Power sector – Firing up thermal power

• We see gas-fired and coal-fired power using domestic coal to enjoy higher output mobilization under the weakening of hydropower in 2023F.
• We see the new development phase for RE market is being formed, prioritizing DPPA mechanism, but progress is still slow.
• We see the return of thermal power and the new future for RE will be the main sector’s theme in 2023F, thus, we choose PC1 and POW.

Power consumption growth will stay below PDP8’s forecast in 2023F

For 2023F, we expect a more conservative power consumption growth of 6% yoy, 28% lower than the PDP8’s low-case scenario as we see the construction sector will be hit by weaker demand from property market, lingering through at least the rest of 2023F. Thus, we expect steel and cement sectors to be hampered. However, we find expectations of a hotter summer will drive higher power consumption from residential sector during summer days. In 2024-30F period, we see Vietnam total power consumption will continue to grow in accordance with the base-case scenario of 8.4% CAGR in the PDP8 draft.
We see a high potential that EVN’s retail price will increase in 2023F after four years of unchanged thanks to the newly issued price band of VND1,826-2,444/kWh increasing VND220-528/kWh from the previous range. We see the new retail price, if officially rising, will support EVN financial position in term of fullness cash flow as well as larger space to mobilize from higher price power sources.

Thermal power output will rise thanks to the weakening of hydropower in 2023F

We see thermal power in general and specifically gas-fired power will enjoy higher mobilization thanks to 1) The weakening of hydropower will leave larger space for other power sources; 2) we forecast lower Brent oil price of US$85-80/barrel over 2023-24F from 2022 peak will support gas-fired power price competitiveness amid the high imported coal price expected to linger. For coal-fired power, we see the coal-fired power plants that using domestic coal, especially in the North will be benefited thanks to low price and stable coal input volume. Besides, we expect hotter weather in this region to be the primary factor, supporting these plants to record a positive output mobilization in 2023F.

Our stock picks including POW, and PC1

In 2023F, we expect POW – leading gas-fired power firm to enjoy positive results thanks to brighter outlook of gas-fired power sector. On the other hand, although there are uncertainties in the new development phase of RE power amid the sector’s policy bottlenecks, we are still putting our faith in an official price mechanism to be carried out in this year. Thus, when everything is settled down, we see RE construction segment including power plants EPC and transmission grid build to rise soonest. Therefore, we see PC1 – the leading EPC wind power contractors will be the first enterprise to ride on this trend.

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