• We attended REE’s annual general meeting (AGM) on March 29, 2024. Overall, the Chairwoman expects a robust power demand outlook with the potential growth of the semiconductor sector and data center industry, which are power intensive. The company also commits to double capacity  in the next three to five years which confirms our forecast for a 50% capacity increase to ~1,500MW by 2028. REE is optimistic on Vietnam’s extensive wind power potential, which will help it to realize its capacity expansion target after the new pricing mechanism is released.
• REE set its 2024 business guidance with revenue of VND10,588bn (+24% YoY) and NPAT of VND2,409bn (+10% YoY, 5% higher than our forecast). NPAT drivers mainly come from the mechanical & engineering segment (profit of VND166bn from a loss last year) and the real estate segment (+15x YoY), which outweigh weaker earnings from power (-7% YoY) and the office leasing segment (-14% YoY).
• Shareholders approved to pay a 25% dividend for 2023: 1) 10% in cash (VND1,000/share – in line with our expectation) to be paid in April 2024, and 2) 15% in stock dividends (a shareholder of 100 shares will receive 15 additional shares) to be implemented in 2024.
• REE set its 2024 dividend to pay a maximum of 10% of par value, expected to be in cash, per management. We currently forecast REE to pay VND1,000/share in cash dividends for 2024. REE also might pay a 15% stock dividend in addition to the VND1,000 cash dividend.  Shareholders approved the 2024 ESOP with 1,007,915 shares (equivalent to 0.25% of outstanding shares) from the treasury shares source, issued at VND10,000/share with a three-year lockup period.
• REE’s management stated that upcoming  capex might total at VND7tn, including wind power projects Tra Vinh phase 2, Tra Vinh V1-5, Tra Vinh V1-6 (~130MW, VND5tn); an office tower project in Phu Huu, Thu Duc city (35,000 m2, scheduled to commence construction in mid-2025 and become operational in early-2027, ~VND1.0tn); and the hydro power plant Tra Khuc 2 in Quang Ngai Province (30MW, VND1.0tn). The company also continues to pursue the giant offshore wind power project of 1,800MW with its partner.
• We see slight upside potential to our 2024-2028 earnings forecast, with profit contribution from the office tower in Thu Duc city and the new hydro power plant, pending a fuller review.
• We currently have an OUTPERFORM rating for REE with a target price of VND64,400.

Power segment NPAT guidance is 16% higher than our forecast although management anticipates a challenging outlook for 2024. We attribute higher NPAT than our forecast to potential higher contributions from PPC and other hydro power plants as VSH’s 2024 NPAT guidance came in at VND505bn, fulling 100% of our forecast. In addition, REE targets to expand its power capacity by 100 MW, which is double our forecast.

M&E NPAT is guided at VND166bn, 18% higher than our forecast. 2023’s newly-signed contract is VND1.0tn, down ~57% YoY, yet management believes in 2024’s recovery, mainly from public infrastructure projects. In 2023, REE joined bidding for 49 projects with a total value of VND12.1tn, in which they finished bidding procedures for VND4.2tn of projects and the remaining projects total VND7.9tn and are pending into 2024. However, REE will exercise caution in project participation due to the challenging debt collection progress, with an additional provision of VND220bn made in 2023, subject to reversals to boost profits.

Real estate NPAT is guided at VND389bn, ~2x of our forecast. This is because of REE’s expectation for 32% higher revenue than our projection as well as net profit margin assumption of 37% vs our forecast of 25%. Key contributors to this optimistic target include revenue recognition from the 45-villa project in Bo Xuyen, Thai Binh Province (~potential revenue of VND1.0tn and potential NPAT of VND389bn) and potential divestment from a plot of residential land at VND300bn.

Office leasing segment NPAT is guided at VND463bn, 23% lower than our forecast. We attribute this to REE’s expectation for a utilization rate of Etown 6 of 30% vs our forecast of 60%. In the AGM, management raised their expectation to 70% by the end of 2024 as REE has leased out 2/15 floors before the official commercial date.

Water segment NPAT is guided at VND240bn, achieving 72% of our forecast. This is mainly due to the potential loss of its 49% stake associate Song Da Water Company (VCW) in 2024 due to the high depreciation expense of the new capacity.

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