MBS Research

Stock pick: Viet Nam

• Sparkling & shinning macroeconomic
environment. Encouraging policies from
government.

• Strategic location & position, benefiting from a big

(trade) war (should it further escalate). Plus other
strategic trade agreements.

• One of the few countries selling (attractive) SOEs.

• Moving up the ladder: from Frontier to Emerging

Market.

• Amazing people!
MBS Research A software A steel A power
Vietnam!
Invest in Vietnam! company company company
 FPT Group
A story about the
people.

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 FPT Group (HSX: FPT)
Overview

5 year
Segments Outlook Our comments
CAGR
2019 - 2023
• Net sales: +29.9% CAGR  Potential digital transformation market
Software • PBT margin: Increased from
 Outstanding competitiveness thanks to
16.4% to 17%
• Revenue weight in 2020: 43.0% human resources advantages and M&A
strategy
 New opportunities from data center and
• Net sales: + 11.6% CAGR
Telecom IPAYTV
• PBT margin: Stable at 13.6%
• Revenue weight in 2020: 31.9%  Maintaining market share, consolidating
infrastructure and improving customer

• Net sales: + 24.1% CAGR service

• PBT margin: Gradually  Manpower source of Fsoft
Education decrease from 35% to 25%
• Revenue weight in 2020: 6.4%

• Net sales: + 1.5% CAGR  Brighter outlook thanks to digital

FIS & • PBT margin: Stable at 6% transformation
Other • Revenue weight in 2020: 18.7%

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 FPT Group (HSX: FPT)
The picture

Number of internet users Internet penetration rate Smartphone penetration rate

60,000 55,996
54,410 100% 90%
52,446 % 78%
50,065
47,241
91% 90% 80% +21.1 72% 75%
50,000 43,975 90% 82% CAGR 67%
40,704
37,943 78% 70%
35,227
40,00033,286 80% 57%
60%
70% 61%
30,000 50% 43%
60%
20,000 47% 40%
50%
30%
10,000 40%
20%
0 30%
10%
2 3 4 5 6 7 8 9 F 0 F 1 F 20%
1 1 1 1 1 1 1 0%
20 20 20 20 20 20 20 2 01 2 02 2 02 10% 2014 2015 2016 2017 2018 2019
0%
Internet user (thousand) Vietnam Malay Japan Korea USA Germany Smartphone penetration rate
Linear (Internet user (thousand)) Linear (Smartphone penetration rate)

Number of software employees – top

Number of IT service company FPT’s revenue from Software segment
companies
16,000 0.45
25,000 % 25,000 41%
+30.0 21,221
22,000
14,000 0.4
CAGR 36% 35%
20,000 18,398 20,000 18,500 33% 0.35
12,000
16,339 15,500 30%
0.3
15,000 12,604 10,000 25%
15,000 0.25
10,247 8,000 20%
10,000 0.2
10,000 6,000
0.15
5,000 2,500 2,400 4,000
5,000 0.1
0 2,000 0.05
0
17 18 F F F ft n 0 0
2015 2016 2017
20 20 019 020 021 So tio 2013 2014 2015 2016 2017 2018 2019F 2020F
2 2 2 C l u
T T So
Number of IT service and software company FP FP FP
T
FP
T
FP
T CM A FPT's revenue from software outsourcing
Linear (Number of IT service and software company) TM Growth rate

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 FPT Group (HSX: FPT)
FPT’s key to success

Low-cost but high-quality

Abundant human resources FPT Software
employees
IT salary Number of employee and growth rate FPT Software revenue by area
400,000 Number of employee Growth rate 30%
Vietnam 650 311,000
24% 23%
290,000 25% 14%
Philippines 300,000
700 20% 9%
India
214,127
175,690
211,300 Japan US
750 200,000 15%
12%
Thailand 1,150 8%
10% 56%
100,000 60,030 7% 7%
France 3,400 13,000
6% 5% 21% EU APAC
0 0%
UK 3,350 I s .. ..
T
CS sy ta r o
e. n.
China FP o Ta ip g e
4,100 nf W p c
Germany
I Ca Ac
4,500
Japan 4,450
Outsourcing Value of Vietnam in
Outsourcing value to Japan
Japan Growth rate
US 9,000 23,000
New IT student enrollment 25,000 40%
- 2,000 4,000 6,000 8,000 10,000 20,000
% 30.40% 30%
3,000 R: 50
CAG 15,000
2,000 20%
10,000
IT employee ranking 15.00% 4,693 10%
1,000 5,000
8 0 0%
-
6 2014-2015 2015-2016 2016-2017 2017-2018 Vietnam FPT

4
Employment rates of recent Growth rate of FPT in USA and EU
2
graduate in 2018 60% 55% 54%
0
s il s 100% 40% 40% 40%
ia a
si
a
si
a
nd
96%
40%
ndh in y e n am ate la d om raz ine 95% 92%
33.00%
28.00% 28.00% 28.00%
I a i
n St
23.50%
et B pp
91%
C al do
a g 89% 90%
Vi Th in ili 90% 17%
M d 20%
In t e K
Ph
ni te
d 85% 0.50%
U ni FPT HUST VNU - PTIT HUTECH 0%
U Univer- UET 2016 2017 2018 2019 2020 2021 2022
-6.50%
(Source: Glass door, Payscale, MBS estimated, FPT, AT Kearney ) sity -20% -11%

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 FPT Group (HSX: FPT)
Looking forward – the market

Worldwide IT spending New key growth driver from DX FPT Software

IT Spending Trends (USD bn) DX market size (12.1% CARG) FPT Software

1.9  1st rank in revenue and number of employees

1200 1030
933 985 1.7 GR in Vietnam.
1000 CA 1.6
.1% 1.4
800 667 704 710 1.3 12 1.2  Leading Digital Transformation player with
1.1 + growth rate of 57.6% CARG from 2016 to

Trillion USD
600 0.9 0.96
389 421 2023F.
355
400 2017 2018 2019 2020 2021 2022
178 179 179
200 Value 0.96 1.1 1.2 1.4 1.6 1.9  One of two companies in Southeast Asia being
0 recognized as premium consulting partners of
2017 Spending 2018 Spending 2019 Spending the Amazon Web Service.

Data Center Systems Enterprise Software  The only technology company of Vietnam has
Devices IT Services M&A with USA company.

Growth rate of IT segment  The only technology company in Vietnam has

DX revenue in 2018 an university
12.00% 11.10%
19000 Growth rate in each area
10.00% 8.80% 20000 GR
7.40%
8.40%
CA Japan US EU APAC
8.00% 15000 6%
+5
6.00% 4.40% 4.60%
10000
4.00% 60% 55%
2.00% 5000 50%
958 0.073 0.68
0.00% 0 40% 37%
2017 2018 2019 33%
2018 30%
30% 26%
23%
Data Center Systems Enterprise Software 20% 17%
Estimated DX Economic Value
Devices IT Services 7%
Global DX revenue 10% 4% 4% 4%
Communications Services Overall IT FPT DX revenue in 2018 0%
FPT in 2018 FPT in 2019 Market in 2019
(Source: Gartner & IDC) FPT DX revenue in 2023 -10% -7%

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 FPT Group (HSX: FPT)
Forecast
Unit: VND billion 2017 2018 2019F 2020F 2021F
Revenue 42,659 23,213 28,260 33,725 39,587
In which: Software outsourcing 6,242 8,443 11,195 14,505 18,742
Domestic IT 4,841 4,952 5,298 5,658 5,521
Telecom 7,132 8,293 9,482 10,782 12,078
Digital content 520 538 576 604 635
Education 1,044 1,382 1,708 2,175 2,612
Profit before tax 4,255 3,852 4,812 5,693 6,715
In which: Software outsourcing 1,091 1,386 1,880 2,468 3,189
Domestic IT 304 308 384 427 420
Telecom 906 1,142 1,190 1,353 1,516
Digital content 306 316 338 355 373
Education 266 488 427 544 653
Financial Income 1,583 607 254 304 356
Financial Expenses 601 368 632 755 886
Profit/loss in associates (retail, distribution and TPB) 71 439 407 361 379
Selling Expenses 3,075 2,048 2,317 2,765 3,246
General & Admin Expenses 3,441 3,559 4,204 5,227 6,136
Software outsourcing assumption 6,242 8,443 11,195 14,505 18,742
Average Employees 10,340 12,954 15,545 18,343 21,645
Revenue per Average Employees (VND bn/year) 0.60 0.65 0.72 0.79 0.87
Japan market 3,599 4,693 5,918 7,462 9,410
USA market 1,171 1,817 2,798 3,918 5,485
EU market 841 1,154 1,490 1,862 2,328
APAC market 631 779 1,032 1,321 1,691
Telecom assumption 7,132 8,293 9,482 10,782 12,078
Boardband Internet Services 5,196 5,845 6,544 7,253 7,961
Total market subcribers (million) 9.1 11.3 12.9 14.5 16.2
FPT's subscribers (million) 2.3 2.6 3.0 3.3 3.7
ARPU (VND Thousand/ year) 2,305 2,259 2,213 2,169 2,126
Enterprises services (leased line & data center) 1,936 2,448 2,938 3,529 4,117

NPAT 3,528 3,228 4,042 4,797 5,652

Minority Interests 507 614 723 807 891
Profit to parent company 3,021 2,614 3,318 3,989 4,761

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 Hoa Phat Group
A story about big changes and
transformation.

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 HOA PHAT GROUP (HSX: HPG)
BUY; Target price: VND 31,600 Price movement Report date October 29, 2019
Volume ('000 shares - RHS) Current price 22,200 VND/shares
Investment thesis Stock price (VND - LHS)
35,000 25,000,000 Target price 31,600 VND/ shares
We recommend a BUY for HPG with target price of VND 31,600 (42% upside). 30,000
20,000,000 Upside 42%
25,000
 HPG is the market leader in the steel market in Vietnam, with strong financial health and 15,000,000 Bloomberg ticker HPG VN
20,000
15,000 Market cap VND 61,296 bn
competitiveness. Even in the downturn of steel market cycle, HPG would have greater 10,000,000
10,000 USD 2,616 mn
opportunity to gain market share. 5,000
5,000,000

0 0
52 weeks movement VND 20,600 –
 Steady growth in sales and profits, high efficiency and profit margins (2020F: gross profit VND 30,962
margin of 20%, net profit margin of 13%, ROE of 15%). The average past 10 years Gross Average daily value VND 125 bn
margin and ROE of HPG is respectively 20% and 22%. 1T 3T 12T USD 5 mn
HPG (%) +3% -6% -25%
 Growth from Dung Quat Steel Complex project, will significantly raise the company's FOL 49%
VN-Index
1% 2% +12% Current FO 38%
production capacity and revenue – double the capacity of long steel and introducing the (%)
new HRC products.
Unit: VND billion 2018A 2019F 2020F 2021F
 Long term growth potential from advantageous macroeconomic factors: high GDP growth, Revenue 55,836 61,561 71,908 94,746
low & stable interest rates, large pipelines of public spendings in coming years, and EBIT 10,550 10,374 12,315 14,882
relatively low steel use per capital in Vietnam (about 241 kg pc) compared to China (590 Net profit 8,601 7,871 9,715 10,382
kg pc) and Asia (284 kg pc). EPS (VND) 3,866 2,671 3,296 3,523
Valuation EPS growth rate (%) -26% -31% 23% 7%
P/ E (x) 8.0 8.3 6.7 6.3
We valuate HPG with a BUY recommendation and target price 2019 of 31,600 VND (+42%
EV/EBITDA (x) 6.8 5.9 3.9 2.8
upside) by using FCFF method, with WACC of 14.6% (Re 19% and Rd 9%) and TGR of 2%.
DPS (VND) 420 600 600 600
Key risks Dividend yield (%) 0% 0% 0% 7%
• Common risk for Vietnam’s steel: (1) cyclical nature of prices of steel commodities; (2) P/B (x) 1.6 1.1 0.9 0.9
pressure from global supply surplus, especially China; and (3) rising competition locally ROE (% ) 21% 14% 15% 15%
due to competitors increasing capacities. Debt/equity (%) 60% 60% 61% 54%
• HPG’s new markets in long steel (targeting southern part of Vietnam), HRC and galvanized Source: MBS Research

steel will face fierce competition and challenges on maintaining profit margins in the first
few years of operation.

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 HOA PHAT GROUP (HSX: HPG)
The history
Sources: HPG, MBS
Research

HPG’s designed capacity & sales volume – construction steel HPG's sales & profit margin
2,500,000 150% 60,000 50%
117% 50,000
102% 120% 125%
2,000,000 110%
107% 87% 108% 40,000
97% 26%
100% 24% 17% 23%
90% 30,000 16% 21% 25%
1,500,000 20% 20%
17% 15%
75% 20,000

1,000,000 10,000
50%
0 0%
500,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
25%
Revenue Net profit Gross profit margin (%)
0 0% Market Market
2010 2011 2012 2013 2014 2015 2016 2017 2018 FY 2018 FY 2019 Change
HPG share share
(ton) (ton) (% )
2018 2019
Designed capacity Sales volume Utilization rate (%)
J an 197,861 249,574 26% 26% 27%
HPG’s market shares Feb 163,549 200,355 23% 24% 25%
30% Mar 180,083 246,904 37% 22% 25%
26.90% 27.00%
24.80% Apr 177,996 236,000 33% 21% 26%
25% 23.20%
May 228,089 226,000 -1% 22% 25%
19.80% 24% 24%
20% 21% 22% J un 146,901 185,943 27% 19% 23%
16.40%
19% J ul 199,209 235,000 18% 24% 26%
15%
15% Aug 179,400 193,321 8% 22% 24%
10%
Sep 220,998 193,000 -13% 27% 24%
5% Oct 250,060 214,000 -14% 28%
Nov 220,000 26%
0%
2013 2014 2015 2016 2017 2018 Dec 213,013 25%
2,700,000
Construction steel market shares Steel pipe market shares Total 2,377,159 14% 24% 25%
(forecast)

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 HOA PHAT GROUP (HSX: HPG)
Source: Bloomberg, MBS Research
Competitive advantages
HPG’s clear advantage of cost per unit over local competitors
Gross Net 18,000,000 120%
Market cap Revenue 2018 Debt / 109%
Ticker profit profit ROE P/ E P/ B 16,000,000
(USD million) (USD million) Equity
margin margin 100%
14,000,000
Long steel producers - BOF
75% 76%
HPG 2,600 2,426 60% 21% 15% 17% 8.7 1.3 12,000,000 80%
65% 62%
TIS 68 428 295% 6% 1% 4% 18.8 0.8 10,000,000
60%
Long steel producers - EAF 8,000,000
POM 60 585 160% 6% 3% -6% N/A 0.4
6,000,000 40%
VIS 87 227 201% -3% -6% -45% N/A 3.5 23%
4,000,000
Galvanized steel producers 20%
10% 8%
HSG 130 1,506 278% 12% 1% 3% 16.8 0.6 2,000,000 6% 3%
NKG 48 643 149% 5% 0% -5% N/A 0.4 - 0%
HPG POM TIS VIS DNY
DTL 71 150 117% 5% 0% -10% N/A 1.5
Commercial enterprices COGS / ton (2018 - VNDbn/ton - LHS) Utilization rate (2018 - % - RHS)
SMC 30 715 171% 4% 1% 5% 10.5 0.5 Gross margin (2018 - % - RHS)
TLH 17 259 63% 6% 1% -3% N/A 0.2
Average 166% 7% 2% -4% 13.7 1.0 Utilization rate of top producers (%)
Median 160% 6% 1% -3% 13.7 0.6 1,200 HPG – 110% 120%
Data are 12m trailing. Sources: Bloomberg, taken on Nov 19
1,000 100%
79% 82% 81% 81% 83% 83%
72%
HPG advantages: (1) Industry leader that have advantages in scale, technology and costs- 800 80%
efficiency (2) Immense market power from dominating market share and competitive strengths 600 60%
(3) healthy financial position, solid financial ratios. World average – 75%
400 40%
The other companies are not as attractive due to the following: (1) inefficient and low 200 20%
profitability; (2) small sized and therefore low competitive advantage; (3) state ownership and
unclear outlook for privatization. These companies will face extreme difficulties in the rising 0 0%
China Japan India United Russia South Korea Germany
competitive environment and/or cyclical downturn of steel market. States

Capacity Production Utilization rate

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 HOA PHAT GROUP (HSX: HPG) Source: HPG, MBS Research

Key ratios
OUR VALUATION OUR FORECAST
We valuate HPG with a BUY recommendation and • After the Dung Quat project comes into operation, we expect HPG’s revenue and market
target price of 31,600 VND (+42% upside) by shares will grow dramatically, as HPG is an enterprise with extraordinary financial health and
using FCFF method, with WACC of 14.6% (Re 19% competitiveness.
and Rd 9%) and TGR of 2%. • However, profit margins will slow down due to: (1) pressure from depreciation and
interest expenses from the new Dung Quat; (2) lower profit margins to gain market shares;
FCFF method Chosen rate
(3) short-term slowing down of construction industry and rising competition in steel industry,
especially in HPG’s new market in Southern Vietnam and galvanized steel products; (3)
WACC 14.6% pressure
Our forecast from slowing global steel market.
VND billion 2017 2018 2019F 2020F 2021F 2022F 2023F
Volume of construction steel 2,202,664 2,377,159 2,700,000 3,300,000 3,800,000 4,300,000 4,500,000
Terminal growth rate 2% Growth 22% 8% 14% 22% 15% 13% 5%
Volume of steel pipe 581,000 653,900 686,595 720,925 756,971 794,820 834,561
Target price (VND / share) 31.600 Growth 11% 13% 5% 5% 5% 5% 5%
Revenue 46,162 55,836 61,561 71,908 94,746 104,880 111,319
Growth 39% 21% 10% 17% 32% 11% 6%
P/E trailing of HPG COGS 35,536 44,166 49,938 58,095 77,878 85,204 89,617
18 40,000 Gross Profit 10,626 11,671 11,622 13,813 16,867 19,676 21,702
16 35,000 Growth 21% 10% 0% 19% 22% 17% 10%
14 30,000 Net profit 8,015 8,601 7,871 9,715 10,382 13,112 15,294
12
25,000 Growth 21% 7% -8% 23% 7% 26% 17%
10
8
20,000 EPS 5,225 3,866 2,671 3,296 3,523 4,449 5,189
6
15,000 Growth -29% -26% -31% 23% 7% 26% 17%
10,000
4 BVPS 21,355 19,120 19,906 23,376 25,621 28,791 32,771
2 5,000
ROE 24.7% 21.1% 14.3% 15.0% 14.6% 16.4% 16.8%
- -
ROA 15.1% 11.0% 7.9% 8.3% 8.2% 9.9% 10.9%
HPG stock price (VND/share - RHS) P/E HPG (LHS)
Average P/E

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 HOA PHAT GROUP (HSX: HPG)
The industry

VIetnam’s steel production and consumption Apparent Steel use per capita
600
30,000,000 42.7% 45%
40% 500
25,000,000
20.7% 35%
27.6% 20.6% 400
20,000,000 30%
25% 300
15,000,000 19.7%
20%
10,000,000 15%
200
10% 100
5,000,000
5%
0 0% 0
2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total production (MT - LHS) Total consumption (MT - LHS) European Union Asia China
Consumption growth (% - RHS) World Vietnam
Construction sector growth ASEAN-6 infrastructure position and spending
12.0% 120 2,500
2049
10.0% 100 2,000

8.0% 80
1,500
6.0% 60
1,000
40 705
4.0% 522
20 284 314 500
2.0% 115
0 0
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 Singapore Malaysia Thailand Vietnam Indonesia Philippines
-2.0%
State of logistics infrastructure (Indexed to rank 1 - Singapore) - LHS
Construction sector GDP (%) Vietnam GDP (%) Infrastructure spending per capita (US$) - RHS

Source: WSA, PWC, World bank, MBS Research

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
PV Power
A story about momentum and future.
 PetroVietnam Power Corporation (HSX: POW)
BUY; Target price: VND 15,600 Price movement Report date Oct 29,2019
VOLUME POW Current price VND 13,100
Investment thesis 36,000,000 20,000
Target price VND 15,600
30,000,000 16,000
We recommend a BUY for POW with target price of VND 15,600 (19% upside). 24,000,000
12,000
Upside 19%
18,000,000
8,000 Bloomberg POW VN
 POW intends to invest in the Nhon Trach 3 (NT3) and Nhon Trach 4 (NT4) gas-fired thermal power plants with 12,000,000
Market cap
6,000,000 4,000 VND 30,679bn
total capacity of 1,500 MW (+36%). We expect that these projects will start operating by 2023 and 2024 0 0 USD 1,319mn
29/10/201828/01/201922/04/2019 10/7/2019 25/09/2019
respectively and enjoy tariff (Pc) of about 2,025 VND/kWh, contributing an annual net profit of VND 807bn per 52 weeks movement VND 12,200
plant on average in 25-year project life cycle. The IRR would be 11%. VND 17,500
 Net profit could grow at compound annual growth rate (CAGR) of 8% in the period of FY20 – FY22 mainly thanks Average daily value VND 28bn
to lower interest expenses and then improved to CARG of 13% in the period of FY23 – FY25 coming from the NT3 1T 3T 12T USD 1.2mn
POW (%) +3% -8% -3%
and NT4 projects. FOL 49%
VN-Index
0% 0% +11% Current FO 14%
(%)
 FY19 net profit forecast of VND 2,700bn (+41% yoy and 34% higher than planned). In light of a 13% increase in
electricity volume and decreasing interest expenses and foreign exchange losses, we expect that POW will record Unit: VND billion FY18 FY19F FY20F FY21F FY22F
15% yoy higher EAT in 4Q19. In particular, given no technical issues (unlike November and December 2018), the Revenue 32,662 35,447 35,480 35,676 38,743
output of the Vung Ang 1 coal-fired thermal power plant will increase by 70% yoy to 1,559 million kwh in 4Q19.
EBIT 3,799 4,332 4,459 4,098 4,556

Valuation Net profit 1,921 2,700 2,965 2,860 3,368

Net profit (basic) 1,981 2,688 3,013 2,877 3,354
We apply FCFE approach (Re 13.2%, g 2%) to reach the target price of POW. The stock is
currently trading at FY19F P/E of 12x and FY20F of 11x, which is about 29% lower than its EPS (VND) 814 1,116 1,226 1,182 1,393
FY18 P/E of 16x. We expect FY20F P/E target of 13x and FY21F P/E target of 12x for POW. EPS growth rate (%) -14% 37% 10% -4% 18%
P/E (x) 16 12 11 11 9
Key risks 7.7 7.8 8.0 8.6 8.1
EV/EBITDA (x)
Risk of selling prices (Pc) decrease after (i) renegotiating PPA (Power Purchase Agreement) with EVN (Vietnam DPS (VND) - 300 500 500 500
Electricity Group) at the Nhon Trach 2 gas-fired thermal power plant, the Dakdrinh and the Hua Na hydropower 0% 2% 4% 4% 4%
Dividend yield (%)
plants and (ii) re-signing PPA at the Nhon Trach 1 gas-fired thermal power plant as the first PPA expired in 2019. If Pc
P/B (x) 1.1 1.1 1.0 1.0 0.9
decreases by 1% at these plants, EBT will reduce by 3%.
ROE (%) 7% 10% 10% 9% 10%
Risk of low liquidity in construction period of the NT3 and NT4 projects.
Net debt/equity (%) 105% 81% 86% 97% 111%
Source: MBS Research

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 PetroVietnam Power Corporation (HSX: POW)
The industry
Source: POW, GSO, MBS Research

Vietnam Electricity Volume & GDP Growth Vietnam Power Capacity (MW)

Electricity volume growth GDP growth 129,500

14% 14% 13% 13%

96,500
12%
11%
11% 10%
10% Others & Import
8% Renewable
60,000 Gas fired power
7% 48,563 Coal fired power
6% 7% 7% 41,400
6% 6% 6%
5% 5% 5% 34,058 38,553 Hydropower

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2014 2015 2016 2018 2020P 2025P 2030P

Electricity consumption per capita

Electricity market share Electricity Consumption Per Capita (kWh)
(kWh)

8,294

7,913
Vinacomin; 4%
Oth

4,238
ers,
24%

2,460
EVN;

1,397
61%

765

711

595

306
PV Power;
11%

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 PetroVietnam Power Corporation (HSX: POW)
Source: POW, GSO, MBS Research
Power plants of PV Power
Annually
Power plants of
Capacity (MW) average output COD POW’s holding
POW
(million kWh)
Hydro
Drakdrink 125 480 2014 95%
Hua Na 180 610 2013 84%
Hanoi Coal-fired
Coal-fired thermal thermal power
power Vung Ang 1 1,200 5,600 2015 100%
Vung Ang 1 – 1,200 MW Gas-fired
thermal power
Current plants
Ca Mau 1&2 1,500 7,700 2008 100%
NT1 450 3,000 2009 100%
Hydro power
NT2 750 4,900 2011 59%
Hua Na – 180 MW
Coming projects
NT3 750 4,446 2023
Hydro power NT4 750 4,446 2024
Drakdrink– 125 MW

Capacity & Consumption by Vietnam Region

Capacity Consumption

49%
Coming projects

44%

41%
Gas-fired thermal power Gas-fired thermal power
Nhon Trach 3 – 750 MW Nhon Trach 1 – 450 MW

34%
Nhon Trach 4 – 750 MW Nhon Trach 2 – 750 MW

22%
HCMC

10%
Gas-fired thermal power
Ca Mau 1&2 – 1,500 MW
North Central South

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 PetroVietnam Power Corporation (HSX: POW)
Benefit from Vietnam electricity demand and higher power shortage of
the South
• According to the report of Ministry of Industry and Trade (MOIT) in Jun 2019, new capacity operating in the period of 2016 – 2030 could be decreased by 16% (15,200 MW)
compared to Revised PDP VII. It could push the power shortage of the South, specially from 2022.

Vietnam Power Capacity (MW) Power shortage of Vietnam electricity system

High load Base load

129,500
40,000

96,500 20,000

-
Others & Import
Renewable
Gas fired power (20,000)
60,000 Coal fired power

GWh
Hydropower
48,563
(40,000)
41,400

34,058 38,553
(60,000)

(80,000)

(100,000)
2014 2015 2016 2018 2020P 2025P 2030P 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Source: EVN, MBS Research

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 PetroVietnam Power Corporation (HSX: POW)
New projects push net profit to grow at 13% CAGR in the period of FY23
– FY25
• In the period of FY23 – FY25, POW would experience a 11% CAGR in electricity output and a 13% CARG in net profit thanks to operating the NT3 and NT4 plants by 2023 and 2024 respectively. Based on forecasted LNG
input price of USD 7.6/MMBtu, the tariff of VND 2,025/kWh and annually selling volume of 4.4 billion kWh on average per plant, one project could earn net profit of VND 807bn per year on average and net cash flow
of VND 1,004bn per year on average in 25-year life time.

Key assumptions of the NT3 and NT4 projects (per plant)

Electricity volume of POW
USD/
35,000 Capacity MW 750 LNG input price 7.6
MMBtu

mn Average operating heat

Annually selling output 4,446 Btu/kWh 5,500
30,000 kWh rate

Utilization rate 68% Total costs VND/kWh 1,814

25,000
NT4
Investment VND'bn 16,382 Tariff (Pc) VND/kWh 2,025
NT3
NT2
20,000 Depreciation - VC VND/kWh 1,360
NT1
Ca Mau 1&2 - Machinery and
year 15 - FC (*) VND/kWh 390
15,000 Vung Ang 1 equipment
Hua Na
- Construction costs year 25 - FOMC VND/kWh 275
DakDrinh
10,000
Funding by loans 70% Average net profit VND'bn 807

5,000 Average net cash

Interest rate 6% VND'bn 1,004
flow

Payback period (after

year 10 IRR 11%
- COD)
F F F F F F F F F F F F
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 (* Assumption of 5-year running in profile after COD)

Source: POW, MBS Research

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 PetroVietnam Power Corporation (HSX: POW)
BUY; Target price: VND 15,600
Income statement (VND
FY18 FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F FY27F FY28F FY29F FY30F
bn)
Net revenue 32,662 35,447 35,480 35,676 38,743 45,752 54,656 56,958 58,496 59,327 59,739 60,168 61,050
Gross profit 4,476 4,982 5,267 4,913 5,346 6,204 7,399 7,971 8,226 8,271 7,896 7,522 7,570
Financial expenses 1,779 1,194 907 604 376 849 1,366 1,180 1,025 880 742 605 468
SG&A expenses 793 829 870 913 959 1,009 1,063 1,116 1,171 1,229 1,289 1,352 1,419
EBT 2,492 3,337 3,803 3,709 4,323 4,574 5,198 5,902 6,258 6,390 6,092 5,793 5,910
EAT 2,287 3,040 3,336 3,255 3,796 4,025 4,617 5,304 5,658 5,752 5,435 5,152 5,265
Net profit 1,921 2,700 2,965 2,860 3,368 3,639 4,206 4,893 5,248 5,341 5,025 4,741 4,855

Valuation Summary FY19F FY20F FY21F FY22F FY23F FY24F FY25F FY26F FY27F FY28F FY29F FY30F
Cash Flow from Operations 5,497 6,636 6,452 6,715 7,597 8,891 7,966 10,603 10,825 10,635 10,327 10,319
Interest Expenses ( 1 - Tax Rate ) 907 576 341 204 706 1,185 1,047 913 778 649 525 404
Capex (346) (7,558) (9,058) (10,558) (5,640) (44) (44) (44) (44) (44) (44) (44)
Interest and dividend income 227 227 227 227 227 227 227 227 227 227 227 227
FCFF 6,286 (119) (2,037) (3,412) 2,890 10,259 9,197 11,700 11,787 11,468 11,035 10,906
Change in loans (6,227) 1,312 3,134 5,003 556 (2,915) (2,634) (2,544) (2,526) (2,531) (2,289) (2,284)
Interest Expense (995) (657) (389) (232) (802) (1,334) (1,165) (1,010) (865) (727) (590) (453)
FCFE (937) 537 708 1,359 2,644 6,011 5,398 8,147 8,396 8,209 8,156 8,169

FCFE Re & g
Present value for FY19 - FY30 19,508 rf 3.6%
• We apply FCFE approach (Re 13.2%, g 2%) to reach the target price of POW. The stock
Present value for terminal value 16,751 Beta 0.92
is currently trading at FY19F P/E of 12x and FY20F of 11x, which is about 29% lower
Present value of equity 36,260 rm 14.0%
than its FY18 P/E of 16x. We expect FY20F P/E target of 13x and FY21F P/E target of
Shares outstanding (mn) 234 Re 13.2%
12x for POW.
Fair value (VND/share) 15,483 g 2.0%
Source: POW, MBS Research
Book value of associated
157
companies
Target share price (VND) 15,600

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company
 So, we are optimistic!

Healthy and growing Outlook The story

Story about the people – The people

the brain & spirit • Fast & smart

Industrialization &
Story about
industrialization and modernization
construction – the body • Progressive & intensive

Story about energy - the Energy demand

networks of blood that • To visualize the picture.
support the body

MBS Research A software A steel A power

Vietnam!
Invest in Vietnam! company company company