Electricity, aviation companies forecast for a great 2019

The look of the Ca Mau Thermal Power - a member of PetroVietnam Power Corporation (PV Power). Electricity firms are forecast to improve performances in 2019 as power demand and consumption will continue rising. — Photo pvpower.com.vn

FPT Securities (FPTS) and VNDirect Securities (VNDS) made the predictions in their 2019 market outlook.

They have taken into consideration that more and more investors have been finding new opportunities in the two industries, which have become defensive in recent years on rising market consumption and demand.

Stable growth is forecast for the electricity sector as socio-economic development increases demand, FPTS said.

“Electricity consumption in 2011-16 doubled Vietnam’s gross domestic product (GDP) growth. In 2018-22, electricity consumption is predicted at 11-13 per cent per year in comparison to the World Bank’s yearly GDP growth of 6.5 per cent for Vietnam,” FPTS said.

“Electricity consumption in 2018-22 will fall to 9-10 per cent per year in the following years to 2030, FPTS added. “But the actual power supply growth is now just 6-7 per cent per year, so Vietnam may be short of power in 2021.”

In the first nine months of 2018, total electricity production and import reached 163.5 billion kilowatts per hour (kWh), up 10.5 per cent year on year. Total output purchased by Vietnam Electricity Corporation (EVN) in the same period was 143kWh, up 10 per cent year on year.

In Vietnam, 90 per cent of total electricity production is produced by thermal, hydro and gas power plants. Total output is always purchased by EVN, making sure the plants sell all of their outputs and create a big advantage over other industries when it comes to investors’ thinking.

“Companies operating in the power industry have relatively recession proof earnings as they provide essential services for which demand is remarkably steady,” VNDS said in its market outlook.

Among all power generators, PetroVietnam Power Corporation (PV Power; HoSE: POW) should be attractive to investors for its “persified portfolio of power plants across the country provides a natural hedge against changes in relative competitiveness of key input commodities like gas, coal and fuel oil,” the company added.

POW accounts for nearly 9 per cent of the total nationwide installed capacity. “In addition, the competitive generation market (CGM) mechanism [taking effect in January 2019] could benefit PV Power with solid volume growth and higher CGM prices due to the anticipated electricity shortage in the south where most of POW’s power plants are currently located.”

“PV Power is forecast to recover its margins in 2019 thanks to expected softness in thermal power feedstock prices.”

Aviation firms to soar

A similar projection is also seen for the aviation sector and related services, the two companies said.

There are currently five aviation firms in Vietnam – Vietnam Airlines, Vietjet, Jetstar Pacific and freight firm VASCO.

Fuel accounts for 30 per cent of cost structure, adding pressure to profit margins.

“As oil prices declined in the last quarter of 2018 and show signs of stabilisation in 2019, the earnings growth is assured for aviation firms,” according to FPTS.

Brent crude fell by 40.4 per cent to its one-year low of US$50.47 a barrel on December 24 from its peak of $86.29 a barrel in early October 2018. It has risen nearly 32 per cent since then.

The recent increases of oil prices may be not consistent, according to international analysts, as trade tensions between the US and China may threaten global trade activities and logistics services, offsetting hopes that OPEC and non-OPEC’s agreements of production cut would boost oil prices.

In addition, aviation firms would benefit from “continued rise in international visitors to Vietnam and higher domestic travel demand amid increasing leisure spending and lower average airfares,” VNDS said.

“After clocking phenomenal growth rates in the past five years, air passenger traffic is expected to grow by around 10 per cent per annum in 2018-21 and moderate to around 7 per cent in 2021-25.”

Also, private investors eyeing airport infrastructure investment opportunities in Vietnam as recent rapid passenger traffic grows, has created stresses and strains on the country’s aviation infrastructure, according to VNDS.

“Rapid growth and the huge potential of the local aviation industry has whetted the appetites of private investors to jump into airport infrastructure, especially given limited government resources to fund infrastructure expansion.”