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POW - Long-term outlook remains attractive

PetroVietnam Power Corporation (HSX: POW) is the second largest power producer in Vietnam with a portfolio of 4.2 GW, representing 9% of total capacity of the national power system.  Gas-fired thermal power makes up the largest proportion of its activity with 64% of total capacity. Coal-fired thermal power accounts for 30% and hydropower for 6%. Having the majority of its capacity located in the South, a major consumption region, and mordern technology, the company has comparative advantages. This is especially true if the liberalization process in the power industry allows for more competition and offer opportunities for well run businesses to improve profitability.

In the short term, despite risks of policy changes and input material prices, the decline in depreciation and debt oustanding will help POW improve its earnings and cash flow. Furthermore, the Nhon Trach 3&4 project is expected to become the long-term growth driver, given that the shortage of electricity in the South is inevitable when many big projects are behind progress. We combine discounted cash flow and comparable methods to value POW. Based on that, we come to a target price at VND 17,900 per share, anticipating a cash dividend of VND 300 per share in the next 12 months. This translates to a 41% total return from the closing price on September 3rd, 2019. Therefore, we have a BUY on this stock.