- We cut our target price (TP) by 18% and downgrade our rating to OUTPERFORM from BUY.
- While we still like PPC for its robust dividend yields and the potential value contribution from its associate companies, one of the two generators at the Pha Lai 2 plant (PPC’s main profit contributor) was shut down in April 2021 due to a technical issue and has since been nonoperational. PPC is pressing forward with repairs and plans for a full resumption of operations by end-September. While we cut our forecast in accordance with the PPC’s guidance for Pha Lai 2’s resumption, we recognize that potential delays could impact PPC’s earnings in 2022F and 2021F (as EVN could reduce PPC’s 2022F contracted volume if the issues are not fixed in time).  
- Our TP cut is mainly due to a 41% cut to our 2021F NPAT and 7% trim to our cumulative 2022F-2030F NPAT to reflect the technical issue at Pha Lai 2 and the fact that Pha Lai 1’s heat rate did not improve as we expected in H1 2021. We apply an additional 5% valuation discount to reflect the potential forecast risks related to the resumption of Pha Lai 2’s full operation. We also adjust our terminal growth assumption from 1% to 0% as we lower our expectation from the potential valuation contribution from the Pha Lai 3 (600 MW) power plant.
- Despite the forecast 49% slump in 2021F NPAT, we expect 2022F NPAT to rebound 56% YoY thanks to a rebound in contracted volume and the full operation of the Pha Lai 2 plant.
- We lower our 2021F DPS forecast by 25% to VND1,500 while maintaining our DPS forecast of VND2,500 for 2022F and 2023F.
- PPC is trading at an 2022F PER of 9.3x, based on our forecast, which is attractive against the four-year average of our selected peer group median TTM PER of 13.7x.
- Downside risks: Pha Lai 2’s full operation resumption is delayed.

Pha Lai 2 to resume full operation by end-September 2021. In early April 2021, the S6 generator at Pha Lai 2 experienced a malfunction and was required to be shut down for maintenance, which is expected to be completed by end-September 2021, per PPC. Due to this technical shutdown, a regular maintenance project for the S5 generator was required to be pushed back from August-September to October-November. Due to this tight schedule and the fact that EVN will start collecting operational data from power plants to calculate contracted volume for 2022F in late 2021, any delays to the above schedule could result in earnings hits in both 2021F and 2022F. 

Sales volume to rebound 66% YoY in 2022F from low base in 2021F. Our forecast is predicated on our expectation for a strong recovery in Vietnam’s overall electricity demand in 2022F after Vietnam’s export-oriented manufacturing sector recovers from the current resurgence of COVID-19. A demand-driven recovery should result in a strong rebound in the contracted volume granted by EVN in 2022F after a cut in 2021F as well as higher volume sold to the competitive market.