How will power shortage in China and Europe impact Vietnam?

Gas-fired power output would bounce back since 2022F. PetroVietnam Power Nhon Trach 2 JSC (HoSE: NT2) would ride on this trend.

It is generally because supplies could not rise fast enough to keep pace with the expected demand recovery. However, the power crisis seems even worse in China when the government oriented to cut down coal-fired power for the sake of carbon reduction. Hence, it put increasing pressure on businesses, and currently, several companies are forced to stop operating in peak hours or suspend operation for 2-3 days/week. The uncertainties related to energy in China have led many investors to look for alternatives, and Vietnam is said to be an expected option. 

Hence, VNDirect believed the stability in Vietnam's current power system would be the advantage, attracting FDI inflow to Vietnam, and furthermore, it could increase power consumption in the future. Besides, the reduction in the capacity of several factories in China could allow Vietnam exporting activities to rise as several manufacturing sectors in China recorded a decrease in output, such as steel and yellow phosphorus. Hence, it will benefit Vietnam businesses to increase exporting output and indirectly increase power consumption when our factories operate in high capacity.

Vietnam's power sector is going through a major transition as the government prioritizes maintaining the balance between macro-economic growth and environmental sustainability. Given the size and the faster-than-expected progress of this energy transition, VNDirect believes power stocks that focused on cleaner alternatives could outperform for a few years to come. It also prefers energy infrastructure developers as it believes more investments in grid systems are needed to facilitate energy transition towards a lower-carbonation. It observed that power stocks have recently charged up across global equity markets in response to ongoing E.U and China electricity outages. Thus, Vietnam power stocks will back to the center stage.

This stock company also expected gas-fired power output would bounce back since 2022F, trailing the recovery manufacturing activities. Additionally, due to the high possibility of El Nino phenomenon, it believed the hydropower output would be subdued next year, which will trigger higher mobilization from gas-fired power. A series of megaprojects in the LNG-to-power value chain have been announced recently, making it the most promising segment in the next couple of years. Thus, VNDirect believed POW, NT2, and gas infrastructure developers like GAS would ride on this trend.

VNDirect finds a substantial increase in ESG fund inflow in regional emerging markets. Even in Vietnam, it sees ESG is expanding at the early stage of investment. It prefers companies with ongoing renewable energy (RE) projects that benefit from the attractive feeds-in-tariff and companies that enjoy RE infrastructure development. Some prominent names include BCG and FCN.