Profits see electricity shares short circuit

Poor power selling prices are turning off the sector’s investors

Da Nhim-Ham Thuan-Da Mi Hydropower Plant (DHD), the country’s third biggest electricty producer, in late June made initial public offering (IPO) by selling more than 105 million shares at the starting price of VND14,000 each. However, only 15 individual investors registered to buy 1.32 per cent, or 1.26 million shares.

Shares of Ho Chi Minh Stock Exchange-listed Pha Lai Thermal Power Company (PPC) are traded at around VND16,000, the same as in February 2009 when the VN-Index bottomed out. The VN-Index, however, has soared by around 112 per cent to close at around 500 points recently.

Similarly , shares of Vinh Son-Song Hinh Hydropower Company (VSH) are traded at around VND14,000 a share, 18 per cent lower than its recent lowest level of VND17,000 a share in February. Particularly, foreign investors also cashed out of VSH after dumping more than one million shares on July 21.

Power stocks’ current conditions are contrast to foreign investors’ view that the power sector is the most attractive after telecommunications, banking and oil.

An analyst with VinaCapital said less attractive power shares were attributed to a “bottleneck” between power producers and Electricity of Vietnam (EVN), the country’s sole wholesale buyer and distributor.

“The electricity selling prices to EVN are lower this year and have reduced power producers’ profit margins, forcing investors, especially institutional ones, to revaluate power share and restructure portfolios,” said the VinaCapital analyst. 

Power producers’ profit margins are currently at around 8 per cent, or 30 per cent lower than that of 12-14 per cent as previously, according to unofficial statistics.

“This profit margin is just equal to 70 per cent of bank deposit rates, which is unsuitable, affecting the IPOs of other power companies,” said Nguyen Thi Mai Thanh, chairwoman and general director of Refrigeration Electrical Engineering Corporation (REE).

The VinaCapital analyst said the current electricity price negotiations with EVN also caused doubts about corporate governance.

“That is one of reasons for the falling prices of power shares,” he said, adding that the state’s controlling stake made it difficult for several power companies to  negotiate selling prices.

State-owned EVN holds a 65.44 per cent stake in PPC and a 30.55 per cent stake in VSH.

A recent Ha Thanh Securities report said that price to earning ratio of power shares is trading at around 6, compared to the market average of 12, indicating they are relatively cheap.