EVNGenco 2 to be effectively improved before IPO?

EVNGenco 2 to be “make up” before IPO to lure investors

Fluctuating profit

Not unlike EVNGenco 3, whose IPO was a massive failure (it only sold 7.4 million of the 267 million shares launched), EVNGenco 2 operates in the state-owned sector with great development potential.

Alongside subsidiaries fully owned by EVN and accounting units that are dependent on the parent company (Can Tho Thermal Power Company, Quang Tri Hydroelectricity Company, Song Bung Hydroelectricity Company), EVNGenco 2 owns 50 per cent of the charter capital of companies like Haiphong Thermal Power Company, Pha Lai Thermal Power Company, and Thac Mo Hydroelectricity Company.

In addition, EVNGenco 2 is in charge of many energy investment projects, including Hai Phong Thermal Power II, O Mon Thermal Power 1, 2, 3, 4, Trung Son Hydroelectricity, and Expanded Thac Mo Hydroelectricity, among others.

Although EVNGenco 2 generates increasing revenue, its profit has steadily decreased between 2014 and 2017. Additionally, the problem is further worsened by exchange rate losses.

For an energy company such as EVNGenco 2, owning subsidiaries and affiliated companies operating in various fields ranging from hydroelectricity to thermal power reduced risks caused by bad weather or production activity, thus sustaining the company’s growth rate over 2014-2017.

Specifically, EVNGenco 2’s revenue increased from VND20.4 trillion ($896.07 million) in 2014 to VND20.8 trillion ($913.6 million) in 2015, VND21.06 trillion ($925.06 million) in 2016, and VND21.82 trillion ($958.4 million) in 2017.

However, between 2014 and 2016, in stark contrast with revenue growth, profit decreased sharply. Notably, in 2014, EVNGenco reported a huge profit of VND1.58 trillion ($69.4 million), which fell by 50 per cent on-year in 2015 and another 50 per cent in 2016.

The company’s profit finally increased in 2017, turning around the two-year trend. Notably, in 2017 EVNGenco 2 reported VND2.7 trillion ($118.59 million) in profit.

Along with concerns about unstable business results, exchange rate risk is another factor making investors hesitant to invest in EVNGenco 2.

The firm reported a loss from exchange rate differences in three consecutive years. Notably, in 2015, EVNGenco 2 documented a loss of VND788.2 billion, which increased to VND885.9 billion ($38.9 million) in 2016. Likewise, 2017 saw a continuation of this trend, despite slight improvements compared to previous years.

Thus, the burden of huge, continuous exchange rate losses makes it difficult for EVNGenco 2 to generate profit. Furthermore, high financial costs have eroded EVNGenco 2’s profit over the past few years.

Improvements after EVNGenco 1?

After the failure of EVNGenco 3’s IPO, EVN is taking steps to restructure its subsidiaries EVNGenco 1 and 2 to ensure the success of their IPOs.

Notably, as EVNGeco 1 is running losses before its IPO due to exchange rate losses, huge financial costs, and dependency on weather conditions, in 2017 EVN handed over Nghi Son Thermal Power Factory to EVNGenco 1. Thus, EVNGenco 1 could add VND2.84 trillion ($124.7 million) in profit generated by the factory to its financial statement. Thanks to this, EVNGenco 1 was helped out of the red.

EVN’s handing over of the lucrative Nghi Son Thermal Power Factory to EVNGenco 1 has helped to improve the company’s financial situation prior to its IPO. It is thus not unlikely that EVN will utilise the same method to up EVNGenco 2’s game before the upcoming IPO.

Need for more transparency

Ever since the announcement of the upcoming IPO, many investors have expressed interest in EVNGenco 2’s activities. However, the company website only displays its financial report for the years 2015- 2017, with no records from previous years.

Regarding the equitisation progress, intelligence from EVNGenco 2 shows that as of March 23, following the State Audit Office of Vietnam's Document No.439/2018 on the editing of audit reports, on March 28, EVN’s board of executives has passed Document No.114/EVN-Exec on EVNGenco 2’s enterprise value and transferred this information to the equitisation supervising committee for consideration and approval so as to report to the Ministry of Industry and Trade (MoIT).

Within the second trimester, EVNGenco 2 is continuing efforts to cooperate with related parties to perfect the proposal for land use. Also, the firm is working together with MoIT and the Ministry of Finance to reach an agreement on reorganisation and housing during its equitisation.