PETROVIETNAM POWER NHONTRACH 2 JSC(NT2) - MBS · PetroVietnam Power NhonTrach 2 JSC ... 2015. A...

www.mbs.com.vn Giải pháp kinh doanh chuyên biệt

PETROVIETNAM POWER NHONTRACH 2 JSC(NT2)

Initial coverage Jan 19th,2015

Recommendation BUY

Target price (VND) 31,000

Dividend (VND) 36.3%

Potential Upside 500

Dividend yield 2.1%

Q1/2015: POSITIVE BUSINESS PERFORMANCE

INVESTMENT THESIS

We are initiating coverage of PetroVietnam Power Nhon Trach 2 (NT2) with a

BUY rating and a target price of VND 31,000, representing 36.3% upside

compared with the current price of VND 23,100 on Jan 19th, 2015. Key investment

catalysts include: (1) The dry season, during which hydropower plants are not operational,

is when thermal power plants usually report their best performance, (2) NT2 has signed

the official contract regarding electricity pricing so we forecast a substantial retroactive

profit of about VND587 million may be recorded in Q1/2015, making a total PAT of more

than VND 640 billion in Q1/2015.

INVESTMENT HIGHTLIGHTS

The largest gas thermal power plant in the Oil and Gas sector

NT2 owns and operates the largest gas thermal power plant in the Oil and Gas sector. Total

capacity is 750 MW, accumulated power output from first commercial generation (Oct 16th,

2011) to Dec 19th, 2014 shows 15.7 billion kWh.

Competitive advantages

NT2 has certain advantages within the competitive power generation market as the Nhon

Trach 2 power plant is located near the South Loading Center, a key economic

development triangle in the South.

Factors impacting the volatility of business performance have lessened over

years

o Borrowing interest pressure subsides with lower outstanding debt

o Exchange rate risks have been minimized

o The recognition of losses from differences in exchange rates in previous plant

investments were completed in 2014

Official annual electricity selling prices signed

In 2014, EVN signed a contract on the calculation of official electricity selling prices, and

NT2 may have substantial additional profits in 2015 due to the changes in the calculation.

Q1/2015 Earnings Forecast. Based on (1) The complete of recognition of losses from

differences in exchange rates in previous plant investments (2) the exclusion of the

exchange rate’s impact on earnings result since movements in the USD and EUR rates

would offset each other and (3) substantial retroactive profits due to changes in calculation

between the temporary price and official price during 2011 – 2013 => We forecast NT2’s

PAT in Q1 2015 at about VND 642 billion.

VALUATION

Our price target of VND31,000, representing 36.3% upside, is based on the two valuation

methodologies: Discounted cash flow (DCF) and EV/EBITDA (applied EV/EBITDA of 7.54x).

Our price target implies a forward P/E of 10.2x on our FY2014 EPS estimate of VND 3,017.

RISKS

Heavy influences of exchange rates. NT2 has loans in USD and EUR, and any changes

in the exchange rates will affect the Company’s business performance. Since outstanding

foreign currency denoted debts declined over the years, the absolute value of the changes

cannot be determined, hence, we will analyze the influences of exchange rates on the

valuation in the sensitivity analysis part in this report.

Large proportion of state ownership. Institutional holding accounts for 80% of total

ownership, with 63% from PV Power a state-owned company. Therefore, other

shareholders have little power over voting rights and strategic decisions.

Selling pressure from VNPT’s divestment. Vietnam Posts and Telecommunications

Group has registered to divest 12.8 million of NT2 shares from Jan 14th to Feb 12nd, 2015.

6-month pricemovement

Stock information on Jan 19th, 2015

Current price (VND) 23,100

Current listed shares 256,000,000

Shares in circulation 256,000,000

Market cap (VND bn.) 5,964.80

52-week price range 5,740 – 23,900

3-month average trading

- Volume 618,611

- Value (VND bn) 12.406

Foreign ownership % 0%

Maximum foreign ownership % 49%

Maximum foreign room 125,440,000

Overview

PetroVietnam Power NhonTrach 2 JSC

(PVPOWER NT2) was established in 2007 for

the construction of the project “Nhon Trach 2

Combined Cycle Power Plant” in OngKeo

Industrial Park, Hamlet 3, Phuoc Khanh

Commune, Nhon Trach District, Dong Nai.

The plant has capacity of 750 MW, with 2 gas

turbines (500 MW) and 1 steam turbine (250

MW)

Source: Collectedby MBS

Analyst

Phan Thuy Trang

Email: [email protected]

Tel: 0904749979

2 PetroVietnam Power Nhon Trach 2 JSC (NT2)

19.01.2015

FINANCIAL SUMMARY

Adjusted Profit model (VND bn) 2014 2015 2016

Balance sheet (VND bn) 2014 2015 2016

Sales Revenue 6,215 6,348 6,272

Current assets

Cost of goods sold (5,407) (5,364) (5,491)

Cash & equivalents 1,157 1,894 2,629

Gross profit 808 984 781

Financial investments

Selling expense (0) (0) (0)

Accounts receivable 1,362 1,217 1,031

General administrative expense (75) (76) (75)

Inventory 222 220 226

Operating profit 736 910 708

Prepaid expenses & other current assets

9 9 9

Financial revenue 472 101 151

Total current assets

2,751 3,341 3,895

Financial expense (435) (372) (264)

Machinery 8,329 7,528 6,722

Interest expense 244 223 188

Historical cost 11,315 11,324 11,327

Other non-operating income 4 4 4

Depreciation (2,986) (3,795) (4,605)

Other non-operating expense (1) (1) (1)

Net fixed assets 8,329 7,528 6,722

Other non-operating profit 3 3 3

In-progress construction costs 6 6 6

Profit of co-operator

Other long-term assets and

investments

865 665 465

Pre-tax Income 772 639 595

Total assets 11,951 11,541 11,088

Tax expense 0 32 30

Profit after taxes 772 607 565

Current liabilities

Minority Interests

Short-term debt

1,047 1,064 1,066

Net Income 772 607 565

Accounts payable

889 1,029 1,204

EPS (VND) 3,017 2,372 2,208

Other current liabilities

62 63 63

Total current liabilities

1,998 2,156 2,332

Total long-term liabilities 6,521 5,474 4,408

Shareholders’ equity 3,432 3,911 4,348

Cash flow statement (VND bn) 2014 2015 2016

Common stock

2,560 2,560 2,560

NET CASH FLOW FROM OPERATING ACTIVITIES

Investment & development funds 190 190 190

Net Income 772 639 595

Retained earnings 682 1,162 1,599

Adjustments for:

Budget sources and other funds

Depreciation and Amortisation 807 809 810

Minority interest

Change in Trade receivables 87 145 187

Total liabilities & equity

11,951 11,541 11,088

Change in Inventories (1) 2 (5)

Financial Ratios

(times) 2014 2015 2016

Change in Trade Payables 6 141 174

Liquidity ratios

Net cash flow from operating activities 1,672 1,704 1,730

Current ratio 1.38 1.55 1.67

NET CASH FLOW FROM INVESTING

ACTIVITIES

Acid-test ratio

1.27 1.45 1.57

Capital Expenditures (0) (8) (3)

Efficiency ratios

Change in short - term investments 246 0 0

Days sales outstanding 4.56 5.21 6.08

Change in long - term investments 196 200 200

Days in Inventory 24.33 24.33 24.33

Net cash flow from investing activities 442 192 197

Asset turnover 0.52 0.55 0.57

NET CASH FLOW FROM FINANCING

ACTIVITIES

Leveraging ratios

Short and long-term debt proceeds (91) 17 2

Debt ratio 0.71 0.66 0.61

Debt payments (795) (1,047) (1,066)

Debt to equity ratio 2.48 1.95 1.55

Financial lease payment

Profitability ratio

Dividends to shareholders (128) (128) (128)

Gross profit margin 13.00% 15.50% 12.45%

Net cash flow from financing activities (1,014) (1,159) (1,192)

Profit margin 12.43% 9.56% 9.01%

Net cash flow 1,100 737 735

ROA 6.46% 5.26% 5.10%

Cash and Cash Equivalents (Beg of Period) 57 1,157 1,894

ROE 22.51% 15.52% 13.00%

Cash and Cash Equivalents (End of Period) 1,157 1,894 2,629

Other financials and valuation

EPS 3,017 2,372 2,208

BPS 13,407 15,278 16,986

P/E 3.44 12.16 13.07

P/B 0.78 1.89 1.70

Source: MBS Research


19.01.2015

INVESTMENT HIGHTLIGHTS

NT2 thermal power plant and Pha Lai Power PPC

are 2 listed power plants with similar market

capitalization. Comparisons show that NT2 is

operating more efficiently than PPC.

EUR/USD in 2014

Projections for EUR/USD in 2015

Source: Reuteurs

One of the top 500 largest enterprises in Vietnam

PetroVietnam Power Nhon Trach 2 JSC is honored to rank 166th in the VNR500 – the list of

the 500 largest enterprises in Vietnam, preceded by a number of Groups and Corporations,

and ranks 2nd among joint stock companies in power manufacturing, trading and

distribution.

Owns and operates the largest gas thermal power plant in the Oil and Gas sector.

Total capacity is 750 MW, with accumulated power output from initial commercial generation

(Oct 16th, 2011) to Dec 19th, 2014 shows 15.7 billion kWh.

Competitive advantages

NT2 has certain advantages within the competitive power generation market. The Nhon Trach 2 power plant is located in the Ong Keo Industrial park, near the South Loading Center, a key economic development triangle in the South, with a favorable transmission system. Therefore, when joining the competitive market for power generation, NT2 enjoys certain advantages. Additionally, the ability to stay active in changing power generation capacity according to circumstances is also an advantage for NT2 in this competitive environment.

Efficient operation. Labor costs at NT2 are quite low at 0.5% of revenue while in other

companies, such as PPC, they average 3.5%. Due to operational efficiency, although the

payback period was planned to be 3 years, NT2 profited in the first year of operation. NT2 has a

moderately high gross profit margin, averaging 11.9%, and an ROE of 22.6%.

Factors impacting the volatility of business performance have lessened over

recent years

Borrowing interest pressure subsided with lower outstanding debt NT2 has procured 10 year debt, which is quite short, in comparison with other companies in the sector. Though the 6-month Euribor and Libor rates are trending down, we maintain our conservative projection of a VND 30 billion/year decline in interest payments.

Exchange rate risks lowered

The EUR/USD rate dipped to its 9-year low at around 1.1768 on Jan 8th, 2015. A stronger USD versus most other currencies stemmed from the rebound in the US economy. The EUR/USD rate is expected to fall further in 2015, based on the anticipation of a further US economic rebound and continued recession in the Eurozone. The contrasting movements of the 2 currencies should help shield NT2 against the exchange rate risks for its foreign currency denoted loans.

Amortization of losses from plant investment completed in 2014. In previous years,

recorded in NT2’s financial costs were VND 126 billion of losses from the differences in

exchange rates on the investments in plant. This amortization of these losses were completed

in 2014

Official annual electricity selling prices signed

NT2 has calculated its selling prices in accordance with the market price since 2011. Prior to

2014, the price at which the Company sold electricity to EVN was set temporarily . In 2014,

EVN signed a contract for the calculation of official electricity selling prices, and NT2 may enjoy

substantial additional profits in 2015 due to changes in the calculation. Moreover, while the

Company did not benefit from the same input gas prices as other producers in the region, we

forecast that the adjusted selling prices will exceed the high input gas prices in previous years.

In particular, we forecast that the retroactive profits in 2015 will be about VND587 million

based on the difference between the temporary price for NT2 during 2011 – 2013 and official

price for Pha Lai Thermal Power JSC PPC.

141,957

185,697

216,190 219,325

19,075 32,924

54,448 57,423

-

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013

Chi phí nhân công PPC Chi phí nhân công NT2

322,031

508,931

653,854 710,600

20,429 95,281

479,743 504,099

-

200,000

400,000

600,000

800,000

2010 2011 2012 2013

Chi phí dịch vụ + khác PPC

Chi phí dịch vụ + khác NT2


19.01.2015

VALUATION

We are initiating coverage of PetroVietnam Power Nhon Trach 2 (NT2) with a BUY

rating and a target price of VND 31,000, representing 36.3% upside compared with

the current price of VND 23,100 on Jan 19th, 2015. In the discounted cash flow approach,

we choose to use FCFE in order to eliminate the strong influence of interest on cash flows when

using the FCFF. In the relative valuation approach, we choose the EV/EBITDA multiple since

power producers usually have foreign currency denoted loans, and exchange rates will impact

significantly on their core businesses, resulting in inaccuracy if using a PE multiple.

Assumptions in the valuation model:

(1) The valuation period starts in 2015, spanning 7 years from 2015 to 2022, followed by a

stable period.

(2) The cost of equity is 10.86% (Risk-free rate is 4.55%, risk premium is 7% and Beta is

0.9)

(3) The cost of debt is 10.7% and the after-tax cost of debt is 10.17%.

(4) Long term growth is 2% with the assumption that a competitive distribution market is

unlikely to take place and generation capacity remains unchanged.

(5) Prices for input gas from PVGAS stays at VND 125,000/mBTU

The discounted FCFE method comes to a price of VND 34,741 for NT2

Unit: VND bn 2015F 2016F 2017F 2018F 2019F 2020F 2021F

EBIAT 607 565 517 661 824 979 1,134

(+) Depreciation 808 809 810 811 811 811 811

(-) Capital expenditures (8.1) (3.1) (3.1) (3.1) (3.1) (0.1) (0.1)

(-) Increase in working capital 146.2 181.2 (12.3) (12.5) (12.6) (12.6) (12.8)

Free cash flow to the Firm 2,754 1,168 1,840 1,324 1,783 1,842 1,558

(+) Terminal value 4,693

PV of Free cash flows to Equity 8,893

Shares outstanding 256,000,000

Share price (VND) 34,741

Discounted rate

Beta 0.9

Risk free rate 4.55%

Market risk premium 7%

WACC 10.86%

The EV/EBITDA method comes to a price of VND 28,230 for NT2. We select a

number of power companies in the sector with similar market capital for comparision. The

average EV/EBITDA is 7.54x.

Company Market Cap (VND

billions) P/B

Pha Lai Thermal Power JSC 8,590 6.81

Vinh Son Song Hinh Hydropower JSC 2,887 12.17

Southern Hydropower JSC 1,864 8.08

Thac Mo Hydropower JSC 1,757 4.51

Central Hydropower JSC 1,836 7.18

Ba Ria Thermal Power JSC 864 4.99

Average 17,800 7.54


19.01.2015

Consolidated valuation. The 2 methods, discounted FCFE and EV/EBITDA multiples,

together come to the target price of VND 31,485. We choose equal weights to each

method, since power generation has high stability and the assumptions were conservative

for a long-term view.

Method Weight Value (VND) Target price (VND)

FCFE 50% X 34,741 31,485

EV/EBITDA multiple 50% X 28,230

Upside 36.3%

Sensitivity analysis

Changes in exchange rates, cost of capital and interest rates heavily influence business

performance at NT2, affecting our valuation. Therefore, we selected these 3 factors as the main

variations to analyze the sensitivity of NT2 stock price.

(1) Cost of Capital.

Effects on price

Cost of Capital increased by 1% (4.9%)

Cost of Capital increased by 0.5% (2.6%)

Cost of Capital at 10.86% 0%

Cost of Capital decreased by0.5% 2.9%

Cost of Capital decreased by1% 6.3%

(2) USD exchange rate.

2015 2016 2017

Outstanding debt in USD 123,622,299 101,145,517 78,668,735

Outstanding debt in EUR 112,944,729 92,409,323 71,873,917

Projected EUR/USD rate 1.2098 1.20 1.15

Change in outstanding debt/1% change in

USD exchange rate 1,236,233 1,011,455 786,687

Change in outstanding debt/1% change in

EUR exchange rate 1,129,447 924,093 718,739

(3) Interest rate.

Effects

Interest on loans in EUR increased by 1% (1.2%)

Interest on loans in USD increased by 1% (1.1%)

Interest unchanged 0%

Interest on loans in EUR decreased by 1% 1.2%

Interest on loans in USD decreased by 1% 1.1%

(4) Cost of equity and long-term growth

9.86% 10.86% 11.86%

0% 31,054 29,649 28,496

1% 32,121 30,473 29,145

2% 33,459 31,484 29,926

3% 35,187 32,751 30,883

4% 37,505 34,388 32,084


19.01.2015

COMPETITIVE ANALYSIS

Economic growth rate, power demand and supply

Production output, commercial output (Unit: billions

of kWh)

Power load structure in 2013

Sector outlook

Rising demand for power due to economic expansion

According to the Power Master Plan VII approved by the Government, annual growth

in power demand in Vietnam from 2001-2020 is 8.1-8.7%, with production output

and imports amounting to around 194-210 billion KWh in 2015, 330-362 billion KWh

in 2020, and 695-834 billion KWh in 2030. In practice, growth in power demand in

2011-2013 was 10.37%, higher than the growth in supply (8.6%) for the same

period.

Regarding the domestic power source structure, coal thermal power and hydropower

are the two main sources. Hence, when compared with other countries in the region,

the technology in either green energy or nuclear power plants in Vietnam remains

quite low, while power demand is relatively high. Power shortages may arise in the

future if this is not corrected.

In 2013, the construction industry represented 52.8% of overall power loading. Over

the few past years, Vietnam’s economy has been in a recession, so electricity

demand in this sector has not been high. However, from 2015, the economy is

expected to recover, especially in the construction industry, raising demand further.

Monopoly in the power market to be abolished

EVN still dominates power generation, with more than 60% of total generation

output, 90% of retail distribution, and having a total monopoly for power

transmission. There has yet been a monitoring office for the power market. EVN’s

monopoly in the power sector has raised a number of concerns regarding the quality

of power provision services in Vietnam.

In Decision No. 26/2006/QD – TTG on the schedule to abolish the monopoly in the

power sector, Vietnam’s electricity market shall be formed and developed in three

stages: 2005-2014 (competitive electricity production market), 2015-2022

(competitive electricity wholesale market), and 2022 onward (competitive electricity

retail market).

Currently, a competitive electricity production market is in place. At the end of 2013,

there were 48 power plants directly selling in the market, with total designed

capacity of 11,947 MW, accounting for 44.4% of the whole system. Compared with

the start of this stage, the number of power plants has increased by 16 with their

designed capacity climbing from 39% to 44.4%.

There have been some positive signals, but a competitive electricity retail market

might not arrive on scheduled in 2022: After over a year of implementation (officially

in Jul 1st, 2012), the market has shown positive results. Yet, we think that it is too

ambitious to have a completely competitive electricity retail market in 2022 as the

sector is still facing problems related to facilities, equipments, and structure.

Electricity prices adjusted to market mechanism

In the 6 years from 2009-2013, retail prices have been raised 7 consecutive times.

From 2009-2011, the average growth of electricity prices was 14.1%/year. Since

2011, after Decision No. 24/2011/QD-TTg on the electricity selling price adjustment

mechanism was issued on April 4th, 2011, the price has risen by about 5%/year.

Power producers like NT2 sell electricity at prices determined by negotiations with

EVN on official selling prices, which depends on the calculation of the input costs of

coal, gas, DO and FO oil, and the VND/USD exchange rate.

5.8%5.0% 5.4%

9.9%

12.2%

9.1%

9.0%8.3%

8.5%

2011 2012 2013

GDP growth

Power demand growth

Power supply growth

84.7597.25

106.33

117.86127.84

74.7685.6

97.04

105.47115.06

14.5%

13.4%

8.7% 9.1%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013

Production output (kWh)

Commercial output

Commercial output growth

52.80%36.30%

4.70%1.30% 4.90%

Industry - Constructions

Consumption management

Trading and sevices

Agricultures

Other


19.01.2015

Power supply structure in 2013

Retail selling prices without VAT from 2007

Source: Ministry of Industry and Trades, collected by MBS

Position in the sector

PetroVietnam Power Nhon Trach 2 JSC is the largest gas thermal power plant in

PetroVietnam Power Corporation (PVPower) group with total capacity of 750 MW,

including 500 MW from 2 gas turbines and 250 MW from a steam turbine, built in Jun

2009 with a total investment of VND 11,304 billion, the first unit was operational in Dec

2010, the 2nd, Mar 2011 and the 3rd, Aug 2011. Annual production output was 4.6 billion

kWh, accumulated output as of Dec 2014 was 15 billion kWh, contributing significantly in

stabilizing the national power system.

A major advantage NT2 enjoys is that it was founded by large economic groups in

Vietnam, including Vietnam Electricity, Vietnam National Coal and Mineral Industries

Holding Corporation, PetroVietnam Finance Corporation, CFTD Technologies Company

Limited, and Bank for Investment and Development of Vietnam.

Among listed thermal power plants, NT2 is the youngest, operational since 2010. While

Pha Lai Thermal Power JSC ran its first unit in 1983, and its last, No.6, in 2002; Ba Ria

Thermal Power in 1994 and 1996, respectively; and Ninh Binh Thermal Power Plant was

established in 1974. Therefore, the debt ratio of NT2 is the highest among listed firms,

bringing moderately high debt pressure. However, this pressure will decline going forward

since NT2 pays down debt over a shorter span.

We consider NT2’s operational efficiency to be high. The financial ratios show that NT2

outperforms its peers in efficiency. In particular, the Company’s gross profit margin was

15.3%, ROE 22% (the highest in the sector), and the ratio of Revenue/Number of staff is

several times higher than its peers.

At the moment, NT2 stock also has the highest liquidity, attracting more investors in

comparison with other power listed companies.

22.71%

40.85%19.39%

2.70%

9.00% 5.35%

Hydropower Coal thermal Gas thermal

Oil thermal Other Import

842 871

948.51058

1242

1304

13691437

0

200

400

600

800

1000

1200

1400

1600

2007 2008 2009 2010 2011 2012 2013 2014


19.01.2015

Comparison across listed companies

NT2 PPC BTP NBP

Shares in circulation (million) 256 318.15 60.49 12.87

Market cap (VND billions) 5,928.70 8,590.17 877.04 216.14

Foreign ownership 0 16.33 6.78 3.19

Basic EPS (TTM) 2,622.55 2,288.47 1,505.00 2,359.69

Diluted EPS (TTM) 2,622.55 2,288.47 1,505.00 2,359.69

BV 13,121 16,921 16,627 17,926

EBIT 903.56 1,118.57 122.73 39.19

P/E 8.83 11.8 9.63 7.12

P/B 1.77 1.6 0.87 0.94

Cash/Short-term debts 0.39 4.2 6.58 0.96

Working capital/Short-term debts 1.21 6.62 8.64 2.11

Long-term debt/Assets 0.55 0.41 0.35 0

Debts/Assets 0.64 0.44 0.38 0

Liabilities/Assets 0.72 0.51 0.44 0.41

Gross profit margin 15.30% 3.91% 5.90% 7.78%

Operational profit margin 10.78% 2.23% 6.12% 3.85%

Pre-tax profit margin 10.80% 13.19% 6.13% 3.94%

After-tax profit margin 10.80% 9.99% 5.56% 3.05%

ROE 22.68% 13.58% 9.28% 13.38%

ROA 5.57% 6.35% 4.73% 7.04%

Revenue/Number of staff (VND billion) 126.86 5.29 5.46 1.01

10-day average trading volume 1,178,821 937,759 108,283 600

Source: Stoxpro, MBS Research


19.01.2015

FINANCIAL ANALYSIS AND PROJECTION

Earnings model

In our earnings model, assumptions are as follows:

(1) Annual production output is 4.5 billion kWh. The Company often sets quite

conservative output targets of about 4.2 billion kWh. However, in the 3 years from

2012-2014, NT2 usually exceeded its targets by 10%; hence, annual output is

expected to be 4.5 billion kWh. (2) Although the annual adjustment of selling price is in the order of 5%, considering,

under the most cautious assumptions, the price calculation depends on changes in

input factors (with input gas prices tending to fall) and negotiations with EVN, we

forecast a 1% annual growth in selling prices.

(3) Input gas prices will fall, in line with oil price, as NT2 buys gas at a price calculated as

46% the price of FO oil + transporation tarriff, spurring decreases in selling prices with

EVN, as the contract also takes into account such factors. Therefore, despite the

downtrend in gas prices, we assume input gas to be VND 130,000/mBTU, in order to

keep profit margin unchanged.

(4) Input gas output required for production is 4.5 billion kWh, or 780 millions of m3 gas

annually.

(5) Operation costs accounts for 1.2% of Revenue, the same as in 2013

(6) Financial costs, mostly interest expenses, amount to about VND 222 billion in 2015.

Debt insurance is VND 61 billion while foreign exchange losses are VND90 billion,

assuming the EUR appreciates by 1%, and the USD appreciates by 2%. The recording

of VND 126 billion of foreign exchange losses have finished in 2014.

(7) Financial revenue, includes interest income, but excludes foreign exchange gains.

(8) Corporate tax from 2015 is 5%.

With the above assumptions, we forecast an annual average EBIT of VND700-800

billion for NT2; interest payments are expected to decline by VND 30 billion/year; the

recording of VND 126 billion in foreign exchange losses finished in 2014, and profit

depends on movements in the EUR and USD exchange rates (this factor will decrease

in lines with lower outstanding debt)

We also note that NT2’s profit in 2014 may be higher than expected due in part to

retroactive profit recording from the difference between the official price and the

temporary price.


19.01.2015

PROFIT PROJECTIONS

In general, power producers have limited control over their own operations under the EVN

monopoly . Moreover, selling price calculations under this market mechanism should support

gross profit margins of firms in the power sector, in general, and NT2, in particular, at stable

levels over coming years. It can be seen that EBIT in recent years for NT2 stayed around

VND 800 billion, but might rise to VND 983 billion in 2015, mainly attributable to the gains

from the difference between the official and the previous years’ temporary selling price.

Profit after tax is anticipated to decline from 2014, mostly due to EUR exchange rate

movements and the introduction of corporate income tax. From 2015, although the EUR is

expected to depreciate further, the USD will tend to appreciate due to the US economic

rebound, and thus we assume that profit gains will be offset by USD exchange rate losses

and corporate taxes.

Unit: VND billion 2014E 2015F 2016F 2017F

Revenue 6,214 6,348 6,272 6,334

Costs of goods sold (5,406) (5,364) (5,491) (5,538)

Gross profit 808 983 780 795

Operating expenses (74) (76) (75) (76)

Other expenses (1) (1) (1) (1)

EBIT 736 910 708 722

Financial revenue 471 100 151 203

Financial expense (435) (371) (264) (381)

Interest expense 243 222 188 159

Pretax income 772 639 594 544

Corporate tax - 31 29 27

Profit after tax 722 607 565 517

Revenue growth 5.7% 2.1% (1.2%) 1%

Operating profit growth (0.8%) 23.7% (22.2%) 2%

Profit after tax growth 9300% (21%) (7%) (8%)

Margins

Gross profit margin 13.0% 15.5% 12.4% 12.6%

EBIT margin 11.8% 14.3% 11.3% 11.4%

Net profit margin 12.4% 9.6% 9.0% 8.2%

Tax rate 0% 5% 5% 5%



19.01.2015

BALANCE SHEET


Fixed assets 8,307 7,506 6,700 5,892

Intangibles 21.6 21.6 21.6 21.6

Construction in progress 6 6 6 6

Working capital 695 409 204 207

Investment 9,030 7,943 6,781 5,975

Total equity 11,951 11,540 11,088 10,423

Long-term debts 6,520 5,473 4,407 3,298

Charter capital 2,560 2,560 2,560 2,560

Total equity 11,951 11,540 11,088 10,423

Fixed assets growth (9%) (10%) (11%) (12%)

Equity growth (2%) (3%) (4%) (6%)

Working capital growth (22%) (41%) (50%) 3%

ROA 6.46% 5.26% 5.17% 5.04%

ROE 22.51% 15.52% 13.00% 10.92%

Current ratio 1.38 1.55 1.72 1.83

Quick ratio 1.27 1.45 1.61 1.73

Cash ratio 0,58 0,88 1,14 1,26

Debt ratio 0.71 0.66 0.60 0.54

Long-term debt ratio 0.66 0.58 0.50 0.41

Receivables turnover 4.56 5.21 6.08 6.08

Inventories turnover 24.33 24.33 24.33 24.33

Fixed assets turnover 0.75 0.84 0.93 1.07

Total asset turnover 0.52 0.55 0.57 0.62



19.01.2015

CASH FLOW

Stable profit margins over the years, coupled with high depreciation, can be viewed as typical

of firms in power production, who need to maintain ample operating cash flows and low level

of risks.

Power producers have high investment during the construction phase, followed by

depreciation in operational years and other expenses such as maintenance, repairs and office

running. These expenses are relatively small, and firms rarely have other large investments

in operational years, except when expanding capacity or installing additional high-value

machines.

Since investment for construction is high, cost of debt in the first operational years tends to

be high. However, the proportion of debt should fall gradually over the years bringing

interest rate pressure declines.


Profit after tax 772 607 565 517

Depreciation 806 808 809 810

Change in inventories - 1.7 (5) (1.9)

Change in receivables 87 144 186 (10)

Change in payables 6.3 141 23 9

Net cash flow from operating activities 1,671 1,703 1,579 1,325

Change in fixed assets 0.2 8.1 3.1 3.1

Change in short-term investments 246 - - -

Change in construction costs (4.3)

Change in long-term investments 200 200 200 200

Net cash flow from investing activities 441 191 196 196

Debt payments (795) (1,047) (1,065) (1,109)

Change in short-term debts (90) 16 1.9 43

Dividend (128) (128) (128) (128)

Net cash flow from financing activities (1,013) (1,158) (1,191) (1,193)

Dividend ratio 2.1% 2.1% 2.1% 2.1%

CAPEX/Revenue - 0.13% 0,05% 0,05%

FCF dividend 12.9% 10.9% 8.5% 4.2%



19.01.2015

Contact

Research: Phan Thuy Trang


Tel: +84 904749979

Institutional Sales: Gordon Edward Alexander


Tel: (+84) 904 017 141

Recommendation: MBS recommendation system is based on the difference between the 12-month target price and the market price at

the time of report publishing.

Recommendation Reference (Target price – Current price)/Current price

BUY >=20%

OVERPERFORM From 10% to 20%

HOLD From -10% to +10%

UNDERPERFORM From -10% to - 20%

SELL <= -20%

MB SECURITIES (MBS)

Established since May 2000, MBS was one of the first 5 securities firms operating in Vietnam. After years of continuous development, MBS

has become one of the leading securities company in Vietnam, providing a full range of services including: brokerage, research and

investment advisory, investment banking and capital markets underwriting. MBS’s network of branches and transaction offices has been

expanded and operated effectively in many major cities such as Hanoi, Ho Chi Minh City, Hai Phong and other strategic areas. MBS’s

clients include individual investors and institutions, financial institutions and enterprises. As a member of the MB Group including MB Bank,

MB Land, MB Asset Management, MB Capital and Viet R.E.M.A.X (Viet REM). MBS is able to leverage substantial human, financial and

technological resources to provide its clients with tailored products and services that few securities firms in Vietnam can match.

MBS is proud to be recognized as:

A leading brokerage firm – ranked No.1 in terms of brokerage market share since 2009.

A renowned research firm with a team of experienced analysts that provides market-leading research products and commentaries on

equity markets and the economy.

A trusted provider of investment banking services for corporate clients.

MBS HEAD OFFICE

MB Building, 3 Lieu Giai, Ba Dinh, Ha Noi

Tel: +84 4 3726 2600 – Fax: +84 4 3726 2600

Website: www.mbs.com.vn

DISCLAIMER: Copyrights. MBS 2014, ALL RIGHTS RESERVED. Authors have based this document on information from sources they

believe to be reliable but which they have not independently verified. The views expressed in this report are those of the authors and not

necessarily related, by any sense, to those of MBS. Neither any information nor comments were written for advertising purposes or

recommendation to buy / sell any securities. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on

any form or by any means, electronic, mechanical, photocopying recording, or otherwise, without the prior written permission of MBS.

mailto:[email protected]

PETROVIETNAM POWER NHONTRACH 2 JSC(NT2) - MBS · PetroVietnam Power NhonTrach 2 JSC ... 2015. A...

Documents

Transcript of PETROVIETNAM POWER NHONTRACH 2 JSC(NT2) - MBS · PetroVietnam Power NhonTrach 2 JSC ... 2015. A...