Will the utilities sector turn for the better?

Vietnam’s annual electricity consumption and GDP growth

V-shaped recovery in power demand

Vietnam’s electricity consumption recorded a CAGR of 8.59% for 2016–2020 period, with the lowest growth rate of 3.42% year on year, due to the impact of the Covid-19 pandemic. However, bottom in Q2 2020 (-2.5% YoY), power demand has since rebounded. According to Vietnam Electricity Corporation (EVN), electricity consumption increased by 6.74% year on year in 4 first months of 2021.

Hydropower generators were the biggest beneficiaries, thanks to favorable hydrology and a low-cost power source. The water levels of some of the main rivers in the Central and Southern regions increased continually second half of 2020, rising 3.1 times year on year as of end-May, 2021 Vietnam’s hydropower production volume increased by 31% year on year in FY20 and 55% YoY in 1Q 2021, thus boosting the hydropower group’s business performance, said Mirae Asset Securities (Vietnam)’s report.

2020 and 1Q 2021 results

Listed hydropower generators enjoyed a strong rebound in 2020, up 4% YoY in revenue and 29% YoY in net profit, on average) and 1Q 2021 (181% YoY in revenue, 15x YoY higher in net profit, on average). Their growth was steeper than that of listed thermal power enterprises and overall electricity-generation in the same period.

Thac Ba Hydropower JSC- TBC (80% YoY in revenue, 40% YoY in net profit), A Vuong Hydropower JSC- AVC (74% YoY in revenue, 523% YoY in net profit), and North 2 Power Investment and Development JSC- ND2 (12% YoY in revenue, 36% YoY in net profit) recorded outstanding growth in both top and bottom lines among hydropower companies in 2020. Although the results achieved by TBC, AVC, and ND2 in 1Q 2021 were not as impressive as that of Vinh Sơn Hydropower JSC- VSH (425% YoY in revenue, 96x YoY higher in net profit), all three companies enjoyed significant gains in terms of top and bottom lines.

In addition to the favorable weather, TBC has consolidated the Muong Hum Hydropower JSC (MHP - 34.8MW/ 120MW capacity of parent company) since November 2019. MHP accounted for 32–36% of TBC’s consolidated revenue and net profit in 2020.

ND2 operated an additional 12MW (17%) of capacity in May 2020, which helped to push up the company’s electricity selling volume.

For VSH, the Thuong Kontum hydropower project (220 MW, 62% larger than total current capacity) operated two units April 2021. The company will face the twin burdens of depreciation and interest expenses in the first year of operation of the new project, said Mirae Asset Securities (Vietnam)

Hai Phong Thermal Power JSC- HND recorded a 4% YoY drop in revenue and 25% YoY increase in net profit in 2020, tops among the thermal power group. However, in 1Q 2021, the results turned to negative growth of 34% YoY in topline and 106% YoY in bottom line, due to lower output sold under the Power Purchase Agreement (PPA) and a downward adjustment to the fixed price in PPA FY21.

FY21 outlook

In Q2 2021, electricity demand will be negatively affected by the Covid-19 pandemic. Mirae Asset Securities (Vietnam) expects output growth to be maintained at 1% YoY in 2Q 2021 (Q2 2021: 4.1% YoY) and to recover in 2H21, thus fulfilling EVN’s 5.2% YoY growth target for FY21.

Based on seasonal cycles in rainfall statistics, Mirae Asset Securities (Vietnam) said we would see improvements in hydropower outcomes in FY21 and 1H22. This company expect Can Don Hydropower JSC- SJD to earn 59% YoY higher net profit and the PC1 hydropower group to record 18% YoY growth in gross profit in FY21. In contrast, thermal power portfolio will see a drop in net profit in FY21, due to lower mobilization. However, Mirae Asset Securities (Vietnam) expect NT2 and PPC to maintain dividend yields of about 9% in FY21.