GEX released Q2 2021 results with revenue jumping 128% YoY to VND8.7tn (USD378mn) mainly due to the consolidation of Viglacera JSC (HSX: VGC). Meanwhile, reported NPAT edged down 3% YoY to VND288bn (USD12.5mn) as a higher income contribution from VGC offset increased interest expenses and SG&A. We note that GEX increased its ownership ratio in VGC to 50% in Q2 2021 vs 25% in Q2 2020.
- GEX’s H1 2021 reported NPAT-MI jumped 54% YoY to VND542bn (USD25mn) thanks to a higher earnings contribution from VGC (whose NPAT completed 66% of our full-year forecast) and a surge in financial gains from securities investment (recorded in Q1 2021). In the electrical equipment segment, CAV’s NPAT completed 50% of our full-year forecast, while THI’s NPAT only completed 35% of our full-year projection.
- H1 2021 PBT of VND1tn (USD44mn) was 14% higher than the preliminary number of VND891bn (USD39mn) announced at the AGM in June.
- H1 2021 reported NPAT-MI completed 47% of our full-year forecast. We foresee slight downside risk to our 2021 earnings forecast due to downside risk for the electrical equipment segment as the resurgence of COVID-19 in Vietnam could have a negative impact. Meanwhile, we foresee insignificant change to our earnings forecast for VGC, pending a fuller review.

Figure 1: GEX’s Q2 2021 results (Part 1)

Source: GEX, VCSC. (**) Others include general & administrative and interest expenses of the parent company as well as earnings contributions from other private (unlisted) companies. In addition, it also includes profit from GTN (solar farm), PTM (hydropower company) and other electricial companies that are not listed.

Electrical equipment segment (~50% of our 2021F forecast NPAT for GEX): CAV was broadly in line while THI trailed our forecast. Cable manufacturer CAV’s standalone Q2 2021 revenue grew 30% YoY while its NPAT edged down 3% YoY to VND110bn (USD4.8mn). The divergence between revenue and NPAT growth was mainly due to high copper prices as well as both higher SG&A and discount expenses. Overall, CAV’s H1 2021 reported NPAT was in line with our expectation, completing 50% of our full-year forecast. However, transformer manufacturer THI’s H1 NPAT of VND53bn (USD2.5mn) completed only 35% of our full-year forecast.

VGC (~40% of our 2021F forecast NPAT for GEX) delivered solid NPAT in H1 2021, which was higher than our expectation and completed 66% of our full-year forecast. VGC released Q2 2021 results with revenue of VND2.9tn (USD127mn; +19% YoY) and NPAT of VND336bn (USD15mn; +11% YoY). We attribute the strong earnings in Q2 2021 to the solid performance of VGC’s construction material and industrial park leasing segments in addition to lower SG&A expenses. The industrial park segment's gross profit grew 101% YoY in Q2 2021. Gross margin of the construction material segment also expanded from 23% to 28%. Notably, building glass products experienced positive performance thanks to an increase in selling prices and an additional earnings contribution from a new building glass plant. Furthermore, the SG&A to sales ratio decreased from 13.2% in H1 2020 to 11.5% in H1 2021 after GEX gained majority ownership in VGC. However, we see some downside risk to the construction material segment in H2 2020 due to the current COVID-19 situation in Vietnam, pending a fuller review.

Wind power projects are on track to come online in October. GEX has disbursed ~50% of capex for these projects as of Q2 2021. It has guided for new wind farm projects with a total capacity of 140 MW (Huong Phung 2 & 3 and Gelex 1, 2 & 3) to come online by October 2021 in order to receive a favorable tariff of 8.5 US cents/kWh.

Total assets jumped while leverage reduced due to the consolidation of VGC. GEX consolidated VGC in its Q2 2021 financial statements after the company increased its ownership ratio in VGC from 46% to 50.2% on April 7, 2021. GEX also recorded a one-off revaluation gain of VND219bn (USD9.5mn) on its investment in VGC. This number is broadly in line with our assumption of VND249bn (USD10.7mn). After consolidation, GEX’s total assets soared 76% to VND48tn (USD2bn) while its net gearing fell 132% as of end Q1 2021 to 96% as of end Q2 2021.

Successful rights issue — in line with expectations. GEX announced that it completed an issuance of 288 million new shares — or 98.2% of shares offered to current shareholders via a rights issue in which shareholders had the right to apply for six new shares for every 10 existing shares. The offer price was VND12,000/share (~18% lower than book value per share of VND14,710 as of March 31, 2021). In addition, the company announced it will sell the remaining 5.4 million shares from the rights offer at VND16,000/share. Accordingly, GEX will receive total proceeds of VND3.5tn (USD152mn), increasing its share capital by 60% to VND7.8tn (USD339mn).