Oil&gas stocks attract cash flow, liquidity is 3-year low, POW - A stock each day

OIL&GAS STOCKS ATTRACT CASH FLOW, LIQUIDITY IS 3-YEAR LOW

- Index reduced in all day, even recovered in late session, but still close to slightly reduce.
- Most stock slightly reduce or increase, however, number of reduced stock is still higher than increased stocks.
- GAS/VCB/MSN contribute most to Index increase; and NVL/VNM contribute most to Index decrease.
- Liquidity continue to reduce: 36% lower than 20-day average, and 4% lower than last trading day.
- Foreigners net sell for 3 consecutive days

DAILY NEWS AND ASSESSMENT (08 Jan 2019)

- S&P stock market in 2018: only health care and consumer goods industry have positive return which is quite popular with late business cycle when GDP growth get peak.

- VCB plans to issue 108 mill shares (equal 3% total shares) to GIC and Mizuho at price of 57,000 VND per share. The number of share issuance is much lower than expected by invetors (at least 15%).

POW (PetroVietnam Power) - A STOCK EACH DAY

Business model:
- POW is 2nd largest power manufacturer in VN, only below EVN with total capacity of ~ 4,208 MW, equivalent to 10% whole country output.
- POW owns 8 power plants: 4 gas-thermal plants named Ca Mau 1, Ca Mau 2, NT1, and NT2; 3 hydropower plants named Nam Cut, Hua Na, and DakDrinh; and 1 coal-thermal power plant named Vung Ang 1
- Power output structure: 64% gas power, 28.5% coal power, and 7.5% hydropower.
- Supply chain: gas input is bought from GAS and coal is bought from TKV with buying price increasing annually according to the route; and selling price is long-term PPA contract signed with EVN for at least 10 years, of which the selling price is adjusted based on gas/coal price. However, the selling price usually changes less than the input price so POW will get benefit if gas/coal reduces and vice versa.
- POW’s gas-thermal plants all use Siemens & Alstom's most modern technology at the time of construction.
- In 2017-2018, La Nina situation took place in Vietnam, resulting in a higher hydropower volume and gas prices increased sharply, resulting in increased costs. So, POW’s competitiveness is relatively low compared to hydropower and coal power enterprises.

Investment catalysts: OUTPERFORM
- Power shortage may become more serious than forecast: according to EVN, growth rate of power supply is less than 5% for next 2 years, much lower than expected growth rate of consumption ~10% -11/year.
- In addition, El Nino phenomenon is forecasted to take place in VN in 2019, which will reduce the hydropower volume, thereby reducing total industry power volume. Therefore, average power price for the whole power industry is forecasted to increase in 2019.
- Natural gas price reduced significantly by ~37% in recent 1 month ,and is expected to further reduce in 2019 due to lower demand as both US and China economy will grow slower.
- However, POW’s PE valuation ratio is currently at ~16 times and not really attractive.

Financial Statement Analysis: OUTPERFORM
Financial position is good due to high cash balance ~7,350 bill, and good and stable cash flow from operation ~2,000 bill per quarter. Although borrowing balance is also relatively high at ~ 24.4K bill, equivalent to ~ 40% total assets, however the balance is rather low compared to other power companies, has decreased years over years, and is also a common practice of  power industry as investment value (CAPEX) for power generators is high.