INITIATING REPORT PHA LAI THERMAL JSC - PPC SUMMARY SECTOR: ULTILITIES. Kien Nguyen Research Analyst

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1 PHA LAI THERMAL JSC - PPC SECTOR: ULTILITIES RESEARCH & INVESTMENT ADVISORY ADVISORYTƯADVISOR INITIATING REPORT SUMMARY Profile: Pha Lai Thermal Power Joint Stock Company was previously known as a dependent unit of EVN, which was established in With total designed capacity of 1040MW, PhaLai Thermal Power JSC generates average 6bn KWh/ year, accounting for 8% of total electricity in Vietnam. PPC is now the largest coal fired power plant in Vietnam with most of input of coal bought from TKV. Business Overview: PPC has stable output and revenue of about 6bn KWh and VND 4,000bn in recent years. The company targeted to generate 6,250KWh in 2011, and revenue of VND 4,080bn. By the end of H1/2011, PPC generated 3,224KWh, sold 3,106mn KWh to EVN. Input for the plant is mostly Coal and Fuel Oil bought at favorable price of about 50% market price. However, increasing coal price and new PPA signed with EVN, effective from 2010 to 2013, are putting burden on profit margins of PPC. Financials: Since 2010, gross profit margin and other profit margin declined significantly since new formula to calculate electricity price applied and increasing other costs such as maintenance cost and labor cost. Kien Nguyen Research Analyst kiennt@ssi.com.vn STOCK INFO PPC (HOSE) 2011 Target price (VND) Current Price on 15 Jul (VND) 6,800 Current Share Outstanding (m) 326,235,000 Market Cap (VND Bln ) 2,251 State Owner Ratio (%) 67.82% Foreign Owner Ratio (%) 17.21% PPC s volume & Price Performance Coal/FO and depreciation account for 60% and 20% of COGS, respectively. While input price is increasing, depreciation is declining since Plant 1 was fully depreciated in 2010 and Plant 2 will be fully depreciated in 2015, increasing profit margin by 13-15%. Most of long term loan is ODA loan, amounting to more than JPY 30bn, or 6,000bn VND, resulting in VND bn forex loss/year, doubling financial income although total investment and cash reaches VND 5,500bn. Strengths/Opportunities One of 3 largest power plants in Vietnam with capacity of 1040MW. Stable output with more than 6bn KWh/year Low depreciation expense, since PP1 was fully depreciated and PP2 is expected to fully depreciated in 2015 Increase in input price will be transferred to electricity price. Electricity price is quickly finalized each year making planning easier. Investment conclusion: Risks/Weaknesses High debt in JPY, creating significant unrealized forex loss each year. Low return from cash and financial investment. Highly controlled by EVN, with 3 of 5 BOD members are representatives of EVN. Electricity price is likely to be decided by EVN, instead of negotiation. Source: Reuters, SSI Research INCOME STATEMENT Q1/ F Net sales 1,152,892 3,930,981 COGS 964,074 3,248,928 Gross profit 188, ,053 Selling expense - - G&A expenses 18,777 61,075 Total operating expenses 18,777 61,075 Operating profit (EBIT) 170, ,978 Financial income 104, ,064 Financial expense 82, ,772 Interest expense 60, ,950 Gain/Loss from financial activities 21,126 (610,708) Other income 1,061 20,834 PPC is one of the largest thermal plants in Vietnam with high annual output. Even the revenue is high, gross profit did not cover forex loss in recent year and the situation may continue if VND depreciation against JPY surpass 15%/year. In short and midterm, we do not see much upside potential for PPC since its troubles still persist. However, in the long term, when the VND is quite stable and its fixed asset is fully depreciated, profit margin of PPC will be improved significantly. At current price, we recommend HOLD for this stock Other expense ,972 Gain/Loss from other activities Earnings before income tax provision 191, ,862 18,133 Income tax provision 20,231 1,360 Net earnings 171,108 16,773 redistributed without the prior written consent of Saigon Securities Incorporation. 1

2 bn kwh bn kwh RESEARCH AND INVESTMENT ADVISORY Electricity Industry Overview: Commercial output growth doubles GDP Growth 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 13.7% 14.3% 14.5% 15.1% 13.2% 13.8% 12.8% 13.5% 7.7% 8.4% 8.2% 8.5% 6.2% 5.32% 6.78% 7% bn KWh 600 GDP growth Commercial power output growth F Production Sales Source: GSO It is estimated that every 1% growth in country s GDP will generate 2% growth of demand for electricity in Vietnam. Over the period of , the actual sales for electricity grew on average by 13.7% while the average GDP growth over the same period was 7.3%. Average annual growth in the coming year is expected at 15-17% Chart 1: Power production Total power output EVN's production Power bought from IPPs & China F Chart 2: Commercial power output Commercial power output F EVN contribute most to national electricity network Source: GSO In 2010, total power output amounted to 91.6bn KWh. Of which, EVN generated 59.1bn KWh, accounting for 65% of total output. Previously, EVN generated more than 75% of total output, indicating that IPPs and electricity import are increasing their contribution to the national electricity network. This year, we expect output from IPPs and import will surpass one from EVN. Thermal and Hydro Power Plants are main source of electricity in Vietnam F 2020F 2025F Hydro power Gas thermal power Coal thermal power Oil thermal power New power sources Imported power Nuclear power 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Source; Master Plan VI redistributed without the prior written consent of Saigon Securities Incorporation 2

3 Thermal power now accounts for more than 50% of total electricity output, while Hydro power contributes 36%. Hydro power portion is expected to decline next decade, be replaced by new sources of electricity such as renewable sources. Hydro power output is heavily impacted by the weather and rainfall, especially in the North of Vietnam. On the other hand, Thermal power output depends on total time that the generators operate in a year. The profit for these generators depends on the prices of input (including coal, FO and DO), depreciation and maintenance cost of the generators. Currently, diesel price is at 15,000 VND/liter, which can produce only 5 kwh. Thus, depending on the production cost of oil fired power generation, EVN would make a loss of around 3,000 VND/kWh if used oil & gas fired power plants (production cost would come to around 3,300-4,300 VND/kWh vs. average retail price of 1,060 VND/kWh). Power purchased from China is also expensive, at 6.5 US cents, plus 10% import tax and transmission cost, the total cost of around 1,500 VND/kWh, which makes Vietnam retail electricity power price about 40% than electricity power purchased from China.. Industrial sector is the largest consumer of electricity 6% Industrial sector 36% 54% Service sector Residential usage Others 4% Industrial and residential usage account for about 35.9% and 53.7% of the total demand, respectively, followed by services sector (businesses, hotels and restaurants, etc.) accounting for 4.2% of the demand. Agriculture, forestry and fishery in Vietnam are rather labor than capital intensive; thus they are not major users of electricity. While the service sector has maintained stable, agriculture s sector s share has fallen. Electricity market in Vietnam is still a monopoly market: At present, Electricity of Vietnam Corporation (EVN), a state-owned enterprise with more than 50 subsidiaries, holds a monopoly in most of the sub-sectors: transmission and distribution of the electricity. EVN is responsible for supplying the electricity required for continued economic development and the consumption need of the people, using power tariffs approved by the Government. EVN is also responsible for investment into power generation and network expansion to meet the country s power demand. This is the traditional model of the electricity market. The model limits competition amongst electricity generators, and their motivation to improve business effectiveness, and create a barrier for foreign investors to invest in the industry. However, the decision making process involving electricity sector is rather complicated, as indicated in the diagram below. EVN is under the management of Ministry of Industry and Trade (MOIT) but a number of decisions are being managed by the other ministries. The Prime Minister gives the final approval of policies and guidelines. redistributed without the prior written consent of Saigon Securities Incorporation 3

4 Organizational structure of the sector Prime Minister Final approval of policies and guidelines Ministry of Trade and Industry (MOIT) Policy making Guidelines development Ministry of Finance (MOF) Supervise execution of goals, function assigned to EVN b the PM Ministry of Planning & Investment (MPI) Involved implementing EVN goals, strategy, lon Ministry of Home Affairs (MOHA) Involved in issues related to appointing, rewarding or Electricity Regulatory Authority of Vietnam (ERAV) Submit to MOIT: regulations on the process of establishing retail electricity price Promote electric power reform and participating in the formulation of electric power master plans EVN - Generation: 65% - Transmission: 100% - Distribution*: ~100% Sell power to EVN via PPAs Imported - Power imports from China: 5% Independent power producers (IPPs) - Generation: 30 % - Including local and foreign Industrial & commercial customers Services customers Urban and rural households *In rural areas EVN sells power to local private companies and then these companies will sell to households Electricity Market Roadmap: Long way to go Source: EVN, Decision 163/2007/QD-TTg, SSI research In 2004, the Vietnamese national assembly passed the new electricity Law that outlines the development of a competitive electricity market in three phases (1) the first phase focuses on creating competition in power generation (2) the second phase introduces competition for bulk supply of electricity (wholesale) include supply directly to major industrial customers (3) the final phase involves competition at the retail level. MOIT anticipates this market restructuring process may take as long as 20 years. redistributed without the prior written consent of Saigon Securities Incorporation 4

5 Source: Master Plan VI Recently, We noticed that a series of decisions related to electricity sector have been passed since the beginning of the year to pave way for the gradual implementation of competitive power market, starting with the competitive generation power market (Competitive generation power market is the first level of the competitive power market, with many generating units selling power to a single wholesale buyer). The following are the summary of these documents: Circular 41/2010/TT-BTC: stipulates pricing methodology and procedures to establish and issue frame for whole sale electricity price and the passage of Power Purchase Agreement (PPA). Decision 40/QD-DTDL issued 16 May 2011: provides the classification benchmark for thermal power generating units and for ceiling price calculation for these units. This is considered guidance for thermal power companies in calculating their ceiling price to be offered in the competitive generation market. Decision No.53/QD-DTDL on the procedure to mimic the competitive generation market, which would gradually come into operation in the coming time starting with an experimental period in July Shortage of capital due to unattractiveness Electricity shortage has been at about 3% for the last 5 years. EVN estimates that it need average USD 3bn/ year for new power plants and electricity infrastructure from 2011 to Since electricity price sold to EVN is much lower than in other countries in the Region like China, Cambodia and Laos, the electricity industry does not attract foreign investors. The electricity sector also encountered lots of difficulties due to lack of capital in The actual investment in the sector in 2010 reached only 45 trillion VND, fulfilling only 77% of the government s target and declined 6% compared to This also resulted in the delays in power project redistributed without the prior written consent of Saigon Securities Incorporation 5

6 trillion VND RESEARCH AND INVESTMENT ADVISORY implementation and added the burden to Vietnam electricity sector already suffering shortage of electricity due to adverse weather conditions Actual investment % of the year's target YoY growth % % 77% 81% 25 47% 25% 6% -6% % 120% 100% 80% 60% 40% 20% 0% -20% Source: GSO PPC business Overview Company Profile Pha Lai Thermal Power Joint Stock Company was previously known as a dependent unit of EVN, which was established in PhaLai Thermal Plant includes PhaLai 1 Plant (PP1), including 4 GUs operated since 1980s, and Phalai 2 Plan (PP2), including 2 GUs operated since 2001 and With total designed capacity of 1040MW, PhaLai Thermal Power JSC generates average 6bn KWh/ year, accounting for 8% of total electricity in Vietnam. PPC is now the largest coal fired power plant in Vietnam with most of input of coal bought from TKV. On 19 May 2006, the company was officially listed on HNX under ticker PPC, and then moved to HOSE since 26 Jan Ownership Structure 1% 17% 5% 11% VN Inds EVN 3% EVNFC 12% 51% ABB Foreign Inds Foreign Insts other VN Insts Source: PPC s 2010 annual report redistributed without the prior written consent of Saigon Securities Incorporation 6

7 bn VND RESEARCH AND INVESTMENT ADVISORY Stable output and Revenue PPC includes 2 groups, Pha Lai 1 plant (including 4 GUs operated from 1980s) with total capacity of 440MW and Pha Lai 2 plant (including 2 GUs operated from early 2000s) with total capacity of 600MW.Six 6 turbines with capacity to generate average 6bn KWh/year ; however, Pha Lai Plant actually generated nearly 7bn KWh in recent years. 4,150 4,100 4,050 4,000 3,950 3,900 3,850 3,800 3,750 3,700 3,650 3,600 Target Actual Revenue ,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: PPC, annual reports Thank to stable output of PPC in recent years, PPC revenues have remained around VND 4,000. Revenues not only depend on quantity of output, it also depends on the electricity price agreed between PPC and EVN each year under the PPA. Since 51% of PPC is held by EVN, price negotiations do not likely favor PPC side. In 2011, PPC targets to generate at least 5.4bn KWh, or 6,250mn Kwh in the best case, and revenues of VND 4,080.4bn. By the end of June, PPC generated 3,424mn KWh, sold 3,106mn Kwh to EVN. We see that the output of 6bn KWh in 2011 is achievable. For thermal power companies in general, and for PPC in specific, there is a mechanism for calculate the electricity price paid by EVN. The formula applied to PPC as follow (the formula applied since Jan 2010 to 2013). + + ) In which: Source: PPC Stand for New contract( ) Old contract( ) Electricity price at the month i VND/KWh VND/KWh Fixed cost stated in PPA VND VND Floating cost stated in PPA VND VND Coal portion in floating cost 94.06% 93.73% FO portion in the floating cost 5.94% 6.28% Average bought price of coal in the month I, excluding VAT Average bout price of FO in the month i, excluding VAT 590,000 VND/Ton 332,633 VND/ton 11,868,180 VND/ton 4,777,300 VND/ton Source: PPC redistributed without the prior written consent of Saigon Securities Incorporation 7

8 For example, in June 2011, Coal price was 626,000VND/Ton and FO price was 15.04mn VND/Ton. Therefore, PC in June 2011 was: + + ) = * (94.06% * % * ) = VND/KWh Input for electricity production Most of input for PPC includes Coal and Fuel Oil(FO). Coal is bought from TKV, which has monopoly position to exploit coal in Vietnam at favorable price of about 50-60% to companies in other industry and export price. Pha Lai Plant has a good location for coal transportation by both the railway and waterway, closed to Vang Danh and Mao Khe Mines. The coal price has increased steadily recently, but PPC has been able to transfer increases in input costs to price of output sold to EVN, so the change in input will not impact gross profit of PPC. Coal price increased by 27-48%, depending on types of coal, in Mar 2010 and increased by 5% in March PPC Financial Analysis Profitability Ratios: Profit Margin declined Q1/2011 Gross Profit Margin 28% 29% 17% 16% EBIT 26% 27% 16% 15% EBITDA 51% 48% 34% 30% SG&A expense 2% 2% 2% 2% ROA -2% 8% 0% 1% ROE -6% 21% 0% 0% Although EVN allow PPC to transfer input price increase into output price increase through the formula (mentioned above). Gross profit margin declined significantly from 29% in 2009 to only 17% in 2010 and 16% in Q1/2011. The reasons for that include: In 2010, PPC applied new formula to calculate the electricity price sold to EVN. It is clear that the relative value of electricity price (electricity price to input price) declined when new formula applied. Fixed cost (depreciation expense) account for large portion of COGS, when revenue fall (as in 2010) the profit margin declined accordingly. In addition, the other reasons for the fall may include increasing labor cost, maintenance cost. Break-down of COGS in recent years redistributed without the prior written consent of Saigon Securities Incorporation 8

9 VND RESEARCH AND INVESTMENT ADVISORY 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Others Materials Labor cost recurring repair Maintenance Depreciation Coal and FO Q1/2011 Source: PPC s financial reports Coal and Fuel Oil (FO) accounted for 59.12%, 63.2% and 61%, of cost of goods sold in 2009, 2010 and the first quarter of 2011, respectively. We see that input costs account for 52% of revenues in 2010 and Q1/2011, when the new formula for electricity price was applied. This confirms that increase in input price (both coal and FO) is offset by increase in output price. The other big contribution to COGS is depreciation expenses of 6 Generation Units (GUs) run by PPC. The four first GUs operated in 1980s and were fully depreciated, while the GU No 5 and 6 started operation in 2000s, and will be fully depreciated in In 2010, depreciation expense was about VND 790.4bn, which is VND 86bn lower than that of We expected that the depreciation expense in 2011 will stay around VND 700bn since Power Plant 1 has been fully depreciated. The Power Plant 2 is expected to be fully depreciated by 2015, thus profit margin will increase significantly by about 13-15% by that time, The third largest expense in COGS is maintenance cost. Maintenance cost is the expense for annual maintenance of GUs, usually in summer (when the hydro power plants operate at their high capacity). Maintenance expense can range from 60-80bn/GU. We expect that the maintenance expense in 2011 may reach VND 250bn since GUs No 2, 4, and 5 are under maintenance. ROE and ROA were highest in 2009, since the net income in that year amounted to VND 892bn, thanks to low forex loss and high gross profit margin. In 2010 and expected in 2011, ROE and ROA will be closed to nil since we does not expect JPY will depreciate against VND. At current JPY/VND= , PPC is incurring a forex loss of more than VND 900bn. Financial Operations: Net loss as income covers only a half of expense Financial expense is the key indicator to bottom line Financial expenses, which mostly include interest costs and forex loss, are main reasons for low profit in Loss from financial income ate up 25% and 90% of gross profit in 2009 and 2010 respectively. Under the situation when gross profit is unlikely to improve significantly, forex loss is still the biggest concern for PPC. redistributed without the prior written consent of Saigon Securities Incorporation 9

10 To fund construction of Pha Lai 2 Power Plant, the company borrowed a ODA semi-annual installment loan from JBIC in 2006.The interest is fixed at 2.43% charged by JBIC, plus 0.2%/year charged by EVN. The annual principal payment is 1,124,639,158 JPY. The interest is calculated on outstanding loan. The loan will mature by 20 March The balance of the loan by the end of 2010 was 30.6bn, or equivalent to VND 6,910.6bn. With the high balance of the loan, 10% depreciation of VND to JP Yen, PPC will make loss of more than VND 600bn each year. We can see that, the depreciation of VND against JPY and Forex Loss in recent years have been quite consistent. 1,800 1,600 1,400 1,200 1, Forex Loss and VND depreciation against JPY 29.9% 12.4% 8.5% 4.5% % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: SBV and PPC s audited reports Financial income is not proportional with abundant cash in hand. PPC has significant amount of cash on hand, with more than VND 1bn cash and cash equivalent and more than VND 2bn short term investment. In addition, PPC has more than VND 2bn long term financial investments. The total investment reaches about VND 5,500bn, covering 80% of long term loan. However, since the PPC s long term debt is ODA funded and EVN needs capital for investment, it does not use cash to pay loan at that time. Financial income generated from all these investment covers only a half of forex loss. It indicates the low return of the financial investments. 7,000,000 6,000,000 Long term Loan Short term loan Cash on Hand 5,000,000 4,000,000 3,000,000 2,000,000 1,000, redistributed without the prior written consent of Saigon Securities Incorporation 10

11 7% 3% EVN International 2% 0% 11% 12% 28% 37% 0% HaiPHong Thermal Power Plant Thermal Power Plant Maintenance Service Co QuangNInh thermal Power Plan BuonDon Hydro Power Plant Equity Investment Source: PPC s Q1/2011 financial report The two largest long term investment are investments in Quang Ninh and Hai Phong Power Plants, which amounted to amount to VND 1,660bn, accounting for 65.1% of total long term investment. As other power plants, these two plants have not yet generated dividend for PPC since they are at the first stage of operation. It can partially explain for low return from investment of PPC. Investment Portfolio Value(VND) Ownership Percentage 1. EVNFC 70,800,000,000 10% 2. HaiPhong Thermal Power Plant 1,056,195,432, % 3. Thermal Power Plant Maintenance Service Co 7,500,000,000 15% 4. QuangNinh Thermal Power Plant 817,295,117,400 15% 5. BuonDon Hydro Power Plant 50,250,000, Equity Investment 46,498,000, Fixed income investment 318,151,962, Long term loan 350,000,000, Other investment 200,000,000,000 Total 2,916,690,512,400 Other investment include bonds of BIDV, HBB, EVN, EVNFC with interest rates ranging from 10% to 14%/year. Working capital management Q1/2011 Op. Working capital ratio 96% 95% 97% 86.0% Days receivables Days inventory Days payables Cash conversion cycle(ccc) Operating working capital, days of inventory and payables have remained stable in recent years. However, days of receivables have increased from 72 days in 2009 to 100 days in 2010 and 135 days in Q1/2011.This is due to increased accounts receivable from EVN. Receivables increased by 30% in 2010 and 49% in Q1/2011 only. The situation will still persist for long time since EVN is claiming that it in the difficult situation and shortage of capital. The high receivable creates a material loss of cost opportunity for PPC. redistributed without the prior written consent of Saigon Securities Incorporation 11

12 Liquidity Ratios: Q1/2011 Current Ratio 471% 566% 548% 588% Quick Ratio 416% 495% 474% 507% Cash Ratio 51% 153% 152% 78% PPC always ensure a high liquidity balance sheet. However, in Q1/2011, cash ratio fell to below 100% since more than VND 200bn cash on hand was lent to EVN under long term investment. Leverage ratios Q1/2011 Liabilities-to-equity ratio 214% 172% 210% 193% Debt-to-equity ratio 195% 160% 197% 183% Net debt to equity ratio 180% 128% 160% 166% Interest coverage -175% 608% 103% 418% PPC is highly leveraged since long term debt amounted to more than VND 6,000bn while total equity is just nearly VND 4,000bn; just liability and debt are nearly double equity. PPC is the most leveraged company in listed electricity companies, such as TBC (5%), VSH (21%), BTP(182%), TMP(65%), SJD(91%). Profit even did not cover interest expense in 2008 and just covered interest expense in Although interest coverage is high in Q1/2011, the profit has not taken forex loss into account. PPC s Long term story PPC does not have the long term plan but keep its all activities stable in next 2-3 years. The company maintains the current long term investment. Electricity supply will be kept above 6bn KWh each year. With indicated formula to calculate electricity price, we expect that gross profit will be stable at least until Investment in Hai Phong and Quang Ninh Power Plants is unlikely to generate dividend for PPC in mid-term. Therefore, profit of PPC will depend on following factors: More stable VND/JPY forex. We estimate that if VND depreciation against JPY each year is below 12.5%, PPC s bottom line may be positive. Stable or declining AR to EVN since longer days of AR will limit financial income of PPC from short term deposit. Since 2014, PPC will be more profitable thanks to following factors; PP2 will be fully depreciated by that time, adding more than VND 100bn to EBIT of PPC. Competitive electricity market created with higher chance for the company to improve profit margin. There is a little chance that EVN may reduce its ownership in PPC. The lower EVN s holdings, the higher bargaining power for PPC. redistributed without the prior written consent of Saigon Securities Incorporation 12

13 Valuation and Investment recommendation Strengths/Opportunities One of 3 largest power plants in Vietnam with capacity of 1040MW. Stable output with more than 6bn KWh/year Low depreciation expense, since PP1 was fully depreciated and PP2 is expected to fully depreciated in 2015 Increase in input price will be transferred to electricity price. Electricity price is quickly finalized each year making planning easier. Risks/Weaknesses High debt in JPY, creating significant unrealized forex loss each year. Low return from cash and financial investment. Highly controlled by EVN, with 3 of 5 BOD members are representatives of EVN. Electricity price is likely to be decided by EVN, instead of negotiation. All GUs is run at full capacity to meet shortage of electricity, while they need to be maintained. Valuation: We use Price multiples and EV/EBITDA methods to since Cash flow and earnings of PPC are highly dependent on financial expense. P/BV P/EBIDA EV/EBITDA with regional peers Companies P/BV P/EBITDA Peers Company Profile EV/EBITDAA DADADA VSH GUIZHOU QIANYUAN Operate and construct coal fired and TBC POWER CO-A(China) hydro power plants TMP SJD KHP BTP SBA NBP TIC 0.83 n/a SEB HJS NLC RHC DNC Average PPC 10,48 2,852 Fair Value(VND) 7,834 6,560 KSK ENERGY VENTURES LTD(India) JAIPRAKASH POWER VENTURES Develop power plants, offer source of electrical power to international and domestic business Generate electricity, operate a private sector power plant (India) Average EV/EBIDA 9.80 PPC s EBITDA(VND mn) 930,398 PPC EV(VND mn) 9,117,900 Less Net Debt(VND mn) (6,177,728) Less Preferred stock - Less Minority Interest - Firm s market capital(vnd mn) 2,940,172 No of shares 326,235,000 Fair value(vnd) 9,012 Average Price VND 7,802 (13% higher than current price of VND 6,800) Investment recommendation: PPC is a large power company with stable output and electricity price. However, since the company is now highly leveraged and closely controlled by EVN with 51% of ownership, PPC s profit and dividend are heavily affected by VND/JPY and interest rates. For the short and mid-term, when the electricity market has not yet fully applied, we do not see much upside for the stock. However, since 2015, when the PP2 is fully depreciated and there may be a redistributed without the prior written consent of Saigon Securities Incorporation 13

14 competitive market, PPC will more profitable. With the price is now quite fair and absence of a clear upside potential, we recommend HOLD for the stock. VND/JPY forex rate should be closely watched, since it will affect bottom line of PPC significantly. Appendix INCOME STATEMENT Q1/ F Net sales 3,881,915 4,420,950 4,183,077 1,152,892 3,930,981 CGS 2,798,493 3,139,704 3,468, ,074 3,248,928 Gross profit 1,083,423 1,281, , , ,053 Selling expense G&A expenses 61,719 72,738 64,991 18,777 61,075 Total operating expenses 61,719 72,738 64,991 18,777 61,075 Operating profit (EBIT) 1,021,704 1,208, , , ,978 Financial income 293, , , , ,064 Financial expense 1,795, ,119 1,052,682 82, ,772 Interest expense 170, , ,183 60, ,950 Gain/Loss from financial activities (1,502,573) (323,474) (642,973) 21,126 (610,708) Other income 16,916 7,512 5,575 1,061 20,834 Other expense 7,289 6,076 5, ,972 Gain/Loss from other activities 5,972 1,436 (144) 172 7,862 Earnings before income tax provision (468,053) 886,471 6, ,340 18,133 Income tax provision (255,269) (5,544) 1,912 20,231 1,360 Net earnings (212,784) 892,015 4, ,108 16,773 EPS BALANCE SHEET Q1/ F Unit: mn VND Current Assets 4,738,664 5,099,163 4,944,062 4,779,927 4,799,981 Cash & cash equivalent 512,801 1,383,303 1,370, , ,179 Short-term Investment 2,735,648 2,205,000 1,757,502 1,782,502 1,834,356 Accounts Receivable 931, ,954 1,147,534 1,708,148 1,572,392 Inventories 557, , , , ,267 Other current assets 1,096 32,086 1,116 3, Fixed Asset Long-term investment 6,058,646 6,644,680 6,597,354 6,633,700 6,144,256 Long-term receivables Fixed Assets 5,502,035 4,452,376 3,656,430 3,428,791 3,252,800 Property Investment Long-term financial Investment 239,200 1,869,920 2,612,837 2,876,625 2,812,836 Other Assets 317, , , ,284 78,620 Total Assets 10,797,310 11,743,843 11,541,416 11,413,626 10,944,237 LIABILITIES 7,361,025 7,424,075 7,813,669 7,514,771 7,478,646 redistributed without the prior written consent of Saigon Securities Incorporation 14

15 BALANCE SHEET Q1/ F Total current liabilities 1,006, , , ,634 1,035,599 Short-term Debt 343, , , , ,825 Accounts Payable 133, , , , ,627 Payroll 14,314 41,134 27,848 13,637 50,241 Income Taxes 24,005 17,859 32,833 11,996 58,965 Other current liabilities 491, , , , ,941 Long-term Liabilities 6,354,971 6,522,725 6,911,558 6,702,137 6,443,047 Long-term debt 6,353,326 6,521,343 6,910,618 6,701,206 6,443,047 6,441,082 Other long-term liabilities 1,644 1, ,965 EQUITY 3,436,285 4,319,768 3,727,747 3,465,591 Owners' Equity 3,431,986 4,317,000 3,727,747 3,898,855 3,506,432 3,441,989 Chartered Capital 3,262,350 3,262,350 3,262,350 3,262,350 3,262,350 Capital Surplus , Other Funds 362, , , , ,922 Retained Earnings (127,460) 757,554 55, ,405 69,721 Other resources and fund 4,299 2, ,423 23,602 Minority interest TOTAL LIABILITIES AND EQUITY 10,797,310 11,743,843 11,541,416 11,413,626 10,944,237. redistributed without the prior written consent of Saigon Securities Incorporation 15

16 DISCLAIMER The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion contained herein are subject to change without notice. This document is not and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user. CONTACT INFORMATION Phuong Hoang Director of Equity Research Kien Nguyen Research Analyst SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission. HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) Fax: (848) info@ssi.com.vn HA NOI 1c Ngo Quyen Street Ha Noi City Tel: (848) Fax: (848)