We attended BWE’s Q3 2024 investor meeting. In general, the company’s guidance for 2024 NPAT, the water tariff hike, and residential waste tariff hike is broadly in line with our expectations. BWE has been successful in debt restructuring and is confident in paying a cash dividend of VND1,300/share for 2024. BWE has identified capacity expansion opportunities across various markets, particularly in Dong Nai Province with the Long Thanh Highway water project. With a capital expenditure of VND5tn and a capacity of 600,000 cubic meters per day (representing 70% of BWE's current capacity), the project is expected to begin preliminary work in late 2025. BWE TDM holds the potential for a 50% stake in the project.

Preliminary 2024 results in line with expectations: BWE remains confident in achieving its 2024 parent NPAT guidance of VND700bn, assuming a USD/VND rate of 25,000.  This implies consolidated NPAT of VND735bn, equivalent to 103% of our full-year forecast. As of 9M 2024, the parent NPAT was VND461bn (-6% YoY; completing 66% of BWE’s full-year guidance). This is mainly due to unrecorded respective revenue and NPAT of VND274bn/VND27bn from the waste and wastewater segments (which resulted from incomplete paperwork). BWE expects these amounts to be recognized in Q4. If included, the 9M parent NPAT would be VND488bn (-1% YoY; completing 70% of the full-year guidance). 

Water tariff to increase in H1 2025: Due to changes in approval procedures, it takes more time to finish paper work to submit to provincial authorities. BWE said that the regulated water loss ratio of 15% is favorable to request a water tariff hike. Management also sees no risk of a water tariff reduction and has enough evidence to persuade provincial authorities to enact a water tariff hike. BWE is requesting a 5% annual water tariff increase for the 2025-2028F period but is more confident in securing a 3% increase per year. The company expects the water tariff hikes to be approved in H1 2025, which supports our current projection of a 3% annual increase starting from July 1, 2025. 

Residential waste tariff to increase in late 2024: BWE has requested a 20% one-time increase in the residential waste tariff, which was approved by the MoIT in mid-2024. This will allow the company to set prices based on actual costs. However, approval from provincial authorities is still pending as they review actual vs unavailable regulated costs. BWE expects to finalize the tariff hike by late 2024. We conservatively forecast that the 20% increase will be effective from April 2025. We believe BWE will succeed in these requests to enhance profitability in its waste segment, as they align with Vietnam’s green strategy and reflect the price that has remained unchanged for the past ten years. In addition, BWE guides for waste volume growth of at least 5-7% in the coming years.

Successful debt refinancing to save interest expense by ~VND65bn: BWE plans to finish refinancing a total of VND1,550bn of debt in 2024, with the USD interest rate reduced by 1% and VND interest rates reduced by 2-3%. According to BWE, this could lower interest expenses by VND65bn (10% of the 2023 reported NPAT-MI) or by VND96bn (14% of the 2023 NPAT-MI if including restructured debt for Gia Tan JSC). BWE has already refinanced a VND550bn term loan from Vietinbank (8.1%-10.5%) to Vietcombank at 7.6% for Biwase Long An in 9M. The remaining refinancing, which BWE expects to finish in late 2024 includes (1) VND705bn with Maybank for a Standard Chartered loan, 2) VND219bn with Cathay Bank for an HSBC loan, and 3) others. The company also restructured debt for its Quang Binh associate company. Additionally, recent US Fed rate cuts have further decreased financial costs for the upcoming year on BWE’s USD-denominated loans. We think lower interest expense might potentially offset 2025 forex loss of USD113mn-denominated debt (as of September 2024).

Operations of subsidiaries companies and Capex:

• BIWASE Long An (94%-stake subsidiary) broke ground on a plant that can double capacity (Nhi Thanh water plant phase 2): The second phase of expansion, aimed at doubling capacity to 120,000 cbm/day, broke ground and is expected to come online in Q3 2025, in line with our projections. Capex for 2025 and 2026 is estimated at VND1tn in each year, primarily for the water network system and infrastructure. Long-term plans include tripling capacity to 300,000 cbm/day over 2027-2030. Additionally, Can Duoc Water & Environment JSC (94%-stake, retail sales subsidiary under Biwase Long An) received approval for a tariff increase of 10% which helps to improve profitability of the retail sales segment of its water business in Long An Province. The average tariff (including 5% VAT) is VND12,923/cbm, with industrial rates around VND16,477/cbm and residential rates at VND10,339/cbm.
• BIWASE Can Tho: BWE and its partner also doubled the share capital of Biwase Can Tho to VND100bn to construct a water plant in Can Tho with a capacity of 50,000 cbm/day, starting with Phase 1 at 25,000 cbm/day and with commercial operations scheduled by 2025. 
• Gia Tan Water JSC: Plans to expand capacity to 100,000 cbm/day (capex of VND600bn) in 2025. Even though its plant is underutilized at the moment, BWE believes it will overutilize the plant in the upcoming dry season when it connects with Long Khanh industrial park. We note that BWE projects a loss for Gia Tan Water JSC in 2024, mainly due to high depreciation expenses.
• BIWASE Binh Phuoc: To complete the expansion in December 2024, doubling capacity to 60,000 cbm/day with VND120bn of capex.

BWE TDM’s M&A activities to increase its market share in Can Tho further:

• BWE M&A Saigon-Can Tho Water JSC: In August, BWE spent VND23bn to acquire a 47% stake in this company. In addition, on October 23, 2024, BWE raised its stake to 65%, renaming it BIWASE Can Tho (Biwaco).
• TDM is organizing a tender offer to acquire a 24.36% stake in Can Tho water company (CTW) at VND30,400/share. This is to finish its previous plan when it completed a rights issue in Q1 2024. After this transaction, BWE and TDM hold a total 49% stake in CTW. Additionally, BWE also has a 49% stake in CT2 and a 65% stake in Saigon – Can Tho Water JSC (Can Tho 3).

Powered by Froala Editor