What are the prospects for power stocks?

KB Securities still maintained a positive stance for Vietnam’s power industry thanks to the economic recovery. So, some power stocks will enter an uptrend.

Thac Mo HydroPower JSC (TMP)

The fourth wave of COVID-19 has adversely affected socio-economic development, pulling load growth as well as electric power consumption down. As of August 2021, production volume reached 172.71 billion kWh (5% YoY), 6-7% lower than average.

More than 75% chance of La Nina phenomenon within 4Q21 will be the driving force for hydropower plants to ensure enough water flow to the reservoirs for power generation such as Candon HydroPower JSC (SJD), Thac Mo HydroPower JSC (TMP), Central Hydropower JSC (CHP), Song Ba JSC (SBA) while thermal power plants have been heavily affected by increasing material prices such as coal and gas (NT2, PPC) due to COVID-19.

Social distancing measures have been gradually eased. Therefore, production activities in key areas such as Binh Duong, Long An, Ho Chi Minh City… have been resumed, promoting power consumption needs for business activities. This helps contribute to the country's GDP growth. “Power plants in the Southern region benefiting from this consist of PV Power Corporation (POW), Power Generation Corporation 3 (PGV), PV Power Nhon Trach 2 (NT2)”, KB Securities.

Wind power plants completed and put into operation before November 1, 2021 benefit from high electricity prices at VND1,927/kWh inland and VND2,223/kWh offshore. Power Construction JSC No.1 (PC1) will operate three wind power projects including Lien Lap, Phong Huy and Phong Nguyen in 4Q, and GEG will also operate 130 MW wind farm projects in 4Q, Ha Do Group JSC (HDG) will operate 7A wind power plant, two hydropower plants Song Tranh 4, Dak Mi 2 in September 2021. This will help 4Q profit and revenue to climb.

According to KB Securities, many power plants’ loans are reducing day by day, helping improve lending fees and business results. After paying off debts, the cash flow to equity of enterprises will escalate and help businesses to be able to pay cash dividends such as Pha Lai Thermal Power (PPC), NT2, Hai Phong Thermal Power (HND), Quang Ninh Thermal Power (QTP), which proves to be suitable for long-term investment.

In 4Q21, KB Securities maintained a positive stance for Vietnam’s power industry, expecting that the consumption will grow exponentially thanks to the economic recovery. Power stocks with attractive valuation and positive business prospects comprise QTP, POW, HDG, SJD.