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NT2 – Tough in the near term, but negatives partly priced in

• Full electricity market prices were down significantly in August, falling to 783 VND/kWh (-48.2% YoY). This abrupt decline is primarily attributable to the numerous bouts of heavy rain that occurred in both the North and South in July and August. Due to the significant rainfall, hydroelectric power plant reservoirs received an increase in water flow. Falling temperatures also resulted in a decrease in the consumption of electricity and the mobilization of thermal power plants.
• NT2 recorded 365 mn kWh of electricity in Q3/2023 (-65% QoQ, -59% YoY). The factory was allocated a low Qc in August (44.53 mn kWh) while the full electricity market price (FMP) was low, so the real output was low. NT2 overhauled the plant beginning September 7, and because the FMP price was lower than variable costs, the plant operated with an output of 5 mn kWh in the first six days of the month. Correspondingly, we forecast NT2's Q3/2023 revenue and NPAT to reach VND 817 bn (-63% QoQ, -62% YoY) and - VND 123 bn, respectively.
• For FY23, we lower net revenue to VND 7,216 bn (-17.9% YoY) on the assumption of (1) lowering forecast electricity output to 3.5 bn kWh (-13.8% YoY); (2) average gas price forecast at 9.0 USD/mn BTU (-3.2% YoY); and (3) including compensation for exchange rate losses of VND 155 bn expected to be received in Q4. The NT2 overhaul costs (estimated at VND 407 bn) will be disbursed gradually beginning in Q4/2023 and continuing for the next few years. As a result, we expect 2023 NPAT to be VND 449.7 bn (-49.1% YoY), corresponding to an EPS of 1,729 VND/share.
• We maintain a NEUTRAL rating with a one-year target price of VND 25,800/share. With an expected cash dividend of VND 1,500/share in the next 12 months, the total return is at 10% based on the closing price on Oct 12^th 2023