REE_BUY_TP 112,700 VND_Upside 21.9__Hydroelectricity Shines_BSC Company Update

Valuation

§  BSC recommends BUY for REE at a target price of VND 112,700 per share for 2022 (+14.6% vs. June 8, 2022) based on the discount cashflow (DCF) method.

Business results forecast

§  BSC forecasts net revenue and NPAT 2022 to reach VND 9,484 billion (+63.2% yoy) and NPAT = VND 3,446 billion (+61, respectively), EPS FW 2022 = 8,423 VND/share with the assumption: (1) New signed electromechanical projects (M&E) +30% yoy; (2) Office leasing prices in rental buildings +2% compared to 2021 and (3) Hydropower segment output reached 5.6 billion kWh (+5.9% yoy) thanks to la Nina phenomenon.

Investment perspective

§  M&E operations and leasing offices with stable profit margins bring regular cash flow to REE.

§  The Power Generation segment grew strongly in 2022 thanks to the La Nina phenomenon and the increased capacity from newly operational plants.

Investment risk

§  The risk comes from the ability to extend the repair time of Pha Lai 2 factory

§  M&E sector likely to be partially affected if real estate slows down

Business updates

§  In Q1.2022, REE recorded net revenue reaching VND 2,045 billion (+73% yoy), and NPAT = VND 955 billion (+102% yoy), thanks to (1) strong increase in power sector net revenue (+287% yoy), with the commercial electricity output of hydropower plants increasing sharply (+94% yoy) thanks to relatively favorable hydrology in the first months of 2022 and (2) net revenue and NPAT of office leasing increased slightly (+3% yoy), with a high occupancy rate (98%), although (3) M&E net revenue decreased sharply (-55% yoy), because many projects were not completed in Q1.2022.

§  REE pays dividends for 2021 at a rate of 25% (including 10% in money, 15% in shares).