EVN estimated to have additional 26,000 billion VND
On November 9, Vietnam Electricity (EVN) increased the average retail electricity price by more than VND86/kWh, equivalent to an increase of 4.5% to VND2,006.79/kWh (excluding value added tax). This is the second time the electricity price has increased this year (the first time was on May 4 with an increase of 3%).
According to MBS Securities, the price increase will reduce financial pressure on EVN. However, this price is still not enough to help EVN make a profit in 2023.
It can be seen that the increase in retail electricity prices will have a positive impact on the electricity industry value chain, especially when EVN plays the role of the main electricity buyer and seller.
MBS assessed that the trend of sharp increase in receivables from electricity enterprises started from 2022, when the world's input fuel prices increased sharply and EVN encountered financial difficulties. In particular, many prominent thermal power enterprises on the stock exchange such as Vietnam Oil and Gas Power Corporation (POW), Power Generation Corporation 3 (PGV), Nhon Trach 2 Oil and Gas Power (NT2), Quang Ninh Thermal Power (QTP), Hai Phong Thermal Power (HND) recorded the sharpest increase in receivables from EVN due to high electricity prices.
These are also the businesses that record the highest receivables/total assets ratio in the industry.
As for POW, according to the financial report, as of the end of the third quarter of 2023, this enterprise had short-term receivables of nearly 17.2 trillion VND, much higher than the figure of more than 12.5 trillion VND at the beginning of the year and very large compared to the total assets of 63.6 trillion VND of this enterprise.
MBS believes that this electricity price increase will help EVN gain about VND 26,000 billion in additional revenue for 2024, thereby supporting the improvement of EVN's solvency as well as the business cash flow and financial efficiency of the above thermal power enterprises.
In addition to thermal power enterprises, some power construction and installation enterprises are also expected to benefit. Accordingly, 2022-2023 is a very difficult period for power infrastructure construction and installation enterprises, unable to sign new construction and installation contracts from EVN and cash flow for projects is also interrupted. Many enterprises recorded low construction and installation revenue results, the value of backlog orders is not high when EVN continuously cuts investment costs, repairs and maintenance for the power system.
With a large demand for work to develop the power grid, averaging about 1.5-1.6 billion USD per year, EVN needs to stabilize its cash flow soon to realize the power grid investment plan. This also means that construction activities will be more active and prominent enterprises on the stock exchange such as Vietnam Electricity Construction Joint Stock Corporation (VNE), PC1 Group (PC1), Construction Consulting 2 (TV2) will benefit.
Recently, many electricity industry stocks have attracted money and increased quite strongly such as NT2, POW, HND, NTH, KHP, GEG...
According to Mirae Asset Securities Company, the increase in electricity prices has not had much impact on electricity production enterprises in the short term, because of long-term agreements when signing electricity purchase contracts with EVN such as the case of Pha Lai Thermal Power Plant (PPC), Quang Ninh Thermal Power Plant (QTP)...
Mirae Asset believes that the increase in electricity prices may have a positive impact on electricity distribution businesses because they have signed long-term contracts at low prices and now sell at high prices, which will likely increase business profits.
However, in the long term, increased retail electricity prices and the development of a competitive electricity market will create more favorable conditions for businesses to adjust electricity prices upward, accurately reflecting the supply and demand ratio in the electricity market.
Negative impact on many manufacturing businesses
In the trading session on November 14, while the stock market increased quite strongly, Hoa Phat Steel shares (HPG) of billionaire Tran Dinh Long could not maintain the recent increase and turned down. HPG decreased right in the context of this enterprise receiving a series of good news, from the highest consumption output in October in 16 months, to foreign investors increasing their purchases. Public investment is also being promoted; the Government is making efforts to restore the real estate market...
Hoa Phat is one of the businesses affected when electricity prices increase.
According to MBS Securities, businesses in some manufacturing sectors such as iron and steel, cement, and chemicals will be negatively affected. Accordingly, electricity prices account for 10-15% of the cost of goods sold of steel manufacturing enterprises from 2020 to present. Electricity prices will increase the cost of goods sold of steel enterprises by 0.6%.
The cement industry is also highly electricity-intensive, with electricity costs accounting for 14-15% of production costs. For chemicals, electricity costs account for 9% of total production costs.
Mirae Asset also has a similar assessment for the cement industry, estimating that electricity costs account for about 9-10% of the cost of goods sold for steel manufacturing enterprises, which is also equivalent to that of enterprises in the chemical industry.
In fact, when electricity prices increase, businesses can pass the costs on to consumers by increasing the prices of their products. However, in the context of low consumer demand like last year, increasing prices is not easy. If they cannot increase their prices, many manufacturing businesses may see a significant portion of their profits eroded.
According to MBS, the decision to increase prices came as a surprise but also partly reflects EVN's financial situation, especially when the company continued to record a net loss of VND29,000 billion in the first 6 months of the year, even after increasing electricity prices by 3% since May.
Input prices for thermal power sources (coal and gas prices) are anchored at a much higher level than the low base period before 2021, further aggravated by the very low proportion of hydropower output - a cheap source of electricity - when the weather was not favorable in the first 6 peak months of the year.
In the last months of the year and 2024, factors such as signs of cooling coal prices and more neutral weather in the second half of 2024 will support EVN to reduce costs. Combined with the increase in retail electricity prices, this will help improve the group's business results.
MBS believes that there is still much room for EVN to continue increasing electricity prices because at the beginning of the year, the Ministry of Industry and Trade officially adjusted the retail electricity price framework to VND1,826-2,444/kWh (equivalent to the remaining room for price increase of 21%). In addition, the draft on the new electricity price adjustment mechanism, if approved, will be the basis for EVN to calculate electricity prices in accordance with input fluctuations. Specifically, the draft regulation proposes that EVN adjusts prices up or down by amplitude every 3 months (instead of 6 months as at present), corresponding to changes in electricity production costs, after being reviewed and inspected by the Ministry of Industry and Trade. However, the decision to adjust electricity prices (if any) needs to evaluate many factors and consider timing. |
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