Power sector – Gear up energy sustainability – Sector note

• We believe Vietnam power stocks will be back to the center stage, following the country upcoming heavy investment in energy to fuel the economy expansion.
• We think power stocks that have large exposure to LNG-to-power and wind power will be the key beneficiaries under the Power Development Plan 8 (PDP8).
• Our top picks under the sector include: POW, GAS, NT2, BCG, and FCN

Why power stocks and why now?
Vietnam power sector is going through a major transition as government priorities to maintain the balance between macro-economic growth and environmental sustainability. Given the size and the faster-than-expected progress of this energy transition, we believe power stocks that focused on cleaner alternatives could outperform for a few years to come. We also prefer energy infrastructure developers as we believe more investments in grid systems are needed to facilitate energy transition towards a lower-carbon nation. We observed that power stocks have recently charged up across global equity markets in response to ongoing E.U and China electricity outages. Thus, Vietnam power stocks will back to the center stage, in our view.
Gas-fired power will fire all cylinders since 2022F onwards
We expect gas-fired power output will bounce back since 2022F, trailing the recovery manufacturing activities. Additionally, due to the high possibility of the El Nino phenomenon, we believe the hydropower output will be subdued next year, which will trigger higher mobilization from gas-fired power. A series of megaprojects in the LNG-to-power value chain have been announced recently, making it the most promising segment in the next few years. Thus, we believe POW, NT2, and gas infrastructure developers like GAS will ride on this trend.
We are positive on stocks that have growing exposure to RE
We find a substantial increase of ESG fund inflow in regional emerging markets. Even in Vietnam, we see ESG is expanding at the early stage of investment. We prefer companies with ongoing renewable energy (RE) projects that benefit from the attractive feeds-in-tariff and companies that enjoy RE infrastructure development. Some noticeable names include BCG and FCN.
Downside risks include: 1) Power consumption grows lower-than-expected due to Covid-19, 2) Transmission grid are unable to maintain high load, causing capacity cut down in RE power plants, 3) The increasing trend of input price, putting short-term pressure on coal and gas power plants.

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