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HND - Patience pays off

Hai Phong Thermal Power (UpCOM: HND) possesses many strengths because of its young power units, competitive investment outlays and efficient operations. Supplying about 7% of the North's load and 3.7% of the country's total electricity consumption, HND has a high gross profit margin and a moderate coal consumption rate compared to peers. In addition, strict compliance with the maintenance schedule and management of other operating costs also contribute to HND's financial stability.

HND has benefited from the current hydrological conditions. High mobilization capacity and contract output are the profit growth drivers in the medium term. Especially in the last years of accelerating depreciation and debt repayment, increasing operating capacity helped bring in cash flows. As a result, HND paid its debts on time, reduced interest expenses and exchange rate losses while still having high profits to pay cash dividends.

Using the EV/EBITDA, FCFF and P/E valuation methods, we determine the fair value of HND at VND 22,900 per share. With a cash dividend of VND 1,200 per share, the total expected return for investors is 32%, equivalent to a BUY recommendation. Trading on Upcom with a highly concentrated shareholder structure has limited its liquidity. However, we believe that once SCIC completes the divestment and the company is on a listed exchange, its liquidity will improve and the motivation for a price increase will be more prominent.