We assume a temporary gas shortage in 2020 and 2021 due to a one-year delay of Sao Vang-Dai Nguyet gas field. Recently, GAS’s management shared that the operator of Sao Vang-Dai Nguyet (SV- DN) gas field has faced difficulties in executing the project and therefore the expected operation date could be delayed from Q4 2020 to Q4 2021 (early 2022).
This gas field plays an important role in supplementing gas supply for power plants in the southeast region (Phu My, Nhon Trach power center and Ba Ria power plant) while the old gas field is running out of reserves. SV-DN gas field has total reserves of 20 billion cubic meter/bcm and production volume of 1.5 bcm p.a. Therefore, we cut our gas supply forecast in the southern region by 6.8% and 13.6% for 2020 and 2021, respectively. As a consequence, we cut GAS’s national volume forecast by 5.0% for 2020 and 9.7% for 2021. We assume that gas supply in the southeast region will recover by 23.7% in 2022 with the operation of both SV-DN and the White Lion gas field. LNG imports will support an uptrend in gas supply after that.
We note that a gas supply shortage in 2020 and 2021 may not happen thanks to a new player, Hai Linh Ltd.Co (a private company), that has an LNG project (capacity of 1 million tons) targeting operation from 2020.
We anticipate a small gas shortage from November 2018 to February 2019 for gas-fired power plants in the southeast region. According to the General Statistics Office, 11-month accumulated gas volume was 9.14 bcm, +1.7% YoY, which was lower than our estimate of 9.97 bcm for the full year (+3.7% YoY). We assume this could be due to a faster than expected decrease in volume of the old Block 11.2 gas field. In addition, according to industry players, Wild Orchid gas field is expected to come online in mid-February (not late December) despite having its first gas ceremony in November 29.
These developments negatively impact GAS, POW and NT2. Changes to our earnings forecasts, target prices and ratings for these stocks are summarized in the tables below.
GAS [MPF, TP 90,400/share]: We cut our TP for GAS by 6.8% from VND97,000/share to VND90,400/share and downgrade from O-PF to M-PF due to: 1) We cut our earnings forecast for GAS faster than expected and the late operation of Wild Orchid will lead to a temporary gas shortage from November 2018 to February 2019; 2) In addition, we lower our NPAT forecast for 2020 and 2021 by 4.7% and 22.9%, respectively, given lower gas volume, mainly due to the late progress of SV-DN.
NT2 [BUY, TP 31,000/share]: We trim TP for NT2 by 1.3% from VND31,400/share to VND31,000/share as a lower 2018-2023 earnings forecast is partly compensated by the roll-over effect from December 31, 2018 to December 31, 2019. We cut our 2018 earnings forecast by 3.5% due to an expected gas shortage in Q4. We also trim our 2019 recurring NPAT forecast by 1.6% to VND848bn (USD36.4mn, +12.5% YoY) as a lower output forecast slightly outweighs a lower oil price assumption (USD70/bbl vs previous assumption of USD75/bbl). We cut 2020 and 2021’s recurring earnings by 8.5% and 16.0%, respectively, due to the delay of SV-DN.
by 5.1% and 5.9% for 2018 and 2019, respectively, as we assume that Block 11.2’s volume is decreasing
POW [BUY, TP 18,400/share]: We cut our TP for POW by 3.7% from VND19,100/share to VND18,400/share on an average 6.5% reduction in recurring NPAT forecast over 2019-2023. We lower our 2018 NPAT forecast by 14.0%, not only due to lower earnings contributions from Nhon Trach 1 gas- fired power plant (450 MW) and NT2 (750 MW) but also due to significantly lower Q4 profit than expected from Vung Ang coal-fired power plant (1,200 MW) due to technical issues. Details of Vung Ang’s technical issue has not yet been disclosed, however, management expects that they will bring Generator 1 on line within December 2018. We also cut our 2018 cash dividend assumption from VND300/share to VND280/share given weak estimated Q4 PBT for Vung Ang of VND50bn (USD2.1mn).
For 2019, despite nearly no change in NT2’s profit forecast, we revise down POW’s recurring NPAT by 5.7% as we conservatively assume the fixing of Vung Ang coal-fired power plant could extend into January.
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