VinaCapital injects $45 million into oil and power stocks

The closed-end investment company said in its latest monthly report that the strong market and high valuations [of its net asset value (NAV)] gave the fund the opportunity to invest into some of the government’s equitisations, including an operational oil refinery (Binh Son Refinery), a petrol station operator (PetroVietnam Oil Corporation), several power generators (Power Generation Corporation (GENCO) 3 and PV Power), and Vietnam Rubber Group, with the oil-related companies being the target of interest among foreign investors.

VinaCapital injects some $45 million into oil and power stocks

“While we had ample cash to invest in all five of the IPOs scheduled for January, we were very selective and only took part in two: Binh Son Refinery and PV Power. We believe the combination of a reasonable valuation and the significant medium-term growth potential of these two companies offer a substantial upside to the starting IPO price,” said Vietnam Opportunity Fund (VOF).

Factors that made VOF invest approximately $25 million in Binh Son include the fact that it is the only operating oil refinery in Vietnam, commanding 33 per cent of the market share, with the remaining 67 per cent of refined products being imported. “The refinery business tends to be less affected by oil price volatility than other segments of the oil and gas sector.”

“The market cap of the company at the starting price was $2 billion, making it one of the largest companies in Vietnam. More importantly to our investment, the starting price was very attractive, at an estimated 2017 P/E of 5.6x and 2017 EV/EBITDA of 3.8x compared to the current market P/E of 20x.”

It is even more compelling as VOF’s winning price was discounted by 4 per cent compared to the average winning price of VND23,000 per share for the equitsation. The Guernsey-incoporated fund was able to secure around 10 per cent of the available shares on offer with an investment of nearly $25 million.

PV Power, meanwhile, is the second-largest power generator in Vietnam with the current market cap of $1.5 million. The company has sold 20 per cent of its shares at the IPO in late January, and plans to sell another 29 per cent to strategic investors this month.

VOF said that this is also an attractive investment with an estimated P/E of 11.5x at the starting price of VND14,400. VOF’s investment in PV Power was more than $20 million.

“As a result of these transactions, our cash position has reduced substantially, to 5.7 per cent of NAV. The government has an ambitious schedule of initial and secondary offerings in 2018 and we will continue to evaluate such opportunities. At the same time, we are in advanced negotiations regarding several private equity opportunities and will announce should an investment materialise,” VOF wrote in its report.

Both Binh Son Refinery and PV Power are expected to achieve high revenue and net profit in 2017, with the former reporting estimated revenue and net profit of $3.5 billion and $350 million, and the latter $1.3 million and $85 million.