Power sector – Power demand surge underpin sector outlook

• Under the April 2022 PDP8 draft, gas-fired and RE power continue to be embraced while coal-fired might step in its end of era after stop developing from 2030F.
• We believe in the strong recovery of thermal power in 2022 after sharp cut down in 2021 and hydropower could remain its ideal position thanks to La Nina phase.
• Our stock picks include POW, NT2, and REE

Demand rise supported positive output results among energy sources

In 1Q22, total power consumption increased 7.8% yoy to 63.03bn kWh, as businesses returned to its working pace post Covid. Gas-fired power output reached 7.5bn kWh (+1.6% yoy), contributing for 12% of total output, improving 3.5% pts from modest level in 2H21. Hydropower enjoyed its favorable condition with output rose 18.9% yoy to 16.48bn kWh thanks to longer-than-expected La Nina phase. Coal-fired output declined 4.6% yoy due to coal shortage situation. RE output rose 28.4% yoy to 10.01bn kWh thanks to the additional 3,980MW wind power in Nov 21.

The new PDP8 embraces faster clean energy transition

After four iterations of the Power Development Plan 8 draft (PDP8 draft), there have been major changes in capacity development. In particular, the newest draft stressed on more intense clean energy transition to meet the Vietnam “net zero” commitment. We look for a significant rise of RE power in long term and we prefer companies with ongoing renewable energy (RE) projects as we expect on continuous attractive price mechanism for RE power in near period.

2022F energy outlook and our stock picks

We expect gas-fired output to bounce back in 2022F from its low base of 2021, trailing the strong power consumption recovery, and we believe POW, and NT2 will ride on this trend. We estimate the recent coal shortage to be short term risk, and coal-fired power output to benefit from demand recover and higher ASP in the CGM. We expect on another vibrant year of hydropower thanks to the La Nina phase to last for the rest of 2022. However, we stay conservative on the growth rate of this energy segment after strong rise in 2H21. We focus on company that has dense hydropower portfolio with new operated plants and REE is one of the heavyweight contestants.

Downside risks include: 1) Power consumption grows lower-than-expected, 2) The increasing trend of input price, putting pressure on thermal power plants, 3) Hydropower weather condition could shift in the next forecast.

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