October 3, 2016
Disclaimer: the opinions expressed herein are that of Rongviet Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.
Back to normal routine
2Q2016: Slightly affected by El Nino
Sales volume in 1Q2016 reached 70.4 mn kWh versus the rolling three-year first-quarter average volume of 99 mn kWh. Q2 volume was also reported at 68.5 mn kWh, lower than the rolling average volume of 84 mn kWh. Total sales volume fell by 48% yoy in 1H2016. It should be noted, however, that sale volume of 1H2015 was abnormally high. As compared to the average first-half volume of 2013 and 2014, the volume of electricity sold in 1H2016 was only 14.6% lower.
Average selling price in 1H2016 was VND1,258 per kWh, slightly higher than that of 1H2015. Hence, total revenue was down 45% yoy to VND175 bn. With lower sales, gross margin declined to 38% (vs 65% in 1H2015) and gross profit in dolar term dropped 67.5% yoy to VND67 bn. Financial expense was down by c. 18% yoy thanks to a decline in interest expense but SG&A was up by 39% yoy due wage increases. CHP has been operating under a zero income tax rate, so PAT equaled PBT at VND1.8 bn (-99% yoy).
More profitable in 3Q2016
We have had a short call with CHP’s representative for a view on the impact of El Nino and La Nina on the Company’s operations. We learn that water level in A Sap river in Q3 has been in line with expectations and still matches the multiple-year average level for this period, allowing CHP to follows its operating plan closely. Q3 sales volume is expected at 124 mn kWh, up by 11% yoy and equivalent to 90% of total volume in the first half.
Q3 revenue is estimated at VND106.3 bn. Thanks to high output in the third quater, gross profit margin is estimated at c. 54% and gross profit ar at c. VND57.6 bn, up by 14% yoy and significantly higher than in the first half. PBT (and PAT) can reach approximately VND26 bn (+70% yoy) in 3Q2016.
Outlook and valuation
A Luoi hydropower plant is located in the A Sap river basin of Thua Thien-Hue province. According to the climate pattern of the region, the rainy season only comes in the last quarter, with 55-70% of the annual rainfall occuring in the last 3-4 months of the year. Like we have mentioned above, the impact of El Nino on CHP has been negligible as compared to other hydropower plants in the South-Central and Highland. 2016 net income is forecast at VND246.3 bn or VND1,886 per share.
CHP is proved as a highly efficient hydropower plant with stable business results over the years. After the Company prolonged payment term and lower interest rates on its long-term debts in 2015, the Company found itself in ample for dividends payment. In fact, dividend payout increased from VND900 a share in 2014 to VND1,600 a share in 2015 and has been planned at VND1400VND1600 a share in 2016. Given its solid cash dividend policy, CHP is a worthy consideration for long-term investors.
Using P/E and EV/EBITDA methods, CHP’s reasonable price is estimated at VND23,400 per share, 13.7% higher than the closing price on Sep 22nd. We recommend ACCUMULATE in the INTERMEDIATE-TERM for CHP.
Selling prices to go throught the off-peak season in3Q
For CHP, selling prices are often at their lowest in Q3 due to (1) a decline in contracted price (Pc) to VND795 per kWh (the rest of the time is VND962 per kWh) and (2) low electricity prices in competitive market as a result of heavy rainfalls and thus ample supply from hydro power plants. We estimate that average selling price of CHP in Q3 can be as low as VND859 per kWh, a significant decrease from that of the first half.
Sharply decrease of interest expenses
By the end of 2Q2016, total long-term debt was more than VND1,363 bn, 80% of which are owed to VDB Thua Thien Hue. The interest rates on 50% of outstanding loan was reported 10% in the beginning of 2015 but declined to 8.55% by the end of Aug 2015. The loans with the highest rates will be paid off before the others.
After CHP’s debt restructuring manuever, the average interest rate is estimated at 8.1%, down from 8.6% in 2015. Hence, 2016 interest expenses could be VND20 bn lower than that of 2015.
Extraordinary expectation in 4Q2016
For the last quarter, sales volume is targeted at 316 mn kWh. As compared to what CHP achieved in 4Q2015, this plan looks quite challenging. However, looking at power production data during of the 2013 – 2015 period, we have learnt that except the abnormal decline in 4Q2015, over 300mn kWh in Q4 output is well within reach for CHP. Given the output guidance, we estimate revenue and NPAT in 4Q2016 at VND331.6bn (+11.6% yoy) and VND217.4 bn (+21% yoy) respectively.
For the whole year of 2016, the volume of electricity sold is estimated at 578.5mn kWh and revenue at VND612 bn. NPAT and EPS are expected at VND246.3 bn (-25%) and VND1,886 respectively.
Major shareholders diviestment
In late August and early September, two state-owned shareholders of CHP, i.e. EVN Ha Noi (11.25 mn shares or 8.93%) and Genco 1 (6.6 mn shares or 5.22%), sold shares of the Company at an average price VND19,900 per unit. Such divestment was implemented in accordance with the government plan to withdraw the influence of State Corporations from local companies.
The identity of the buyers remains unknown. However, from what we have uncovered, they are professional investors specializing in the power industry. If this is true, their investment in CHP could be either for strategic purposes or as a long-term holding. Therefore, we suppose this transfer will have negligible impact on the daily trading of CHP.
Transfer to list on HSX
The stock of CHP was delisted on HNX in Sep 23rd and can be traded on HSX starting Sep 29th. CHP is the largest listed hydropower company in terms of capacity and the second largest by chartered capital as well as total assets. Therefore, we expect the migration to the HSX will help improve the stock’s liquidity.
The opinions expressed in this research report reflect only the analyst’s personal views of the subject securities or matters; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or opinions expressed in the report.
The information herein is compiled by or arrived at Rong Viet Securities from sources believed to be reliable. We, however, do not guarantee its accuracy or completeness. Opinions, estimations and projections expressed in this report are deemed valid up to the date of publication of this report and can be subject to change without notice.
This research report is copyrighted by Rong Viet Securities. All rights reserved. Therefore, copy, reproduction, republish or redistribution by any person or party for any purpose is strictly prohibited without the written permission of VDSC.
Copyright 2016 Viet Dragon Securities Corporation.