PC1 published Q2 2021 results with NPAT-MI increasing 6% YoY to VND131bn (USD5.7mn) mainly thanks to a material step-up in revenue from wind power engineering, procurement and construction (EPC) contracting (in the power construction segment), higher shared profit from an associate steel producer (due to rising steel prices and sales volume) and lower effective tax expenses, which outweighed an absence of real estate handovers. Overall, PC1’s H1 2021 NPAT-MI declined 2% YoY to VND209bn (USD9mn) and completed 46% of our full-year forecast. We see slight upside risk for our 2021F forecast as Q4 is usually peak season for the power construction segment in addition to upside from the shared profit from the steel associate company, pending a fuller review.

Figure 1: Q2 2021 results

Source: VCSC, PC1. (*) Power-related construction segment includes grid erection & installing activities and EPC contracts for renewable energy projects. Other mainly includes low-margin machinery trading.

Power construction gross profit continued to strengthen in Q2 2021. PC1’s power construction revenue and gross profit jumped 361% YoY and 69% YoY in Q2 2021, respectively, as they were mainly driven by contributions from EPC contracts for third-party wind power projects. PC1’s H1 2021 power construction gross profit completed 51% of our full-year forecast. We see slight upside risk for this segment, pending a fuller review, as Q4 is usually peak season for revenue and profit booking. 

Power generation gross profit declined 7% YoY in Q2 2021 as average load factor dropped, per our estimates. This segment’s revenue and gross profit only accounted for 30% and 26% of our respective full-year forecasts as Q2 2021 rainfall in the North was as good as in the central and the southern regions. We continue to believe that profits from this segment will increase in H2 2021F as favorable weather forecasts in Q3 2021F should support both PC1’s existing and 2020-installed hydropower plants to deliver robust YoY volume growth. Moreover, contributions from three new wind farms should boost earnings in Q4 2021F.

PC1 spent ~50% of its planned capex for three wind power projects in Q2 2021, on average. According to PC1’s financial statements, the company invested roughly VND1.1tn (USD48mn) of the total planned capex of VND2tn (USD87mn) in each of the Lien Lap, Phong Huy and Phong Nguyen wind farms. PC1 expects that all three wind farms will begin commercial operation in September 2021 vs our forecast for the beginning of October 2021.

Absence of handovers for the PCC1 Thanh Xuan real estate hurt profits. Per PC1, the company only handed over the last few remaining apartments of the PCC1 Thanh Xuan project, resulting in negligible real estate revenue in Q2 2021 vs VND280bn in Q2 2020 (~25% of the PCC1 Thanh Xuan’s total revenue). This led to a 92% YoY and 91% YoY nosedive in real estate revenue and gross profit, respectively, and was in line with our expectation that there will be no major project handovers in 2021F.

PC1’s 25%-owned associate company Cao Bang Cast Iron and Steel JSC (UPCoM: CBI) recorded breakneck earnings growth due to higher steel prices and sales volume. After recording negligible earnings in 2018, 2019 and 9M 2020, CBI started to record robust earnings growth in Q4 2020 on the back of the rising steel prices. CBI’s NPAT reached VND153bn (USD6.6mn) in Q2 2021 and VND216bn (USD9mn) in H1 2021, implying upside risk to our forecast of PC1’s shared profit from associates.