Severe heat, 'big guys' make record profits of thousands of billions thanks to selling electricity, water, air conditioners

During the hot days of early summer, REE shares of Refrigeration Electrical Engineering Corporation, chaired by Ms. Nguyen Thi Mai Thanh, increased dramatically after the company announced its after-tax profit in the first quarter of 2023. For the first time in history, REE had a quarter of profit of over a trillion VND.

In the first quarter of 2023, REE recorded a 16% increase in revenue over the same period to VND2,372 billion. Most of this came from the refrigeration (air conditioning), electricity and water sectors. Profit after tax increased by 10% to a record of nearly VND1,055 billion.

Recently, cash flow has been pouring into the shares of this electricity and water company, even though the real estate market has been facing many difficulties and affecting the construction activities of investors for over a year. In the 3 sessions from May 19-23, REE shares increased by nearly 8%.

The real estate segment only contributes about 10% of revenue. The sluggish real estate market cannot hinder REE's revenue growth.

Most of the revenue comes from the refrigeration and electricity and water sectors, especially when the heat this year is severe even though it has just entered summer and is forecasted to be hotter than previous years on a large scale.

Information about electricity price adjustment is also considered positive for REE.

Previously, REE was one of the few businesses that overcame the challenging period of the Covid-19 pandemic with profits on an upward trend. Share purchases by major shareholders, including Platinum Victoria Pte (an investment unit of the Hong Kong Jardine Matheson empire) and Ms. Mai Thanh's family, also contributed to REE's positive performance during the pandemic.

Recently, major foreign shareholder Platinum Victory Pte Ltd continued to register to buy millions of REE shares. Specifically, Platinum Victory Pte Ltd registered to buy more than 2.25 million REE shares from May 18 to June 16. If the transaction is successful, Platinum Victory Pte Ltd will increase the number of shares owned in REE to more than 124.37 million shares, equivalent to 34.99%.

*REE Corp directly and indirectly owns dozens of hydropower companies with a total capacity of more than 1,300MW. (Photo: YB)*

REE Corp is a company operating in the field of refrigeration and electrical engineering. Ms. Mai Thanh's family business expanded its investment into the electricity and water sector about a decade ago with many deals to buy shares of businesses in this field.

To date, REE Corp directly and indirectly owns dozens of hydropower companies with a total capacity of over 1,300MW. In addition, REE also invests in wind power, solar power and clean water. The total investment for this sector amounts to tens of thousands of billions and has become the segment that brings in the largest revenue for the company, surpassing its initial core business (mechanical refrigeration).

In 2022, REE's electricity production revenue increased dramatically, 1.8 times higher than the previous year to more than VND 5,400 billion.

Market capitalization reaches billions of dollars, profit growth slows down

Since the end of 2020, REE has set a target of reaching a capitalization of 1 billion USD by 2025. However, this milestone has been achieved since the beginning of 2022. And as of May 23, REE has a capitalization of 25,590 billion VND (about 1.1 billion USD).

REE is currently facing difficulties in maintaining growth. With its large scale at this time, finding mergers and acquisitions (M&A) deals large enough to ensure growth is increasingly rare. Enterprises will have to participate more deeply in the process of developing projects.

REE is operating under the model of a parent company directly managing 14 subsidiaries and investments in 14 joint ventures and associates. The enterprise is divided into 4 separate business segments: refrigeration and electrical engineering, real estate, water and energy.

In 2022, REE recorded a historic high net profit, up 41% year-on-year to VND2,690 billion. Net profit of the electricity segment increased by 91% thanks to good output mobilization from hydropower and wind power operating throughout the year. Net profit of the water segment increased by 24% thanks to the recovery in water demand for services after the pandemic.

The company has just finalized the right to pay stock dividends in 2022, at a rate of 15%. The last registration date is May 22. The source of capital for issuance comes from the company's undistributed after-tax profits.

Previously, at the 2023 Annual General Meeting, REE shareholders approved the 2022 dividend payment plan at a rate of 25%, of which 10% is in cash and 15% is in shares.

According to VNDirect, REE's growth outlook for 2023-2024 will slow down from the high base of 2022.

Net profit in 2023 is forecast to decrease by 18% YoY to VND2,208 billion as the largest contributor - hydropower - is expected to decline sharply when the good weather phase ends. Net profit of the electricity segment will decrease by 27% while the water and office leasing segments will maintain stable profits, increasing by 0.5% and 5% YoY, respectively.

The M&E segment continued to experience a gloomy year. Net profit is forecast to increase slightly by 1% due to the continuing difficulties in the real estate market.

In 2024, according to VNDirect, there are more positive signals with net profit forecast to recover, increasing by 19%.

The reason is the decrease in interest rates. Net profit of the electricity segment increased by 20% thanks to the return of hydropower. Net profit of electromechanical increased by 34% thanks to the new backlog signed for airport projects and the gradual recovery of the real estate market. Net profit of office rental increased by 11% with the contribution from the new rental building E.Town 6.

In 2023, REE targets revenue of VND 10,962 billion, up 17% year-on-year, and net profit of VND 2,700 billion, up slightly 0.3% compared to 2022. By the end of the first quarter of 2023, REE recorded total assets of VND 34,322 billion. Liabilities are VND 14,524 billion, mainly long-term debt.

Chairwoman Nguyen Thi Mai Thanh said that the hydropower sector is still very potential and will be profitable in the long term. In 2023, REE's concern is increasing capacity to ensure revenue and profit.

Electricity consumption increases, hydropower plants run out of water, EVN warns of bad situation "By early May 2023, many hydropower reservoirs in the system have reached low water levels, posing a risk of affecting the security of electricity supply and serving people's needs during the remaining time of the 2023 dry season", EVN warned.

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