PPC – Lower-than-expected fixed component for Pha Lai 1 – AGM Note
  • 2024-06-11T00:00:00
  • Company Research

  • 48 shareholders (representing 86.89% of total voting rights) attended PPC’s AGM on June 10. 

  • Shareholders approved promising 2024 guidance with revenue of VND8.8tn (USD350mn; +51% YoY) and PBT of VND427bn (USD17mn; +12% YoY), mainly driven by management's expectation for increasing sales volume following the re-operation of the S6 generator. 

  • Shareholders approved a 2023 cash dividend of VND2,775/share (higher than our current projection of VND2,375/share and guidance of VND800/share). PPC plans to pay 2024 dividends at a ratio of 6% per par value (cash or stock has not been determined yet). We currently forecast a cash dividend of VND1,500/share for 2024.  

  • Management shared preliminary 5M 2024 profit from power generation of VND135bn (USD5.3mn; 31% of our full-year forecast). This result is slightly lower than our expectation, which we attribute to the lower-than-expected fixed component of Pha Lai 1. 

  • Pha Lai 2's fixed component in its PPA contract remains unchanged at VND362/kWh, while Pha Lai 1's fixed component has decreased to VND140/kWh (-42% YoY; 39% lower than our current forecast). 

  • PPC's 12-month suspension is delayed until a new supplier is found, providing time for environmental solutions. PPC believes the suspension is unlikely until at least 2030 due to its critical role in northern Vietnam. 

  • Our view:  We see a slight downside risk to our earnings forecast because (1) Pha Lai 1’s fixed component is lower than our current projection and (2) higher-than-expected volume from Pha Lai 1 (which implies higher loss), which outweigh (3) a strong CGM price as well as (4) potential higher-than-expected volume from Pha Lai 2. 

2024 guidance suggests a promising outlook with 2024 revenue and PBT respectively increasing by 51% and 12% YoY.  

  • PPC guides for 2024 revenue of VND8.8tn (USD350mn; +51% vs actual 2023; +47% vs 2023 guidance) and PBT of VND427bn (USD17mn; +12% vs actual 2023; +60% vs 2023 guidance). We attribute this strong growth to management's expectation of increasing sales volume following the re-operation of its generator, including S2, S4, and S6, as they guide for a production volume of 5.3 million kWh (+49% YoY; 116% of our current forecast). 

  • However, the PBT guidance is just equivalent to 54% of our forecast, even though revenue is equivalent to 121%. We attribute this to management's conservative approach in estimating costs. From 2019-2023, PPC’s actual PBT was, on average, 50% higher than its guidance. 

Dividend and fund allocation: 

  • 2023 cash dividend: PPC raised its 2023 cash dividend to VND2,775/share (higher than our current projection of VND2,375/share) from VND800/share. To date, PPC has paid an advance of VND2,150/share for the 2023 cash dividend. This implies the remaining 2023 cash dividend to be VND625/share. 

  • 2024 cash dividend: PPC plans to pay a 2024 dividend at a ratio of 6% per par value (cash or stock, has not been determined yet). We currently forecast a cash dividend of VND1,500/share for 2024. Historically, PPC's actual paid cash dividends have always been 2x its guidance. 

Management shared preliminary 5M 2024 core profit from power generation of VND135bn (USD5.3mn; 31% of our full-year forecast), slightly below our expectation. PPC also shared preliminary production volume of 2,200 million kWh (49% of our full-year forecast), higher than our projections. This includes Pha Lai 1’s production volume of 500 million kWh (93% of our full-year forecast, above our expectation) and Pha Lai 2’s production volume of 1,700 million kWh (43% of our full-year forecast, in line with our expectation). The guided volume for the remaining 7 months is 2.2 billion kWh, which would help the whole year volume reach 105% of our full-year forecast. We attribute the lower-than-expected core profit to Pha Lai 1’s lower-than-expected fixed component.  

Pha Lai 2's fixed component in its PPA contract remains unchanged at VND362/kWh, while Pha Lai 1's fixed component decreases to VND140/kWh for 2024-2027 period. PPC has signed an amended and supplemental PPA contract for both Pha Lai 1 and Pha Lai 2 with EVN and EVNGENCO2. This contract is crucial for the continuous operation of PPC. However, Pha Lai 1’s fixed component decreased to VND140/kWh (-42% YoY; 39% lower than our current forecast). This reduction is partly due to the low net fixed asset value of Pha Lai 1, which is a result of a lack of spending on capital expenditure and maintenance costs in recent years. The lack of spending for Pha Lai 1 occurred because, in 2019, PPC had initially planned to invest in the Pha Lai 3 project to replace Pha Lai 1. However, under the Power Development Plan VIII, investment in new thermal power plants is not approved. 

The re-operation of the S2 generator in June 2024 is set to support sales volume growth. This re-operation is to address rising electricity demand in northern Vietnam, particularly during the dry season. PPC's S2 generator (110 MW capacity, representing 11% of PPC's total and 25% of Pha Lai 1's capacity), which was temporarily shut down in April 2023 due to non-compliant emissions from its electrostatic precipitator system, has now been repaired. PPC prioritized replacing the faulty 2AB furnace dust filter system to ensure safe operation, and the unit was successfully brought back online on June 5, 2024. In 2023, Pha Lai 1's production volume decreased by 40%, primarily due to the temporary shutdown of the S2 generator.  

PPC guides for a 2024 maintenance budget of VND487bn, primarily for Pha Lai 1’s generators. Despite this budget being 22% higher than our current projection of VND400bn, we foresee insignificant changes to our current forecast because PPC completed only 60% of its initial guidance during the 2019-2023 period. So far, the company has replaced boiler dust filters 4A & 4B and 2A & 2B. The remaining replacements—boiler dust filter 3B and 1A & 1B—are expected to be completed by June 2024 and August 2024, respectively.  

PPC's operation suspension has been delayed. Initially set for a 12-month suspension by the Environmental Crime Prevention and Control Police Department (C05), the penalty will now only take effect once the Ministry of Industry and Trade (MoIT) and Vietnam Electricity (EVN) select another power supplier to replace PPC (1,040 MW). PPC’s management believes this development is positive, as it provides additional time to implement environmental solutions. Additionally, given PPC's critical role in supplying electricity to northern Vietnam, where there is significant growth in power consumption, the company believes the probability of suspension is low until 2030. 

Changes to the Board of Directors (BOD) and Board of Supervisors (BOS) 

  • BOD: The number of PPC’s BOD members will be increased from 5 to 7, including: 

  1. Mr. Ngo Nguyen Dong (EVNGENCO2 representative): Currently serving as the head of BOS of PPC, and as Deputy Head of Internal Audit and Financial Supervision at EVNGENCO2. 

  1. Mr. Nguyen Van Thanh: Formerly served as a BOD member from August 8, 2017, to May 12, 2018, before retiring on October 1, 2019. 

  • BOS: An additional supervisor will be appointed to replace Mr. Ngo Nguyen Dong: 

  1. Mr. Cao Xuan Khuong (EVNGENCO2 representative): Currently serves as a specialist in internal auditing and financial supervision at EVNGENCO2. 

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