GEG - Strong growth vehicles are capital intensive
Gia Lai Electricity JSC (HSX: GEG) is a lucrative business in the power industry with three segments including hydropower, solar and wind power. GEG currently possesses five solar power and 11 hydropower plants with a total of 344 MW capacity and numerous projects in the pipeline. Supplying 585 million kWh in 2019, GEG accounts for 0.3% total national consumption. GEG has experience in the solar power market including low-cost capex and speedy construction, hence is able to capitalize on its current capacity and to anticipate the wind power trend in the near future.
We believe that non-hydro renewable energy is GEG’s important growth vehicles in the long term. In light of the government’s master plant, GEG can speed up its construction progress to meet the deadline and enjoy a profitable electricity sale price. It has been operating its solar power segment at superior profit margin, and we think GEG is going to develop its wind power the same way. Three new wind power farms, scheduled to operate in late-2021, are going to fuel GEG’s growth turbine for the next five years.
Three-wind projects will be operated in late 2021, stable operation from solar power plants, alongside with hydropower, GEG’s fair value is determined at VND 20,800 per share using a combination of FCFF, P/E and P/B valuation methods. This offers a 42% upside from the closing price on November 06th, 2020, thus we recommend to BUY this stock. Investment risks include dilution because of capital raising activities and possible overcapacity issue among the plant locations
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