REE - Effective Investments Continue to Drive Earnings Growth

With strong experience in management in that sector and the company’s constructive attitude toward shareholders, we consider REE as an efficient way to get exposure to the power and water utilities sector. In 2018, the catalyst in this business segment will be the contribution from new associate companies including CHP and VCW, which account for 11% of its earnings. Meanwhile, VIID and SGR with expected earnings growth of 60% and 43%, respectively, would contribute 11% to the total NPAT of VND 1,683 billion, corresponding to EPS of VND 5,374.

In addition, since REE’s prospect shows that its current business model could ensure stable growth rate of 10 – 15% YoY, the stock could be re-rated to a P/E ratio of about 10x. However, we also notice that the long-term prospect of VIID, a subsidiary that accounts for 10% of REE’s earnings, is still unclear. Therefore, we decide to discount the forward P/E ratio by 10%. Our target price is VND 48,400 per share. This, coupled with a VND1,600 cash dividend, yields a total return of 33% (calculated based on the closing price on 20 April). Therefore, we have a BUY on REE.