest an

Volume
Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 aggregate 3-year net earnings CAGR of 7.7%, which is below consensus by
Share price (%) -1 mth -3 mth -12 mth 17.5% on average.
Ordinary shares 17.2 (6.06) 35.2
Relative to index 3.19 10.2 91.2 Valuation and recommendation
Relative to sector - - -
Having outperformed the VN Index by 91% over the last 12M, REE now trades
on a 1-year rolling fwd. P/E of 13.1x, 1.7 SDs above its historical average of
HSC vs. consensus 8.9x.
2022F 6,778 7,379 (8.2) We now roll forward our valuation basis to FY23-end. This, combined with the
2023F 6,006 7,315 (17.9) downward revisions in FY23-24 earnings and more conservative risk-free rate
2024F 6,479 7,823 (17.2) cuts our target price by 3% to VND82,300. We downgrade REE to Hold (from
Source: Bloomberg, HSC Research estimates Add).
Company description
REE is a diversified business group with
increasing exposure to renewable power
infrastructure; its other businesses include M&E
services, sales of Reetech air conditioners, and
leasing/real estate.

EBITDA adj. (VNDbn) 1,561 2,747 4,103 3,803  3,993 
Reported net profit (VNDbn) 1,606 1,842 2,409  2,135  2,303 
EPS adj. (VND) 4,519 5,184 6,778 6,006  6,479 
DPS (VND) 1,700 241 1,000 2,000 2,500
BVPS (VND) 32,225 37,428 43,103 47,627 52,093
EV/EBITDA adj. (x) 21.2 13.9 9.17 9.41 8.50
P/E adj. (x) 17.5 15.2 11.7 13.2 12.2
Truong Thu My P/B (x) 2.45 2.11 1.83 1.66 1.52
Director, Head of Energy & Utilities EPS adj. growth (%) (1.38) 14.7 30.7 (11.4) 7.88

Company Focus - Refrigeration Electrical Eng. (REE) 20 December 2022
Shares likely to take a breather in FY23

We see a tougher outlook for REE in FY23-24, mainly on the weaker performance of
its M&E/Reetech/Reepro segment, hydropower sub-segment, and higher interest
expenses. On the back of lower forecast earnings, we now forecast a 7.7% CAGR
(down from 11.7%) for the period FY21A-24F. We are also cutting our TP by 3% to
VND82,300 as we apply a 5.0% risk-free rate (vs. previous 3.5%) and roll forward
our valuation basis to FY23-end. Downgrade to Hold (from Add).

• We cut our FY22/23/24 sales growth forecast for M&E/Reetech/Reepro to 29.6%,
10% and 14.1% (from 44.9%, 43.7%, and 13.2% previously) as we believe
expenditure on white goods will decline when the overall economic picture darkens.
• We revise up our sales growth forecast for the office and real estate segment 2.8-
3.9% as we assume a 0.5% higher in occupancy rate (98.3% vs. 97.8% previously).
• We revise up our hydro output forecast in FY22 by 6% but revised down FY23-24
volume by 3.4% and 9.4%, respectively, on our assumption that La Niña will end in
early 2023 and El Niño will return in late 2023 or early 2024.
• We revise down income from JVs in FY23-24 by an average of 25% as we believe
hydro JVs and real estate JVs will contribute less due to unfavorable hydrological
and domestic economic/regulatory conditions.
• We revise up FY22-23 interest expenses forecast by 8.1-8.5% following our
house’s view that interest rates for electricity generators will increase by 150 bps
on average in 2023 (vs. that of 2022) then slightly decline in 2024.
Figure 81: Sales forecasts, new vs. old, REE
VNDbn
M&E, Reetech,
2,633 3,784 4,285 2,355 2,590 2,954 -10.6% -31.6% -31.1% 29.6% 10.0% 14.1%
Reepro
Office & real
966 1,057 1,307 999 1,087 1,358 3.4% 2.8% 3.9% 6.4% 8.8% 25.0%
estate
Power 4,888 4,855 4,686 5,028 4,844 4,642 2.8% -0.2% -0.9% 69.7% -3.7% -4.2%
Water 121 121 121 110 116 121 -9.1% -4.5% 0.2% 19.9% 5.0% 5.0%
Figure 82: Sales breakdown by segment, REE (VNDbn) Figure 83: Interest expenses, REE (VNDbn)
Power accounts for more than 50% of total sales Average interest rate expected to peak at 9.1% in FY23
M&E, Retech & Reepro Office & real estate Interest expenses
Power Water Interest expenses as % of PBT
Revenue growth
15,000 50% Average interest rate (%)
1,000 30%
40% 800
10,000 20%
30% 600
20% 400
5,000 10%
10% 200
0 0% 0 0%

Figure 84: Electricity sale by source, REE (VNDbn) Figure 85: Income from JVs, REE (VNDbn)
Hydro (> 60% of sales) to decline in FY23-24 as La Niña ends Income from power JVs also expected to decline
Hydro Solar Wind Electricity retail Power Water Real estate
6,000 1,000
5,000 800
4,000
600
3,000
400
2,000
1,000 200
0 0
FY21 FY22F FY23F FY24F FY25F FY21A FY22F FY23F FY24F FY25F


We cut our TP by 3% to VND82,300 and downgrade REE to Hold (from Add). REE
has performed strongly over the last 12M, up 35% and outperforming the VN Index
by 91%, likely due to the long-waited Upper Kontum hydro project coming into
operation, adding 220 MW into the company’s generation capacity. The stock now
trades on a 1-year rolling fwd. P/E of 13.1x, 1.7 SDs above its historical average of
8.9x. We see better value elsewhere in the utilities space.

We value REE using a sum of the parts methodology, in which electricity generation
and other businesses are valued by DCF, while office leasing is valued by cap rate.
For all businesses that use DCF valuation, we apply:
• Beta of 1.0.
• Cost of equity of 13.0%, reflecting a 5.0% risk-free rate and 8.0% equity risk
premium. In our previous report, we applied cost of equity of 11.5% on a 3.5% risk-
free rate and 8.0% equity risk premium.
• Interest rate of 9.0% (vs. 8.5% previously).
• CIT rates and debt/equity are different from business to business based on related
company’s public information and REE’s disclosure.
For the office leasing business, we use a cap rate of 9% (unchanged).
Figure 86: WACC calculation for each business of REE
Beta COE COD WACC
M&E/Reetech/Reepro 1.0 13.0% 7.2% 10.7%
TBC 1.0 13.0% 7.7% 11.9%
VSH 1.0 13.0% 7.7% 9.8%
Muong Hum Hydro 1.0 13.0% 8.1% 12.0%
Thuan Binh Wind Power 1.0 13.0% 8.8% 10.1%
Tra Vinh No.3 Wind Power 1.0 13.0% 8.9% 10.1%
Rooftop solar 1.0 13.0% 8.7% 10.0%
DTV 1.0 13.0% 7.2% 13.0%
Water 1.0 13.0% 7.2% 10.7%
Figure 87: SOTP Valuation, REE

The fair value price is VND82,300 per share
Equity REE's FY23
SOTP Methodology
value interest NPV
M&E/Reetech/Reepro DCF 1,306 100% 1,306
Power 10,730
TBC DCF 1,696 60% 1,024
VSH DCF 8,673 52% 4,523
Muong Hum Hydro DCF 741 80% 591
Thuan Binh Wind Power DCF 1,427 50% 714
Tra Vinh No.3 Wind Power DCF 1,658 100% 1,658
Rooftop DCF 1,841 100% 1,841
DTV DCF 573 66% 380
Water DCF 298 65% 194
Office leasing Cap rate 10,299 100% 10,299
Investments Equity value 6,709 100% 6,709
Revaluation value 29,239
Number of shares (mn) 355
Target price (VND/share) 82,300

Figure 88: TP sensitivity to key valuation assumptions, REE

VND Risk-free rate
4.0% 4.5% 5.0% 5.5% 6.0%
7.0% 86,900 85,700 84,500 83,400 82,300
Equity risk 7.5% 85,700 84,500 83,400 82,300 81,300
premium 8.0% 84,500 83,400 82,300 81,300 80,400
8.5% 83,400 82,300 81,300 80,400 79,400
9.0% 82,300 81,300 80,400 79,400 78,600
Valuation context
REE’s price has been strong over the last 12M, gaining 35% and outperforming the
VN Index by 91%. Following this, REE currently trades on a 1-year rolling forward P/E
of 13.1x, 1.7 SDs above its historical average of 8.9x. We believe the re-rating was
thanks to (1) the long-waited Upper Kontum hydro project coming into operation which
is capacity expansion project of Vinh Son - Song Hinh Hydropower (VSH; Not Rated)
and (2) a total of 102 MW of wind power coming into operation in Oct-21 with a
favorable FIT fixed for 20 years. At our new TP, REE’s FY23 P/E is 13.7x.
Figure 89: Rolling 1-yr forward P/E, REE Figure 90: Std. devs from avg. 1-year rolling fwd. P/E, REE
Currently at 13.1x based on our estimates (10.8x street)… …1.7 SDs above its average of 8.9x
Street Actual Us 3
20
2
15
1
10
0
5 -1
0 -2
Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Dec-22 Jan-20 Jun-20 Nov-20 Apr-21 Sep-21 Feb-22 Jul-22 Dec-22


Sales 5,640 5,810 8,491 8,636 9,075 EBIT 1,239 1,854 3,135 2,833 2,905
Gross profit 1,606 2,310 3,730 3,476 3,609 Depreciation & amortisation (322) (893) (968) (970) (1,088)
SG&A (366) (456) (595) (644) (704) Net interest (253) (241) (612) (599) (388)
Other income 0 0 0 0 0 Tax paid (210) (264) (443) (391) (424)
Other expenses 0 0 0 0 0 Changes in working capital (810) (1,012) (2,310) (1,194) (980)
EBIT 1,239 1,854 3,135 2,833 2,905 Others 324 295 1,310 1,314 942
Net interest (253) (241) (612) (599) (388) Cash flow from operations 613 1,525 2,047 2,933 3,143
Associates/affiliates 915 774 856 691 577 Capex (1,394) (3,912) (841) (661) (696)
Other non-operational 0 0 0 0 0 Acquisitions & investments (2,917) (1,128) (486) (90.0) (99.0)
Exceptional items 22.1 12.6 0 0 0 Disposals 2,801 1,737 0 0 0
Pre-tax profit 1,924 2,400 3,379 2,924 3,095 Others 683 1,291 200 203 214
Taxation (210) (264) (443) (391) (424) Cash flow from investing (827) (2,013) (1,127) (548) (581)
Minority interests (85.4) (280) (527) (399) (368) Dividends (604) (85.6) (333) (535) (713)
Exceptional items after tax (22.1) (12.6) 0 0 0 Issue of shares 62.3 121 0 0 0
Net profit 1,606 1,842 2,409 2,135 2,303 Change in debt (84.5) 1,632 (1,960) (1,978) (1,934)
Other financing cash flow (47.5) 0 0 0 0
Net profit adj'd 1,606 1,842 2,409 2,135 2,303 Cash flow from financing (674) 1,667 (2,294) (2,513) (2,647)
EBITDA adj. 1,561 2,747 4,103 3,803 3,993
Cash, beginning of period 1,540 652 1,831 457 330
EPS (VND) 4,519 5,184 6,778 6,006 6,479 Change in cash (888) 1,179 (1,373) (127) (84.9)
EPS adj. (VND) 4,519 5,184 6,778 6,006 6,479 Exchange rate effects (0.02) 0.10 0 0 0
DPS (VND) 1,700 241 1,000 2,000 2,500 Cash, end of period 652 1,831 457 330 245
Basic shares, period end (mn) 355 355 355 355 355 Free cash flow (781) (2,388) 1,207 2,272 2,447
Cash 652 1,831 457 330 245 Operating ratios
Short-term investments 1,329 914 900 990 1,089 Gross margin (%) 28.5 39.8 43.9 40.3 39.8
Inventory 808 800 1,190 1,290 1,367 Net profit margin (%) 28.5 31.7 28.4 24.7 25.4
Other current assets 139 275 251 272 288 Effective tax rate (%) 10.9 11.0 13.1 13.4 13.7
Total current assets 6,009 6,806 6,577 6,725 7,027 Sales growth (%) 15.3 3.02 46.1 1.71 5.08
EBITDA adj. growth (%) 38.3 76.0 49.3 (7.30) 4.99
PP&E 2,519 15,992 15,680 15,988 15,610 Net profit adj. growth (%) (1.38) 14.7 30.7 (11.4) 7.88
Intangible assets 65.9 65.9 47.0 38.6 24.2 EPS growth (%) (1.38) 14.7 30.7 (11.4) 7.88
Investment properties 1,773 1,570 1,475 1,380 1,285 EPS adj. growth (%) (1.38) 14.7 30.7 (11.4) 7.88
Long-term investments 837 517 287 316 332 DPS growth (%) 6.27 (85.8) 315 100 25.0
Associates/JVs 8,450 5,745 6,147 6,393 6,649 Dividend payout ratio (%) 37.6 4.65 14.8 33.3 38.6
Other long-term assets 877 1,132 1,495 901 945
Asset turnover (x) 0.28 0.22 0.27 0.27 0.29
Accounts payable 633 660 905 980 1,039 Inventory days 73.1 83.4 91.2 91.3 91.3
Other current liabilities 681 1,088 1,175 1,270 1,389 Accounts receivable days 279 311 290 272 270

Deferred tax 0 189 0 0 0 Net debt*/equity (%) 50.1 82.4 66.7 49.8 35.8
Debt/EBITDA (x) 4.09 4.66 2.60 2.30 1.72

Minority interests 760 3,056 3,270 3,499 3,744 EV/sales (x) 5.86 6.58 4.43 4.14 3.74
P/E (x) 17.5 15.2 11.7 13.2 12.2
P/B (x) 2.45 2.11 1.83 1.66 1.52
Net debt/(cash)* 4,948 10,143 9,556 7,705 5,856

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FY23 Sector Strategy: The Race For Growth

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Equities | Vietnam

FY23 sector strategy: The race for growth

Electricity: Demand increases to outpace generation output

PDP 8: Paving the path for growth

Increasing interest rates to hit bottom lines

Most negatives priced in, leading to attractive valuation

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Included research reports

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Demand growth to outpace supply, leading to opportunities

Going forward, we concur with government projections that electricity consumption

Snapshot of Vietnam’s electricity sector

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Figure 5: EVN’s electricity input price (VND/kWh)

Figure 6: EVN’s total expenses vs. average selling price (VND/kWh)

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Figure 8: Generation capacity vs. load demand by region as of FY22-end, Vietnam

Uneven capacity distribution burdens the transmission system

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FY23-30 view: Strong demand to outpace domestic output

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Figure 10: Electricity demand during 2021-2030, Vietnam

Generation capacity expansion is to be led by fossil fuels

Source: EVN Source: MOIT

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Fuel supply: An increasing dependence on imports

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Figure 15: Capex for power system, Vietnam

A number of changes expected to happen in FY23

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Figure 17: Average electricity retail prices in 1H22 by country (USD/kWh)

Source: www. globalpetrolprices.com/electricity_prices/

Electricity retail prices will increase

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2.5 2.2 2.3

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Fundamental impacts on our electricity coverage

Four key factors to impact

Impact of increasing interest rates on earnings

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Figure 22: Interest expense estimates, Vietnam electricity utilities

Figure 23: Interest expenses as % of pre-tax earnings, Vietnam electricity utilities

Impacts of increased electricity retail prices

Overall: Cutting earnings forecasts for FY22-24

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Valuation & recommendation

Summary and methodology

Figure 27: Changes to target prices decomposed, Vietnam electricity utilities

Figure 28: WACC calculations compared, Vietnam electricity utilities

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Figure 30: 1-year rolling forward P/E

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Buy (unchanged) Fundamentals remain strong; Buy

Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22

Year end: December 12-20A 12-21A 12-22F 12-23F 12-24F

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Strong fundamentals; maintain Buy

Key assumption changes

Figure 32: Sales forecasts, new vs. old, PC1

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