What prospects for REE?

In 2Q24, REE posted VND402.9 billion (-34.6% YoY) in NPAT on revenue of VND2,182 billion (0.3% YoY). Of that, the power segment with the hydropower accounting for the highest proportion in the total power generation capacity faced general difficulties of the industry, recording VND521 billion in revenue (- 30% YoY), equal to 73.27% of the total 2Q revenue of the corporation. Total commercial electricity output in 2Q of REE reached 2,586 million kWh (19.06% YoY/5.51% QoQ).

In 1H24, although hydropower recorded a slight recovery QoQ thanks to improved output from northern reservoirs, it was still lower than 1H23 due to low water reserves in the Central and Central highlands regions. Thermal power posted a 72% YoY increase in output, increasing its contribution to 54%, higher than the 34% in the same period last year.

In the first six months of 2024, revenue and NPAT of the office leasing segment reached VND526 billion (-1.5% YoY) and VND271 billion (-0.2% YoY), respectively. The occupancy rates of office buildings for lease decreased slightly by 1.5% YoY after the new office building was put into operation, although the average rent recorded a modest gain compared to the market level, partly offsetting the impact on revenue.

In 2024, KBSV believes that the E.Town 6 project will achieve an occupancy rate of 20% with a rental price of about USD27.54/m2 /month, based on: (i) The trend of office expansion/upgrade will lead to demand for high-end and newly operated offices; (ii) the competitive advantage of E.Town 6 comes from the quality of offices that meet many green construction criteria, making it easy to attract FDI enterprises, while the average rent is only 60% thanks to its location (which is not the central area). Revenue and NPAT from office leasing in 2024 may hit VND1,219 billion (14.24% YoY) and VND664.47 billion (23.5% YoY). In the long term, KBSV maintains the view that the recovery of the demand for leasing office will be vibrant again, thereby helping E.Town 6 achieve an occupancy rate of 60% and 85% in the next two years.

The Light Square townhouse project began selling and handing over apartments to customers in May 2024. In 2Q, the project recorded apartment handovers with a total value of VND68 billion and is expected to continue to record positive contributions to revenue in the second half of the year with: (i) Direct preferential sales policy with a 7% discount on apartment prices for buyers until September 2024, (ii) motivation from the group of customers who buy apartments to anticipate a large number of residents flocking to the area when the GD2 apartment project is built. With an estimated average price of VND15 billion for townhouses with an area of 80-90m2 and VND28 billion for villas with an area of 170m2, KBSV expects the total revenue of the first phase of the project to reach VND890 billion with a net profit of VND 312 billion and a profit margin of 35%.

2Q revenue from the M&E segment gained 21.64% YoY to VND933 billion thanks to the accelerated construction progress of Long Thanh airport, helping the cumulative backlog volume reach roughly VND3,127 billion (19.66% YoY) and ensuring a source of work for the business. However, NPAT saw a small contraction to VND10 billion (-9.09% YoY), mainly due to the company having to make provisions for projects recording bad debts.

KBSV believes that the rainy season starting in the second half of the year, enhanced by La Nina, will facilitate the power generation output of hydropower plants, bringing about a big growth in business results compared to the first half of the year and equivalent to the same period in 2023. The National Centre for Hydro - Meteorological Forecasting of Vietnam forecasts that the shortage of water flowing into rivers in the Central and Central Highlands regions in 1H24 will end, and rainfall will concentrate at the end of the year with high intensity. In the three-month season from September to November 2024, the total rainfall is likely to be equal to or higher than the average in the North, Central Highlands, and South and higher than the average in the Central region.

KBSV forecasts REE’s hydropower output in 2H24 may reach 3,408 million kWh (0% YoY/73.61% vs 1H24). The average electricity price in the end of the year is estimated to be lower than in the first half of the year and the same period in 2023 mainly due to the larger contribution of contracted output and the lower trend of market electricity prices compared to the same period. The output and adjusted revenue for the whole year of 2024 may drop to 2,995 million kWh and VND2,563 billion (-14.82% YoY and -14.62% YoY), respectively.

By 2025, hydropower will become REE's growth driver. KBSV estimates that 2025 adjusted output and revenue may surge compared to 2024, reaching 3,897 million kWh and VND3,097 billion (30.11% YoY/20.83% YoY) respectively thanks to: (i) Improved rainfall from the beginning of the year amid La Nina, helping hydropower to be mobilized more, (ii) stable and sideways fuel prices for coal and gas power, (iii) electricity consumption growing at 9%-10% YoY. In the long term, REE's power generation capacity in the hydropower segment will be continuously consolidated. Tra Khuc 2 hydropower project is expected to add 30MW of capacity and be put into operation in 2028.

1H24 NPAT and revenue of the renewable energy segment surged 62.16% YoY and 5.13% YoY to VND181 billion and VND574 billion respectively, driven by 1Q output when wind speed and sunshine hours in the power plant area were higher than the same period in 2023. In 2Q, the ongoing low wind season from April to October affected the business results of this segment.

KBSV believes that 2H24 will continue to be a favorable business period for REE's renewable energy segment thanks to: (i) stable projects with guaranteed wind speed in the area of REE’s two wind power plants and (ii) low interest rates reducing borrowing costs for power plants. However, due to delays in implementing the National Power Development Plan 8 (NPDP8) and EVN's difficult financial situation, which hinders its ability to purchase new power sources at higher prices, the feasibility of building new renewable power plants after the transitional plants remains a question mark. This strongly affects the renewable energy capacity expansion plan until 2028 that REE has set out, so the renewable energy segment will maintain stable cash flow from operating projects and postpone the power generation capacity expansion plan to wait for more favorable changes in selling prices and additional planning. REE's additional capacity will mainly come from project acquisitions.

Currently, REE is contributing capital to own two coal-fired thermal power plants, Pha Lai Thermal Power Plant (PPC) and Ninh Binh Thermal Power Plant (NBP) with a total designed capacity of 1,140 MW. In 1H24, coal-fired power was mobilized, helping REE's thermal power output reach 2,700 million kWh (81.08% YoY). From 3Q, coal-fired power will compete directly with hydropower, which is entering a more favorable weather phase. The Pmax/total power generation capacity ratio of coal-fired thermal power dropped to 50%. KBSV forecasts that the output and net profit for the whole year would be 4,180 million kWh (8.3% YoY) and VND96 billion (11.62%).

Based on SOTP, business prospects and potential risks, KBSV gave a buy rating to REE shares with a price target of VND77,600/share.