Power share in broker “Don’t buy” recommendation

Brokerages recommended it was not the time to buy power shares as power suppliers looked set to face a tough year.

Power engineers work on cables on the main street in Ho Chi Minh City. Brokers recommend it is not the time to buy power shares now (Photo:Minh Tri)

Power shares have dropped sharply for two years, plunging by an average of more than 21 percent compared with a 2 percent decrease of the VN-Index.

Leading listed names in the power industry including Pha Lai Thermal Power Joint Stock Company (PPC) and Vinh Son - Song Hinh Hydropower Joint Stock Company (VSH) fell 32 percent and 23 percent respectively.

On the Ho Chi Minh Stock Exchange on Feb 28th, PPC remained unchanged at VND11,700 and VSH edged down less than 1 percent to close at VND 12,200. The benchmark VN-Index fell 1.21 percent to end at 461.37.

Financial experts said the companies were in difficult since their hydropower plants struggled in a long dry season and their loans in dollar became bigger due to the stronger greenback.

They also noticed that those plants could not be in full-capacity output as they were in the maintaining period. The power consumption in 2011, meanwhile, is expected to move up by 17.6 percent.

Vinh Son - Song Hinh Hydropower JSC and Thac Ba Hydopower JSC (TBC) expect to improve their earning results as the retail power price is set to move up next month.

Vinh Son - Song Hinh Hydropower JSC and Thac Ba Hydopower JSC (TBC) expect to improve their earning results as the retail power price is set to move up next month.

Vietnam intends to  increase the cost of average household electricity by around 18 percent next month. Prime Minister Nguyen Tan Dung said early this month factories and other major energy consumers must cut power use by at least 1 percent, Vietnam News reported.

The profit growth of state-owned Electricity of Vietnam, known as EVN, is low, at 1 percent to 3 percent a year, on low retail prices, according to a statement on the government’s website.

EVN sells electricity at 30 percent to 40 percent lower than production cost, it said. The company buys electricity from China at 5.3 to 14 US cents per kilowatt-hour

However, analysts said the increasing retail price will help improve sales of power distributors, not producers. The return rate will depend on the price of EVN.

Saigon Securities Incorporation (SSI), the country’s biggest brokerage on the HCMC bourse, said difficulties of listed power producers would be solve as the government removes the monopoly of the electricity industry.

Financial experts from the Hanoi-based brokerage VNDirect said power shares, which are in a state-owned industry, would hardly slump further thanks to their high dividend rates and attractive prices.

“The market cap of power companies are lower than a value of a power plant, which makes power shares attractive investments in mid- and long-term,” said a broker in a HCMC-based securities firm.

By Truong Hai – Translated by Vu Minh

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