PETROVIETNAM POWER NHONTRACH 2 JSC(NT2)

Transcription

1 PETROVIETNAM POWER NHONTRACH 2 JSC(NT2) Initial coverage Jan 19 th,2015 Recommendation BUY Target price (VND) 31,000 Dividend (VND) 36.3% Potential Upside 500 Dividend yield 2.1% 6-month pricemovement Stock information on Jan 19th, 2015 Current price (VND) 23,100 Current listed shares 256,000,000 Shares in circulation 256,000,000 Market cap (VND bn.) 5, week price range 5,740 23,900 3-month average trading - Volume 618,611 - Value (VND bn) Foreign ownership % 0% Maximum foreign ownership % 49% Maximum foreign room 125,440,000 Overview PetroVietnam Power NhonTrach 2 JSC (PVPOWER NT2) was established in 2007 for the construction of the project Nhon Trach 2 Combined Cycle Power Plant in OngKeo Industrial Park, Hamlet 3, Phuoc Khanh Commune, Nhon Trach District, Dong Nai. The plant has capacity of 750 MW, with 2 gas turbines (500 MW) and 1 steam turbine (250 MW) Source: Collectedby MBS Analyst Phan Thuy Trang trang.phanthuy@mbs.com.vn Tel: Q1/2015: POSITIVE BUSINESS PERFORMANCE INVESTMENT THESIS We are initiating coverage of PetroVietnam Power Nhon Trach 2 (NT2) with a BUY rating and a target price of VND 31,000, representing 36.3% upside compared with the current price of VND 23,100 on Jan 19 th, Key investment catalysts include: (1) The dry season, during which hydropower plants are not operational, is when thermal power plants usually report their best performance, (2) NT2 has signed the official contract regarding electricity pricing so we forecast a substantial retroactive profit of about VND587 million may be recorded in Q1/2015, making a total PAT of more than VND 640 billion in Q1/2015. INVESTMENT HIGHTLIGHTS The largest gas thermal power plant in the Oil and Gas sector NT2 owns and operates the largest gas thermal power plant in the Oil and Gas sector. Total capacity is 750 MW, accumulated power output from first commercial generation (Oct 16 th, 2011) to Dec 19 th, 2014 shows 15.7 billion kwh. Competitive advantages NT2 has certain advantages within the competitive power generation market as the Nhon Trach 2 power plant is located near the South Loading Center, a key economic development triangle in the South. Factors impacting the volatility of business performance have lessened over years o Borrowing interest pressure subsides with lower outstanding debt o Exchange rate risks have been minimized o The recognition of losses from differences in exchange rates in previous plant investments were completed in 2014 Official annual electricity selling prices signed In 2014, EVN signed a contract on the calculation of official electricity selling prices, and NT2 may have substantial additional profits in 2015 due to the changes in the calculation. Q1/2015 Earnings Forecast. Based on (1) The complete of recognition of losses from differences in exchange rates in previous plant investments (2) the exclusion of the exchange rate s impact on earnings result since movements in the USD and EUR rates would offset each other and (3) substantial retroactive profits due to changes in calculation between the temporary price and official price during => We forecast NT2 s PAT in Q at about VND 642 billion. VALUATION Our price target of VND31,000, representing 36.3% upside, is based on the two valuation methodologies: Discounted cash flow (DCF) and EV/EBITDA (applied EV/EBITDA of 7.54x). Our price target implies a forward P/E of 10.2x on our FY2014 EPS estimate of VND 3,017. RISKS Heavy influences of exchange rates. NT2 has loans in USD and EUR, and any changes in the exchange rates will affect the Company s business performance. Since outstanding foreign currency denoted debts declined over the years, the absolute value of the changes cannot be determined, hence, we will analyze the influences of exchange rates on the valuation in the sensitivity analysis part in this report. Large proportion of state ownership. Institutional holding accounts for 80% of total ownership, with 63% from PV Power a state-owned company. Therefore, other shareholders have little power over voting rights and strategic decisions. Selling pressure from VNPT s divestment. Vietnam Posts and Telecommunications Group has registered to divest 12.8 million of NT2 shares from Jan 14 th to Feb 12 nd, Giải pháp kinh doanh chuyên biệt

2 FINANCIAL SUMMARY Adjusted Profit model (VND bn) Sales Revenue Cost of goods sold Gross profit Selling expense General administrative expense Operating profit Financial revenue Financial expense Interest expense Other non-operating income Other non-operating expense Other non-operating profit Profit of co-operator Pre-tax Income Tax expense Profit after taxes Minority Interests Net Income EPS (VND) Cash flow statement (VND bn) NET CASH FLOW FROM OPERATING ACTIVITIES Net Income Adjustments for: Depreciation and Amortisation Change in Trade receivables Balance sheet (VND bn) ,215 6,348 6,272 Current assets (5,407) (5,364) (5,491) Cash & equivalents 1,157 1,894 2, Financial investments (0) (0) (0) Accounts receivable 1,362 1,217 1,031 (75) (76) (75) Inventory Prepaid expenses & other current assets Total current assets 2,751 3,341 3,895 (435) (372) (264) Machinery 8,329 7,528 6, Historical cost 11,315 11,324 11, Depreciation (2,986) (3,795) (4,605) (1) (1) (1) Net fixed assets 8,329 7,528 6, In-progress construction costs Other long-term assets and investments Total assets 11,951 11,541 11, ,017 2,372 2, Change in Inventories (1) 2 (5) Change in Trade Payables Net cash flow from operating activities 1,672 1,704 1,730 NET CASH FLOW FROM INVESTING ACTIVITIES Capital Expenditures (0) (8) (3) Change in short - term investments Change in long - term investments Net cash flow from investing activities NET CASH FLOW FROM FINANCING ACTIVITIES Short and long-term debt proceeds (91) 17 2 Debt payments (795) (1,047) (1,066) Financial lease payment Dividends to shareholders Net cash flow from financing activities Net cash flow Cash and Cash Equivalents (Beg of Period) Cash and Cash Equivalents (End of Period) Source: MBS Research (128) (128) (128) (1,014) (1,159) (1,192) 1, ,157 1,894 1,157 1,894 2,629 Current liabilities Short-term debt Accounts payable Other current liabilities Total current liabilities Total long-term liabilities Shareholders equity Common stock Investment & development funds Retained earnings Budget sources and other funds Minority interest Total liabilities & equity Financial Ratios (times) Liquidity ratios Current ratio Acid-test ratio Efficiency ratios Days sales outstanding Days in Inventory Asset turnover Leveraging ratios Debt ratio Debt to equity ratio Profitability ratio Gross profit margin Profit margin ROA ROE Other financials and valuation EPS BPS P/E P/B 1,047 1,064 1, ,029 1, ,998 2,156 2,332 6,521 5,474 4,408 3,432 3,911 4,348 2,560 2,560 2, ,162 1,599 11,951 11,541 11, % 15.50% 12.45% 12.43% 9.56% 9.01% 6.46% 5.26% 5.10% 22.51% 15.52% 13.00% 3,017 2,372 2,208 13,407 15,278 16, PetroVietnam Power Nhon Trach 2 JSC (NT2)

3 INVESTMENT HIGHTLIGHTS NT2 thermal power plant and Pha Lai Power PPC are 2 listed power plants with similar market capitalization. Comparisons show that NT2 is operating more efficiently than PPC. 250, , , ,000 50, ,957 19,075 Chi phí nhân công PPC 800, , , ,000 - EUR/USD in ,697 32,924 Projections for EUR/USD in , ,325 54,448 57, ,031 20, ,931 Chi phí nhân công NT2 95, , , , , Chi phí dịch vụ + khác PPC Chi phí dịch vụ + khác NT2 One of the top 500 largest enterprises in Vietnam PetroVietnam Power Nhon Trach 2 JSC is honored to rank 166 th in the VNR500 the list of the 500 largest enterprises in Vietnam, preceded by a number of Groups and Corporations, and ranks 2 nd among joint stock companies in power manufacturing, trading and distribution. Owns and operates the largest gas thermal power plant in the Oil and Gas sector. Total capacity is 750 MW, with accumulated power output from initial commercial generation (Oct 16 th, 2011) to Dec 19 th, 2014 shows 15.7 billion kwh. Competitive advantages NT2 has certain advantages within the competitive power generation market. The Nhon Trach 2 power plant is located in the Ong Keo Industrial park, near the South Loading Center, a key economic development triangle in the South, with a favorable transmission system. Therefore, when joining the competitive market for power generation, NT2 enjoys certain advantages. Additionally, the ability to stay active in changing power generation capacity according to circumstances is also an advantage for NT2 in this competitive environment. Efficient operation. Labor costs at NT2 are quite low at 0.5% of revenue while in other companies, such as PPC, they average 3.5%. Due to operational efficiency, although the payback period was planned to be 3 years, NT2 profited in the first year of operation. NT2 has a moderately high gross profit margin, averaging 11.9%, and an ROE of 22.6%. Factors impacting the volatility of business performance have lessened over recent years Borrowing interest pressure subsided with lower outstanding debt NT2 has procured 10 year debt, which is quite short, in comparison with other companies in the sector. Though the 6-month Euribor and Libor rates are trending down, we maintain our conservative projection of a VND 30 billion/year decline in interest payments. Exchange rate risks lowered The EUR/USD rate dipped to its 9-year low at around on Jan 8 th, A stronger USD versus most other currencies stemmed from the rebound in the US economy. The EUR/USD rate is expected to fall further in 2015, based on the anticipation of a further US economic rebound and continued recession in the Eurozone. The contrasting movements of the 2 currencies should help shield NT2 against the exchange rate risks for its foreign currency denoted loans. Amortization of losses from plant investment completed in In previous years, recorded in NT2 s financial costs were VND 126 billion of losses from the differences in exchange rates on the investments in plant. This amortization of these losses were completed in 2014 Source: Reuteurs Official annual electricity selling prices signed NT2 has calculated its selling prices in accordance with the market price since Prior to 2014, the price at which the Company sold electricity to EVN was set temporarily. In 2014, EVN signed a contract for the calculation of official electricity selling prices, and NT2 may enjoy substantial additional profits in 2015 due to changes in the calculation. Moreover, while the Company did not benefit from the same input gas prices as other producers in the region, we forecast that the adjusted selling prices will exceed the high input gas prices in previous years. In particular, we forecast that the retroactive profits in 2015 will be about VND587 million based on the difference between the temporary price for NT2 during and official price for Pha Lai Thermal Power JSC PPC. 3 PetroVietnam Power Nhon Trach 2 JSC (NT2)

4 VALUATION We are initiating coverage of PetroVietnam Power Nhon Trach 2 (NT2) with a BUY rating and a target price of VND 31,000, representing 36.3% upside compared with the current price of VND 23,100 on Jan 19 th, In the discounted cash flow approach, we choose to use FCFE in order to eliminate the strong influence of interest on cash flows when using the FCFF. In the relative valuation approach, we choose the EV/EBITDA multiple since power producers usually have foreign currency denoted loans, and exchange rates will impact significantly on their core businesses, resulting in inaccuracy if using a PE multiple. Assumptions in the valuation model: (1) The valuation period starts in 2015, spanning 7 years from 2015 to 2022, followed by a stable period. (2) The cost of equity is 10.86% (Risk-free rate is 4.55%, risk premium is 7% and Beta is 0.9) (3) The cost of debt is 10.7% and the after-tax cost of debt is 10.17%. (4) Long term growth is 2% with the assumption that a competitive distribution market is unlikely to take place and generation capacity remains unchanged. (5) Prices for input gas from PVGAS stays at VND 125,000/mBTU The discounted FCFE method comes to a price of VND 34,741 for NT2 Unit: VND bn 2015F 2016F 2017F 2018F 2019F 2020F 2021F EBIAT ,134 (+) Depreciation (-) Capital expenditures (8.1) (3.1) (3.1) (3.1) (3.1) (0.1) (0.1) (-) Increase in working capital (12.3) (12.5) (12.6) (12.6) (12.8) Free cash flow to the Firm 2,754 1,168 1,840 1,324 1,783 1,842 1,558 (+) Terminal value 4,693 PV of Free cash flows to Equity 8,893 Shares outstanding 256,000,000 Share price (VND) 34,741 Discounted rate Beta 0.9 Risk free rate 4.55% Market risk premium 7% WACC 10.86% The EV/EBITDA method comes to a price of VND 28,230 for NT2. We select a number of power companies in the sector with similar market capital for comparision. The average EV/EBITDA is 7.54x. Company Market Cap (VND billions) P/B Pha Lai Thermal Power JSC 8, Vinh Son Song Hinh Hydropower JSC 2, Southern Hydropower JSC 1, Thac Mo Hydropower JSC 1, Central Hydropower JSC 1, Ba Ria Thermal Power JSC Average 17, PetroVietnam Power Nhon Trach 2 JSC (NT2)

5 Consolidated valuation. The 2 methods, discounted FCFE and EV/EBITDA multiples, together come to the target price of VND 31,485. We choose equal weights to each method, since power generation has high stability and the assumptions were conservative for a long-term view. Method Weight Value (VND) Target price (VND) FCFE 50% X 34,741 EV/EBITDA multiple 50% X 28,230 31,485 Upside 36.3% Sensitivity analysis Changes in exchange rates, cost of capital and interest rates heavily influence business performance at NT2, affecting our valuation. Therefore, we selected these 3 factors as the main variations to analyze the sensitivity of NT2 stock price. (1) Cost of Capital. Effects on price Cost of Capital increased by 1% (4.9%) Cost of Capital increased by 0.5% (2.6%) Cost of Capital at 10.86% 0% Cost of Capital decreased by0.5% 2.9% Cost of Capital decreased by1% 6.3% (2) USD exchange rate Outstanding debt in USD 123,622, ,145,517 78,668,735 Outstanding debt in EUR 112,944,729 92,409,323 71,873,917 Projected EUR/USD rate Change in outstanding debt/1% change in USD exchange rate Change in outstanding debt/1% change in EUR exchange rate 1,236,233 1,011, ,687 1,129, , ,739 (3) Interest rate. Effects Interest on loans in EUR increased by 1% (1.2%) Interest on loans in USD increased by 1% (1.1%) Interest unchanged 0% Interest on loans in EUR decreased by 1% 1.2% Interest on loans in USD decreased by 1% 1.1% (4) Cost of equity and long-term growth 9.86% 10.86% 11.86% 0% 31,054 29,649 28,496 1% 32,121 30,473 29,145 2% 33,459 31,484 29,926 3% 35,187 32,751 30,883 4% 37,505 34,388 32,084 5 PetroVietnam Power Nhon Trach 2 JSC (NT2)

6 COMPETITIVE ANALYSIS Economic growth rate, power demand and supply Sector outlook 9.9% 9.0% 5.8% 12.2% 9.1% 8.3% 8.5% 5.0% 5.4% Rising demand for power due to economic expansion According to the Power Master Plan VII approved by the Government, annual growth in power demand in Vietnam from is %, with production output and imports amounting to around billion KWh in 2015, billion KWh in 2020, and billion KWh in In practice, growth in power demand in was 10.37%, higher than the growth in supply (8.6%) for the same period GDP growth Power demand growth Power supply growth Production output, commercial output (Unit: billions of kwh) Regarding the domestic power source structure, coal thermal power and hydropower are the two main sources. Hence, when compared with other countries in the region, the technology in either green energy or nuclear power plants in Vietnam remains quite low, while power demand is relatively high. Power shortages may arise in the future if this is not corrected. In 2013, the construction industry represented 52.8% of overall power loading. Over the few past years, Vietnam s economy has been in a recession, so electricity demand in this sector has not been high. However, from 2015, the economy is expected to recover, especially in the construction industry, raising demand further % 14.5% 13.4% % % % % 9.1% % 6.00% 4.00% 2.00% 0.00% Production output (kwh) Commercial output Commercial output growth Power load structure in % 1.30% 4.90% 36.30% 52.80% Industry - Constructions Consumption management Trading and sevices Agricultures Other Monopoly in the power market to be abolished EVN still dominates power generation, with more than 60% of total generation output, 90% of retail distribution, and having a total monopoly for power transmission. There has yet been a monitoring office for the power market. EVN s monopoly in the power sector has raised a number of concerns regarding the quality of power provision services in Vietnam. In Decision No. 26/2006/QD TTG on the schedule to abolish the monopoly in the power sector, Vietnam s electricity market shall be formed and developed in three stages: (competitive electricity production market), (competitive electricity wholesale market), and 2022 onward (competitive electricity retail market). Currently, a competitive electricity production market is in place. At the end of 2013, there were 48 power plants directly selling in the market, with total designed capacity of 11,947 MW, accounting for 44.4% of the whole system. Compared with the start of this stage, the number of power plants has increased by 16 with their designed capacity climbing from 39% to 44.4%. There have been some positive signals, but a competitive electricity retail market might not arrive on scheduled in 2022: After over a year of implementation (officially in Jul 1 st, 2012), the market has shown positive results. Yet, we think that it is too ambitious to have a completely competitive electricity retail market in 2022 as the sector is still facing problems related to facilities, equipments, and structure. Electricity prices adjusted to market mechanism In the 6 years from , retail prices have been raised 7 consecutive times. From , the average growth of electricity prices was 14.1%/year. Since 2011, after Decision No. 24/2011/QD-TTg on the electricity selling price adjustment mechanism was issued on April 4 th, 2011, the price has risen by about 5%/year. Power producers like NT2 sell electricity at prices determined by negotiations with EVN on official selling prices, which depends on the calculation of the input costs of coal, gas, DO and FO oil, and the VND/USD exchange rate. 6 PetroVietnam Power Nhon Trach 2 JSC (NT2)

7 Power supply structure in 2013 Retail selling prices without VAT from % 5.35% 22.71% 2.70% 19.39% 40.85% Hydropower Coal thermal Gas thermal Oil thermal Other Import Source: Ministry of Industry and Trades, collected by MBS Position in the sector PetroVietnam Power Nhon Trach 2 JSC is the largest gas thermal power plant in PetroVietnam Power Corporation (PVPower) group with total capacity of 750 MW, including 500 MW from 2 gas turbines and 250 MW from a steam turbine, built in Jun 2009 with a total investment of VND 11,304 billion, the first unit was operational in Dec 2010, the 2 nd, Mar 2011 and the 3 rd, Aug Annual production output was 4.6 billion kwh, accumulated output as of Dec 2014 was 15 billion kwh, contributing significantly in stabilizing the national power system. A major advantage NT2 enjoys is that it was founded by large economic groups in Vietnam, including Vietnam Electricity, Vietnam National Coal and Mineral Industries Holding Corporation, PetroVietnam Finance Corporation, CFTD Technologies Company Limited, and Bank for Investment and Development of Vietnam. Among listed thermal power plants, NT2 is the youngest, operational since While Pha Lai Thermal Power JSC ran its first unit in 1983, and its last, No.6, in 2002; Ba Ria Thermal Power in 1994 and 1996, respectively; and Ninh Binh Thermal Power Plant was established in Therefore, the debt ratio of NT2 is the highest among listed firms, bringing moderately high debt pressure. However, this pressure will decline going forward since NT2 pays down debt over a shorter span. We consider NT2 s operational efficiency to be high. The financial ratios show that NT2 outperforms its peers in efficiency. In particular, the Company s gross profit margin was 15.3%, ROE 22% (the highest in the sector), and the ratio of Revenue/Number of staff is several times higher than its peers. At the moment, NT2 stock also has the highest liquidity, attracting more investors in comparison with other power listed companies. 7 PetroVietnam Power Nhon Trach 2 JSC (NT2)

8 Comparison across listed companies NT2 PPC BTP NBP Shares in circulation (million) Market cap (VND billions) 5, , Foreign ownership Basic EPS (TTM) 2, , , , Diluted EPS (TTM) 2, , , , BV 13,121 16,921 16,627 17,926 EBIT , P/E P/B Cash/Short-term debts Working capital/short-term debts Long-term debt/assets Debts/Assets Liabilities/Assets Gross profit margin 15.30% 3.91% 5.90% 7.78% Operational profit margin 10.78% 2.23% 6.12% 3.85% Pre-tax profit margin 10.80% 13.19% 6.13% 3.94% After-tax profit margin 10.80% 9.99% 5.56% 3.05% ROE 22.68% 13.58% 9.28% 13.38% ROA 5.57% 6.35% 4.73% 7.04% Revenue/Number of staff (VND billion) day average trading volume 1,178, , , Source: Stoxpro, MBS Research 8 PetroVietnam Power Nhon Trach 2 JSC (NT2)

9 FINANCIAL ANALYSIS AND PROJECTION Earnings model In our earnings model, assumptions are as follows: (1) Annual production output is 4.5 billion kwh. The Company often sets quite conservative output targets of about 4.2 billion kwh. However, in the 3 years from , NT2 usually exceeded its targets by 10%; hence, annual output is expected to be 4.5 billion kwh. (2) Although the annual adjustment of selling price is in the order of 5%, considering, under the most cautious assumptions, the price calculation depends on changes in input factors (with input gas prices tending to fall) and negotiations with EVN, we forecast a 1% annual growth in selling prices. (3) Input gas prices will fall, in line with oil price, as NT2 buys gas at a price calculated as 46% the price of FO oil + transporation tarriff, spurring decreases in selling prices with EVN, as the contract also takes into account such factors. Therefore, despite the downtrend in gas prices, we assume input gas to be VND 130,000/mBTU, in order to keep profit margin unchanged. (4) Input gas output required for production is 4.5 billion kwh, or 780 millions of m3 gas annually. (5) Operation costs accounts for 1.2% of Revenue, the same as in 2013 (6) Financial costs, mostly interest expenses, amount to about VND 222 billion in Debt insurance is VND 61 billion while foreign exchange losses are VND90 billion, assuming the EUR appreciates by 1%, and the USD appreciates by 2%. The recording of VND 126 billion of foreign exchange losses have finished in (7) Financial revenue, includes interest income, but excludes foreign exchange gains. (8) Corporate tax from 2015 is 5%. With the above assumptions, we forecast an annual average EBIT of VND billion for NT2; interest payments are expected to decline by VND 30 billion/year; the recording of VND 126 billion in foreign exchange losses finished in 2014, and profit depends on movements in the EUR and USD exchange rates (this factor will decrease in lines with lower outstanding debt) We also note that NT2 s profit in 2014 may be higher than expected due in part to retroactive profit recording from the difference between the official price and the temporary price. 9 PetroVietnam Power Nhon Trach 2 JSC (NT2)

10 PROFIT PROJECTIONS In general, power producers have limited control over their own operations under the EVN monopoly. Moreover, selling price calculations under this market mechanism should support gross profit margins of firms in the power sector, in general, and NT2, in particular, at stable levels over coming years. It can be seen that EBIT in recent years for NT2 stayed around VND 800 billion, but might rise to VND 983 billion in 2015, mainly attributable to the gains from the difference between the official and the previous years temporary selling price. Profit after tax is anticipated to decline from 2014, mostly due to EUR exchange rate movements and the introduction of corporate income tax. From 2015, although the EUR is expected to depreciate further, the USD will tend to appreciate due to the US economic rebound, and thus we assume that profit gains will be offset by USD exchange rate losses and corporate taxes. Unit: VND billion 2014E 2015F 2016F 2017F Revenue 6,214 6,348 6,272 6,334 Costs of goods sold (5,406) (5,364) (5,491) (5,538) Gross profit Operating expenses (74) (76) (75) (76) Other expenses (1) (1) (1) (1) EBIT Financial revenue Financial expense (435) (371) (264) (381) Interest expense Pretax income Corporate tax Profit after tax Revenue growth 5.7% 2.1% (1.2%) 1% Operating profit growth (0.8%) 23.7% (22.2%) 2% Profit after tax growth 9300% (21%) (7%) (8%) Margins Gross profit margin 13.0% 15.5% 12.4% 12.6% EBIT margin 11.8% 14.3% 11.3% 11.4% Net profit margin 12.4% 9.6% 9.0% 8.2% Tax rate 0% 5% 5% 5% Source: MBS Research 10 PetroVietnam Power Nhon Trach 2 JSC (NT2)

11 BALANCE SHEET Unit: VND billion 2014E 2015F 2016F 2017F Fixed assets 8,307 7,506 6,700 5,892 Intangibles Construction in progress Working capital Investment 9,030 7,943 6,781 5,975 Total equity 11,951 11,540 11,088 10,423 Long-term debts 6,520 5,473 4,407 3,298 Charter capital 2,560 2,560 2,560 2,560 Total equity 11,951 11,540 11,088 10,423 Fixed assets growth (9%) (10%) (11%) (12%) Equity growth (2%) (3%) (4%) (6%) Working capital growth (22%) (41%) (50%) 3% ROA 6.46% 5.26% 5.17% 5.04% ROE 22.51% 15.52% 13.00% 10.92% Current ratio Quick ratio Cash ratio 0,58 0,88 1,14 1,26 Debt ratio Long-term debt ratio Receivables turnover Inventories turnover Fixed assets turnover Total asset turnover Source: MBS Research 11 PetroVietnam Power Nhon Trach 2 JSC (NT2)

12 CASH FLOW Stable profit margins over the years, coupled with high depreciation, can be viewed as typical of firms in power production, who need to maintain ample operating cash flows and low level of risks. Power producers have high investment during the construction phase, followed by depreciation in operational years and other expenses such as maintenance, repairs and office running. These expenses are relatively small, and firms rarely have other large investments in operational years, except when expanding capacity or installing additional high-value machines. Since investment for construction is high, cost of debt in the first operational years tends to be high. However, the proportion of debt should fall gradually over the years bringing interest rate pressure declines. Unit: VND billion 2014E 2015F 2016F 2017F Profit after tax Depreciation Change in inventories (5) (1.9) Change in receivables (10) Change in payables Net cash flow from operating activities 1,671 1,703 1,579 1,325 Change in fixed assets Change in short-term investments Change in construction costs (4.3) Change in long-term investments Net cash flow from investing activities Debt payments (795) (1,047) (1,065) (1,109) Change in short-term debts (90) Dividend (128) (128) (128) (128) Net cash flow from financing activities (1,013) (1,158) (1,191) (1,193) Dividend ratio 2.1% 2.1% 2.1% 2.1% CAPEX/Revenue % 0,05% 0,05% FCF dividend 12.9% 10.9% 8.5% 4.2% Source: MBS Research 12 PetroVietnam Power Nhon Trach 2 JSC (NT2)

13 Contact Research: Phan Thuy Trang Tel: Institutional Sales: Gordon Edward Alexander Tel: (+84) Recommendation: MBS recommendation system is based on the difference between the 12-month target price and the market price at the time of report publishing. Recommendation Reference (Target price Current price)/current price BUY >=20% OVERPERFORM From 10% to 20% HOLD From -10% to +10% UNDERPERFORM From -10% to - 20% SELL <= -20% MB SECURITIES (MBS) Established since May 2000, MBS was one of the first 5 securities firms operating in Vietnam. After years of continuous development, MBS has become one of the leading securities company in Vietnam, providing a full range of services including: brokerage, research and investment advisory, investment banking and capital markets underwriting. MBS s network of branches and transaction offices has been expanded and operated effectively in many major cities such as Hanoi, Ho Chi Minh City, Hai Phong and other strategic areas. MBS s clients include individual investors and institutions, financial institutions and enterprises. As a member of the MB Group including MB Bank, MB Land, MB Asset Management, MB Capital and Viet R.E.M.A.X (Viet REM). MBS is able to leverage substantial human, financial and technological resources to provide its clients with tailored products and services that few securities firms in Vietnam can match. MBS is proud to be recognized as: A leading brokerage firm ranked No.1 in terms of brokerage market share since A renowned research firm with a team of experienced analysts that provides market-leading research products and commentaries on equity markets and the economy. A trusted provider of investment banking services for corporate clients. MBS HEAD OFFICE MB Building, 3 Lieu Giai, Ba Dinh, Ha Noi Tel: Fax: Website: DISCLAIMER: Copyrights. MBS 2014, ALL RIGHTS RESERVED. Authors have based this document on information from sources they believe to be reliable but which they have not independently verified. The views expressed in this report are those of the authors and not necessarily related, by any sense, to those of MBS. Neither any information nor comments were written for advertising purposes or recommendation to buy / sell any securities. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying recording, or otherwise, without the prior written permission of MBS. 13 PetroVietnam Power Nhon Trach 2 JSC (NT2)