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REE – The 2023 stepping stone boosts mid-term growth momentum

• Hydropower contribution to business results has been reduced from Q2/2023. 6M/2023 results saw NPAT-MI with a slight decrease although revenue continued to grow primarily due to (1) a decrease in profit contribution from hydroelectricity due to hydrological conditions (-8.7% YoY), (2) contribution from the office leasing segment also recorded a slight decrease YoY when the occupancy rate of office buildings for lease decreased (-1.6% YoY), and (3) the M&E segment recorded a drop in profit (-44.6% YoY) due to additional provision for doubtful receivables.

• In the first half of 2023, the energy segment, particularly hydropower, remained the most important component of REE's revenue and NPAT. However, poor hydrological conditions are predicted to stifle profit increase in 2H2023. We expect REE's revenue and NPAT-MI to be VND 8,827 bn (-6% YoY) and VND 2,479 bn (-9% YoY), respectively. EPS is 6,068 VND/share.

• The year 2023 will serve as the foundation for the next stage. The E.town 6 building project, which would add 26% to the existing leasable floor area, is projected to be completed by the end of Q4/2023. In addition, the Light Square residential project, which includes low-rise houses (phase 1), is scheduled to be completed by Dec 2023, with results expected in 2024. At the same time, as a result of its solid financial position and abundant cash flow from operating activities, REE will pursue future M&A projects.

• We have a BUY rating with a target price of VND 74,000/share based on a sum of the part (SoTP) valuation. With an expected cash dividend of VND 1,000/share in the next 12 months, total return is determined at 24% based on the closing price on Aug 18^th , 2023.