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HND – Below-expected Q4/2022 profit, expecting a recovery after Q1/2023

• HND announced its 4Q22 electricity sales volume of 1,106 mn kWh (-30% QoQ, -29% YoY), lower than our expectation due to the No.4 generator of the HP2 plant’s overhaul in Q4. Despite the fact that the production of electricity decreased QOQ and YoY, the revenue reached VND 2,238 bn/ USD 94.3 mn (-27% QOQ, +1% YoY) as a result of rising input coal costs, which led to an increase in the electricity’s ASP. However, NPAT recorded a loss of VND 7.6 bn/ USD 0.3 mn (Q4/2021: VND 259.9 bn/ USD 11.0 mn), primarily due to the low volume, which was insufficient to cover its fixed costs and generate a profit on the CGM.
• In 1Q23, we predict that HND might experience negative earnings growth due to (1) the modest Qc volume and (2) the cost of coal input remains high, remaining high, preventing HND from having a profit on the CGM. However, we expect better earnings in 2023 based on the assumptions (1) a sharp decline YoY in interest expenses and depreciation costs, (2) Qc and Qm will be higher from Q2, and (3) In 2H23, HND expects to gain more profit on CGM as hydropower gradually exits a favorable phase, even though coal prices remain high.
• We have an ACCUMULATE rating with the one-year target price of VND 15,600/share. With an expected cash dividend of VND 1,000/share in the next 12 months, it implies a total return of 19%, based on the closing price of Mar 3^rd, 2023.