We had a recent update with VPower on its Myanmar projects’ status. According to news report and management, we think the Company is on track to deliver several key projects through its JV partnership with CNTIC as Company guidance by 1H20. Apart from that, based on a fixed PPA expectation between the JV and Myanmar government (Ministry of Electricity and Energy, MoEE), we expect VPower will be able to enjoy considerable payoff from recent low LNG price environment. Based on Myanmar’s electricity development in the coming few years, we believe VPower’s IBO business is sustainable and has potential to have more project opportunities in Myanmar. Our DCF TP is lifted to HK$4.80, reflecting FY20/21E PER of 18.4x/10.6x, respectively. Maintain BUY.
- Myanmar projects are largely on track as guidance. Recent news report indicated several LNG fueled projects were subject to some delay due to precautions measures for COVID-19. According to The Irrawaddy, a Myanmar news agency, Mr. U Khin Maung Win, deputy minister of MoEE commented on 19 May that, 1) 400MW in Thaketa will launch full operation by 30 May; 2) 350MW in Thanlyin will start operation in Jun; 3) 150MW in Kyauphyu will be completed by Sep; and 4) the 20.54MW in Kyun Chaung fully owned by VPower had already commenced operation during the week of 18-24 May. On top of those comments, mgmt. from VPower also expected PPA for those projects will be signed within coming weeks, which can be viewed as key milestone before commercial operation for those IBO projects by 1H20.
- Entered JV agreement with CNTIC. VPower entered shareholder agreement with CNITC for Myanmar JV controlling those 900MW contract capacities. Capital commitment of the JV is US$180mn, of which VPower will commit US$90mn (~HK$702mn). The Company had invested HK$225.3mn in advanced by Mar, and planned to fund the remaining through internal cash and borrowings with no short-term equity financing needs for the JV investment. As we expect the JV will have a significant portion of capacity to commence operation from Jun, we expect the JV will contribute some earnings in 1H20.
- Exploring future opportunities in Myanmar. We noticed that shareholder agreement of the JV sets several clause to unify both VPower and CNTIC’s interests, including transfer restrictions and non-competition undertakings. Based on our study on Myanmar’s electricity development plan (mid-teens electricity consumption growth), we believe the JV will have opportunities to explore more potential LNG fueled power project in the country.
- Low spot price will help secure LNG supply. COVID-19’s economy impact and city lockdown measures had led to excessive LNG supply to the Asia market. According to METI Japan’s data, monthly spot LNG price was 28.0%-54.7% YoY lower in Jan-Apr 2020. We think low spot price environment will favor the JV for securing LNG supply and mitigating fuel price risks. Given the 3 projects in the JV has 1) large operating scale, 2) tight construction time and 3) low LNG price, we expect the JV will have higher profitability than VPower’s existing IBO projects.
- Earnings growth to accelerate in 2H20. Other than Myanmar new projects and JV, mgmt. also updated other IBO projects development pace. Overall, we think VPower’s IBO projects are on track with our previous estimates, and our earnings forecasts remain unchanged. Based on our assumptions, we expect the Company to earn HK$178mn in 1H20, representing 24.8% growth YoY. In 2H20, as we expect those newly added Myanmar projects and JV’s contribution to kick in, we expect earnings growth to accelerate substantially.
- Lifting DCF TP by 47.7% to HK$4.80. VPower’s share price had surged more than 40% since our previous update with increasing trading volume (3-month average turnover increased from HK$2.27mn on 1 Apr to HK$3.82mn on 28 May). We think the Company’s value of its IBO business in the Southeast Asia areas is gaining market recognition. Based on our revised model which incorporates contributions from Myanmar JV, our DCF TP is lifted by 47.7% to HK$4.80 per share, reflecting FY20/21E PER of 18.4x/10.6x respectively. Maintain BUY.
