- We reiterate our OUTPERFORM rating but cut our target price (TP) for HND by 6.6% to VND18,500/share. While we expect the share price could struggle in H2 2021 given the company’s short-term negative earnings outlook, we continue to believe that HND offers value as one of the best performing coal-fired gencos in Vietnam in terms of capacity utilization.
- We cut our TP due to a higher net debt balance — which increased 43% QoQ on the back of HND’s 2020 record high dividend payments and an increase in receivables — and a 6% cut to our 2021F NPAT forecast.
- We cut our 2021F NPAT forecast mainly due to (1) a 2% upward revision in coal costs as our previous forecast for lower coal costs in 2021F did not materialize in H1 2021 and (2) a 2% cut to HND’s 2021F competitive generation market (CGM) prices as we factor in the potential impact of the fourth wave of COVID-19 on Vietnam’s industry CGM prices in Q3 2021F while continuing to expect prices to rebound in Q4 2021F. Our 2022F-2025F NPAT remains largely unchanged.
- We forecast HND’s reported NPAT will plunge 69% YoY in 2021F due to a scheduled reduction of its power purchasing agreement (PPA) fixed price component, lower contracted volume and absence of one-off income, which are partly cushioned by a VND500bn (USD22mn) reduction in depreciation expenses.
- We view HND’s valuation as attractive at a 2021F EV/EBITDA of 5.9x, based on our forecast, compared to an average four-year median EV/EBITDA of 10.1x of our selected peer group. We also project a sustainable cash dividend of VND1,200/share (7% dividend yield) per annum.
- Downside risks: Lower-than-expected HND’s selling price in the CGM.

We expect HND to post a loss in Q3 2021F due to low contracted volume. Per our estimate, HND’s contracted volume to only reach 900 million kWh in Q3 2021 (-36% YoY and -44% QoQ). This low contracted volume — coupled with our expectation for low CGM prices in Q3 2021 as Q3 is normally the peak season for hydropower capacity — implies that gains from HND’s power generation price spread will not be large enough to cover the company’s depreciation and maintenance cost booking in the quarter. 

HND’s earnings to jump from 2024F thanks to lower depreciation and higher PPA price. Based on management’s comments, we reiterate our forecast for HND’s annual depreciation expenses to decline from currently VND1.3tn (USD56mn) to VND800bn (USD35mn) in 2024F. In addition, we forecast that HND’s earnings will be supported by an 14% increase of its fixed PPA price in 2024F as HND will be able to pass through the investment cost for its upcoming air emission treatment upgrade to EVN. That said, we note that HND’s tax incentives will expire in 2025F and that its effective tax rate will revert from 5% currently to 20% (the current corporate income tax rate).