• BWE released Q1 2024 results with revenue of VND792bn (+16% YoY; USD31.7mn) and reported NPAT-MI of VND179bn (+27% YoY; USD7.2mn), which complete 21% and 25% of our respective full-year forecasts.
• We attribute the 16% YoY higher revenue to 1) a 20.7% YoY increase in the water segment, which is due to the consolidation of Biwase Long An and an 8.6% YoY increase in BWE’s water sales volume, and 2) a 32% YoY increase in the waste treatment segment, which together outweigh a significant slump in the wastewater treatment segment as BWE has not yet recorded enough revenue due to incomplete paperwork. 
• BWE’s Q1 reported NPAT-MI surged 27.4% YoY mainly because of 1) an 18% YoY increase in gross profit as sales volume increased significantly while the water loss ratio decreased 40bps to 4.8% (vs 5.2% for Q1 2023), coupled with the profit contribution from Biwase Long An, and 2) VND7bn of shared profit (vs a loss of VND21bn in Q1 2023) from BWE’s new associate companies (i.e., Vinh Long Water, Can Tho, Quang Binh Water), which outweigh a loss from its other associate company - Gia Tan Water.
• Having said that, we see insignificant change to our forecast as the higher-than-expected profit from the water supply and trading & others segments might offset higher forex loss (due to our recent VND depreciation projection of 3%) as well as our assumptions on the delay of the residential waste tariff hike from Q2 to Q4 2024, pending a fuller review.
• We currently have an  OUTPERFORM rating for BWE with a target price of VND48,400/share.

The surge in the water supply segment’s revenue and NPAT is due to a successful M&A strategy and management’s efforts in keeping the water loss ratio low. In Q1 2024, BWE reported a revenue of VND627bn (+20.7% YoY; USD25mn) and an NPAT of VND165bn (+23.8% YoY; USD6.6mn, completing 31% of our full-year projection) for the water supply segment. These significantly high increases are mainly due to 1) an 8.6% YoY rise in water sales volume of BWE, reaching 47 million cbm in Q1 2024 and completing 24% of our full-year forecast, 2) the consolidation of Biwase Long An’s water sales revenue and profit starting from H2 2023, and 3) a low water loss ratio of 4.8% (-40bps vs Q1 2023). Additionally, Binh Duong provincial authorities set a 2024 GRDP target of 8%-8.5%, and at end-Q1, it has reached a growth of 5.27% vs that of 1.15% last year. Given strong Q1 sales growth (vs our current full-year forecast of 5% YoY growth) and the potential outlook for water demand, we see some potential upside adjustments to our water segment forecast, pending a fuller review.

Trading & others segment benefited from strong performance of Biwelco. Although Q1 revenue of the trading & others segment only edged up 2.3% YoY (amounting to VND71bn; completing 17% of our forecast), its gross profit/NPAT spiked 161%/683% YoY, completing 51%/31% of our full-year projections. We attribute this to the strong performance of Biwelco company, BWE’s 52%-stake subsidiary operating in water pipeline construction business as the company guided for 2024F NPAT growth of ~50% YoY. 

Waste and wastewater treatment segments impacted from incomplete paperwork. The waste and wastewater segments suffered respective losses of VND17bn/VND5bn in Q1 2024 vs our forecast of VND66bn/VND7bn for the full year, which is due to incomplete paperwork to recognize ~VND158bn revenue.

BWE’s Q1 2024 results

Source: BWE, Vietcap (*) Vietcap’s estimates based on segment breakdown in the parent company’s financial statements.

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