VIETCOMBANK FUND MANAGEMENT

Energy - Hydropower
Industry Review & Investment Theme 2012
Recommendation:
10th February 2012

BUY
Analyst: Thieu Le Binh

VIETCOMBANK FUND MANAGEMENT

Table of Contents
1. Summary 2. Industry Overview:

Vietnam economics review Vietnam electricity industry Vietnam electricity SWOT & PORTERs 5 forces

3. External Factors/ Business Environment:

Technology Government Pricing Socio-Economics Foreign Influences

4. Demand Analysis:

Consumption vs. Production

5. Supply Analysis:

Real vs. Potentials

6. Profitability:

Industry growth rate Industry forecast scenario

7. Competitions
2

VIETCOMBANK FUND MANAGEMENT Summary

Summary
Rational
Energy is both a production and an infrastructure sector for the whole economy and society, and it is a driving force in the process towards national industrialization and modernization. Energy sector recorded exceptional growth during the 10 years of Vietnams socio-economic development strategy period 2001 2010 with average of about 14% annually. The strong determination to restructure the energy market to enhance its competitiveness and offering investors incentives is the message the government wanted to convey to individual and corporate entities finding opportunities to invest in power sector development. There are still many attractive projects which have high feasibility, because the power competitive market in Vietnam is taking shape more strongly in the upcoming years and hydropower plants will require more capital with longer horizon. To keep up with an expected GDP growth rate of 7 to 8 percent and per capita GDP of around $3,000 - $3,200 during 2011 2020, Vietnam is forecasted to raise power generation capacity threefold from 23,000 MW in 2011 to 75,000 MW in 2020; and to increase the countrys power production from 100 billion kWh in 2011 to around 350 billion kWh in 2020 However, the energy sector is still facing difficulties in the transitional period when the competitiveness power market not yet in place.

Investment strategy
In the long term, the energy sector is considering to overweight the market supporting by future stable growth and earnings power. Yet, with the contraction of economy in 2012 due to governments battle against inflation, the growth is forecasted to be at modest pace of less than 7%, the energy development is believed not being able to keep up with its previous glorious growth rate. Thus, power generators will find difficulties to equilibrize their production costs and retail prices impacting their future earnings. Thus, we recommend to pay close attention on those power generators whom have an excellent cost management and investment plans for expansion including VSH, SJD

VIETCOMBANK FUND MANAGEMENT Economics

Viet Nam Economics Key Indicators & Challenges

Remains dominated by state-owned enterprises (SOEs), which Government's strong growth-oriented economic policies have
still produce about 40% of GDP Commitment to economic liberalization and international integration; to modernize the economy and to focus on more competitive export-driven as well as higher value-added industries
2000 2001 2002 2003 2004

2005

caused it to struggle to control one of the region's highest inflation rates, falling foreign exchange reserves, an undercapitalized banking sector, and high borrowing costs Vietnam's managed currency, the dong, continues to face downward pressure due to a persistent trade imbalance
2006 2007 2008 2009 2010 2011 2012f CAGR

(end of period) Real GDP (yoy % change) GDP (bil USD official rate) GDP per capital (USD) FDI registered (mil USD) Export (bil USD) Import (bil USD) CPI (%) Exchange Rate (USD/VND) Interest Rate (5-year %)

6.9 52 400
2,839

6.8 56 413
3,143

7.1 60 440
2,999

7.3 64 489
3,191

7.8 68 552
4,548

8.4 74 640
6,840

8.2 80 729
12,004

8.5 86 835
21,374

6.3 94 1,024
71,726

5.3 99 1,074
23,107

6.8 105 1,160

19,886

5.9 111 1,300

14,696

6.2 118 1,400

18,000

7.2 7.3 11.2 21.5 17.4 18.4 7.5 2.6 6.3

14.5 15.6 -0.6

14,637

15.0 16.2 0.8

15,124

16.7 19.7 4.0

15,348

20.1 25.3 3.0

15,592

26.5 31.9 9.5

15,739

32.4 36.7 8.4

15,875

38.9 44.9 6.6

16,101

48.6 62.8 12.6

16,114

62.7 80.7 19.9

16,977

57.1 70.0 6.5

17,941

72.2 84.8 11.8

18,932

96.3 105.8 18.6

21,036

125 130 12.0

22,500

6.0

4.8

4.8

5.0

5.0

6.5

6.5

6.5

9.5

8.0

7.0

15.0

10.0

Source: GSO, SBV, HSBC, CBRE, Bloomberg 1/2012

2011 YOY %
GDP 5.9% 6.8% 5.2% 19.1% 33.3% 24.7% -26.0% 0.0% 24.2% 18.6%

Industrial Production Agriculture Production Foreign Tourist Export Import FDI registered FDI rebursement Retail Sales CPI 4

VIETCOMBANK FUND MANAGEMENT Economics

Viet Nam Economics Potential for Growth

1. 2. 3. 4. 5. 6.
The second fastest-growing economy in Asia. Rapidly liberalizing economy with a pro-FDI & Export. Politically stable. Quickly expanding middle class and rapidly declining poverty rates.

9.

In 2012, the government is promising to strengthen investor protections by requiring higher standards of accountability for Vietnamese companies.

10. The general goals of the Economic Development Plan

2011-2015 are to accelerate economic development sustainably, Lower labor costs compared to other big countries in the region. to improve living condition and the spirit of the In 2007, accession to the World Trade Organization has opened people, stabilize politics - society, the way for ample economic growth opportunities. to strengthen foreign cooperation activities, protect the independence, sovereignty, unity and territorial 7. In 2010, the corporate tax was cut from 28% to 25% to encourage integrity, new enterprises. to create the foundation for country in order to 8. In 2011, business creation was streamlined through the creation of a basically become a modern industrialized country one-stop shop to facilitate obtaining business licenses. in 2020. Vietnam has been included within new investment acronyms and groupings, most notably, "CIVETS," created by the Economist Intelligence Unit, and "Next Eleven" created by Goldman Sachs. The CIVETS countries have large and young populations to fuel domestic consumption and cheap labor that is attracting exporters. These factors result in vibrant economies that have survived the 2008 Financial Crisis relatively unscathed and ready for continued growth. To exemplify this strength Vietnam's GDP growth rate in 2009, the height of the crisis, declined only to 5.3%.
CIVETS Columbia Indonesia
Population (mil) Labor Force (mil) Median Age (years) GDP PPP (bil USD) GDP PPP per capita GDP Growth (2010-2011) Investment (% of GDP) Public Debt (% of GDP) P/E Buy/Hold/ Avoid

45 245

22 (49%) 116 (47%)

28 28

467 1,121

$10,378 $4,576

4.3 3.8 6.1 5.9

22% 32%

45% 26%

19.5 18.0

Buy Buy

Vietnam
Egypt
Turkey South Africa
5

90
82
78 49

47 (52%)
26 (32%)
26 (33%) 17 (35%)

28
24
29 25

300
515
1,053 555

$3,300
$6,200
$13,500 $11,326

6.8 5.9
5.1 4.0
4.8 4.0 2.8 3.7

40%
18%
19% 20%

57%
81%
43% 33%

8.3
21.9
11.0 16.0

Buy
Avoid
Risky Buy Hold

Source: EIU, SAM, CIA, GSO, Bloomberg 1/2012

VIETCOMBANK FUND MANAGEMENT Economics

Q4

Viet Nam Economics Year of Dragon: on course for a re-bounce ?

Vietnam real GDP growth, year on year (% change) 2010 6.8%
Q1

2011 5.9%
Q3

2012 6.2%
Q3

5.8

Q2

6.4

7.2

Q4

7.3
As Vietnamese move from farms and into cities, labor productivity is steadily increasing. The population shift is also driving demand for everything from homes to consumer goods. Retail sales has been significantly increasing for the past few years on the back of rising incomes. Reach USD 85 billion by 2012 (70% GDP)

Q1

5.6

Q2

5.7

6.1

Q4

6.1

Q1

5.9

Q2

6.1

Q3

6.3

6.5

Strengths
Urban population
35% 30% 25% 20% 15% 1990 1995 2000 2005 2010

Weaknesses
Stubborn inflation
15% 5% 1995 2000 2005 2010 -5%

Opportunities/ Threats
After facing soaring inflation last year, price pressure have remained unreliable, giving the government less room to stimulate the economy.

Strong back bones

41% 37%

1995

2000

2005

2010

Rising consumption
Trillion VND 2000 1500 1000 500 0 1990 1995 2000 2005 2010

30000 20000 10000 0

Slowing real estate

Completed Launched

2003 2004 2005 2006 2007 2008 2009 2010 2011e

The government has tried to deflate a property bubble by uncomfortable high interest rates, yet freezing much-needed capital for development

Growing exports
100 50 0 1995 2000 2005 2010

2015 0
Import

Agriculture, industry, and services have been and will remain strong while shifting toward higher added value business (41% of GDP is industry)

-20 With inflation and

-10 companies should be

interest rate abating, able to find space to grow to capturing advance of global economies.

Export Trade Balance

Strengthen Investment
42% 34%

Hidden debts
Investment accounts for about 42% of GDP and much of the capital has been mobilized by private and foreign sectors
150 100 50 0

1995

2000

2005

2010

2015

GDP % of GDP

Public debt have passed threshold of 50% of GDP, thus leave not much room for to absorb risks from contingent liabilities in SOE and bank sector, refinancing Public Debt and exchange rates
60% 45% 30% 15% 0%

Inflation down? Interest rate remain? Economic growth? Credit growth tune? Monetary tighten? FDI registered up? Stock market?
Source: GSO, CBRE, VCBF estimate, Bloomberg 1/2012

2005 2006 2007 2008 2009 2010 2011

VIETCOMBANK FUND MANAGEMENT Industry

Viet Nam & Global Electricity Market

World total generated 19,250 billion kWh of electricity in 2010 with top 5 nations comprised of about 50%. Viet Nam ranked 32 in term of production, yet down to 134 regarding of kWh electricity consumed per person.

Considering that Vietnam electricity prices remain well below many countries (developed and emerging markets),
we could expect more price adjustments upward in the coming future.
Bil kWh
4500 4000 3500 3000

Global Electricity

kWh
18000 16000 14000 12000

2500
2000 1500 1000 500

10000
8000 6000 4000 2000
Vietn Indon Thaila Germ China Korea Japan Brazil am esia nd any

0
UK US

Consumption Production Import Population (mil) Price (Cent/kWh) Per Capita

7

86
97 4 91 6.2 945

119
129 0 246 7.0 486

134
148 2 67 11.0 2014

3438
3451 4 1337 16.0 2572

402
417 0 49 8.9 8245

858
956 0 126 20.6 6788

404
439 42 203 17.1 1987

547
593 42 81 30.7 6717

346
369 12 63 19.2 5515

3873
4110 57 313 11.2 12365

Source: WB, CIA 2010

VIETCOMBANK FUND MANAGEMENT Industry

Electricity Plants & Transmission Map

1.
The national energy development strategy states that energy development: Must link closely to the national socioeconomic development strategy Must maintain high and stable growth while energy generation source are diversified and energy efficient technologies are applied Must play key role in the whole process of national industrialization and modernization To realize these goals, the energy sector needs to carry out the following tasks:

2.

Power prices must be set based on market rules to bolster investment into energy development Need to develop multi-ownership by promoting investment from private and foreign investors Need to build and safely operate nuclear power plants, boost renewable energy sources to better care for environment Must develop a competitive energy generation market, gradually consolidating the legal framework to establish the retail and wholesale power market

VIETCOMBANK FUND MANAGEMENT Industry

Viet Nam Energy Room for Expanding

1.
To address a persistent electricity shortage in Vietnam, the government has passed Power Development Master Plan Number 7 in 2011: In order to keep pace with increased demand, the government has decided that 5,000 MWs need to be added annually to the power system to reach the stated goal of 75,000 MW by 2020 (about 350 billion kWh output electricity) To achieve this goal, increased investment is needed to finance new projects (about USD 50 billion in 10 years) To increase interest in potential investment, the government is in the process of deregulating electricity prices, thereby removing the distinction of having the lowest prices in the region. Currently, Vietnams electricity system is overwhelmed by the new demand spawned by the countrys continued strong growth. This has resulted in frequent power outages throughout the country, hindering industrial output, the attractiveness of the country to foreign investment, and ultimately, the overall economy. Most of the newly planned capacity will be from thermal and hydropower plants, though nuclear and renewable energy plans are being developed as well. Until now, the government has only been able to add an average of 3,000 MW per year, thus to add of 5,000 MW per year significant outside investment is required and encouraged (IPP and BOT) MW
400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -

2.

3. 4.

ELECTRICITY SUPPLY FORECAST

350,000

Source: Vu Van Thai Ministry of Industry and Trade, Viet Nam 9

1934 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 2020

VIETCOMBANK FUND MANAGEMENT Industry Public 8% Private 5% Import 5%

Electricity Industry Structure

Viet Nam is endowed with diverse primary energy resources:

Hydropower - potential 90 bil.kWh Gas - potential 1,300 bil.m3 Coal - potential 48.7 bil.tons Oil - potential 2.3 bil.tons Renewable energy and Uranium

Market Structure

2011: total electricity produced and purchased by EVN's power

plants and IPP (independent power producers) is 106.20 bil.kWh hydropower (41.42 bil.kWh) 39% gas (39.12 bil.kWh).. 36% coal (18.81 bil.kWh) 18% oil/diesel (1.86 bil.kWh) 2% import (4.99 bil.kWh) . 5%

Govern ment 82%

After lengthy relevant legal and infrastructure preparations, a trial of

Vietnams competitive power generation market (VCGM) got underway on July 1, 2011

Import 5% Private 5% Foreign 8%

Vinacomin 5%

EVN 65%

To inspire power generators to enhance production and business efficiency

and ensure equality and transparency

PVN 12% Source: EVN, IMF Public on HSX, HNX

Trial involves 71 power plants with capacity of over 30 MW each with 55

direct and 16 indirect players

10

VIETCOMBANK FUND MANAGEMENT Industry

EVN Electricity Structure

Production (mil kWh)

Production 2011 (106,200 mil kWh)

IPP 31,860 30% Diesel 1,062 1% Tourbin gas 27,612 26% Hydropower 33,984 32%

Thermal power 11,682 11%

Source: EVN

Installed Capacity (MW)

Capacity 2011 (23,062 MW)

IPP 6,919 30% Hydropower 7,841 34%

Diesel 461 2% Thermal power 1,745 11%

Source: Vu Van Thai Ministry of Industry and Trade, Viet Nam

Tourbin gas 4,612 20%

11

VIETCOMBANK FUND MANAGEMENT Industry 4000 340 350 800 150 4-5 kWh/m2 1800

Future Electricity Development

According to the Power Plan 7th:
Power demand will climb around 14.2% annually from
2011-2015, over 11.1% from 2016-2020, and stabilizing around 8% from 2020-2030 Vietnam will need around 194 211 billion kWh per year by 2015, increasing to 329 362 billion kWh by 2020, and 695 834 billion kWh by 2030 EVNs power generation accounted for over 65% in 2011, but this could be cut to 50% by 2020 Capacity (MW) 2011 = 23,062 ; 2015 = 43,000 ; 2020 = 75,000 ; 2030 = 150,000
100% 80% 60% 40% 20% 0% 2011 2015 2020
8,994 13,631 4,843

Import
10,191 12,375 16,520

Renewable & Nuclear

8,072

16,039

36,000 72,240

Tourbin gas
Thermalpower

Around USD 123 billion will be channeled into national

power system development within the next two decades. From 2011 2015, this amount will average nearly USD 5 billion per year: Power plant 66.6% Network .. 33.4%

19,125

21,980

Hydropower

2030

Vietnam Renewable Energy Potential Capacity MW

Small hydropower plants Geo-thermal energy Waste energy Biomass energy Bio energy Solar energy Wind energy

The shifting toward thermal power generation is required

to importing coal and investing heavily in mining industry

Precisely evaluating renewable energy potential is

essential to properly establish strategies and tactics on their effective exploitation to create additional energy for 2010 - 2020

Source: EVN, Institute of Energy, 7th Power Plan

12

VIETCOMBANK FUND MANAGEMENT

Coal-fired power plants currently make up around 18% of

Vietnams power system and is expected to rise quickly as a series of large-scale coal-fuelled power plants are in the pipeline. During 2006-2010, Vinacomin produced and sold an average of 40 million tonnes of coal annually, and export make up around half of the total volume From 2015, its forecasted to begin importing coal to guarantee sufficient coal supply for power projects

150 100

Million tonnes

50 (50) (100) (150) (200) 2011 2012 13.14 26.59 13.45 2013 16.78 28.07 11.29 2014 22.65 28.25 5.61 2015 31.78 32.60 0.82 2020 2025 2030

To ensure stable and long-term supply of coal in the future

amid increasingly stiff market competition and massive demand, Vinacomin is set to combine coal importation with mining activities in countries exporting coal to Vietnam (Indonesia, Australia, Russia, Laos, Cambodia)
Vietnam Coal Resources and Potential (million tonnes) Name North East coal basin Red River coal basin Mainland areas Local areas Peat coal Continental shelf coal resources Estimated Deposit 9,903 39,351 160 37 331 Further assessment Coal Export (million tonnes) Year 2010 2011 2012 2013 2014 2015 Volume 18.7 16.5 14.0 8.5 6.5 4.0

Power demand of thermal 11.20 power plants Coal supply capacity Local coal balance (export/import) 24.72 13.52

77.75 117.98 190.70 40.10 56.91 51.45

(37.65) (61.07) (139.25

Coal Production million tonnes) Year 2006 2007 2008 2009 2010 2011 Volume 37.6 41.6 35.4 44.4 43.1 45.0

40% world electricity by coal-fired power

Source: Vinacomin, Institute of Energy

13

Factors

Feeding the energy sector with coal

Power plants estimated coal demand and import forecasts 200

VIETCOMBANK FUND MANAGEMENT Industry Substitutes Energy: NO Hydropower: replaced by thermal power, gas

Viet Nam Electricity PORTERs 5 forces

Only 1 buyer: EVN

Buyer Power

Private investors but small-scale power plants Foreign investors with large scale and long term investment EVN strategy developments

New Entrants

Rivalry

Supplier Power

14

Hydro power Thermal power Turbine gas Renewable & nuclear Import

VIETCOMBANK FUND MANAGEMENT Industry

Viet Nam Electricity - SWOT

STRENGTH
1.
Vietnam has experienced rapid increases in demand for electricity for at least two decades: from a mere 8.7 billion kWh in 1990, output soared to 26.7 billion kWh in 2000, and a notably 106.2 billion kWh in 2011. The torrid rate of growth of 14% a year since 2000 would likely to continue, given the potential economic development (liberalization & industrialization) The Electricity of Vietnam is restructuring to be able to operate under market rules after new electricity pricing scheme based on market mechanism is introduced and comes into forces

WEAKNESS
1.
Strong dominated by EVN which monopoly in purchase and supply electricity to end consumptions. Retail price being controlled in order to restraint cost of productions and consumer prices Electricitys prices applied by government are currently quite low compared to the actual cost of producing electricity Subsidy policies and complicated procedures are causing difficulties for foreign power investors wishing to pour money into the sector.

2.
3. 4.

2.

3.

OPPORTUNITY
1.
With a per capita electrical consumption of less than two-fifths of Thailands, there is clearly room for continuing demand growth. The government has announced it will build a competitive electricity market in 2014 The government could not subsidize power plants for a long time, and therefore these plants would have to raise electricity prices to reflect the true cost of production Vietnam has set its sights on developing alternative energy sources and hopes foreign investors will come on board in this exiting time

THREAT
1.
Variety of climate and density of raining are threats to total electricity output (particularly during summer season while level of water reservoirs reaching low point) Further exploitation of hydropower sources in Vietnam will gradually be very difficult since the country is reaching saturation point. Coal prices & volume importing fluctuated with external factors leading to inflated production costs

2. 3.

2.

3.

4.

15

VIETCOMBANK FUND MANAGEMENT

Featuring tropical monsoon climate, a high density of rivers and streams

that are proportionally dispersed and comparatively sloping terrains, Vietnam has great potential for the development of small and mediumrange hydropower plants. Effective exploitation of this latent potential will not only create people extra income and meet the demand for energy in particular areas but also relieve the state energy deficiency.

One of the governments key industrial policies aim to boost local

enterprises electrical equipment manufacturing capacity to serve power plants across the country. However, therere multiple challenges:

Critically short of capital for carrying out new investment and

technological innovation

Human resource shortage on R&D and seriously lacks experience Chief engineers for power plants equipment manufacturing projects
are in short supply

Dearth of skilled workers available to manufacture equipment

Design & Manufacturing capacity of hydropower plants Design Capacity
Expediting technological designs with support from foreign experts Handling engineering designs HoaBinh (Russia), SonLa (France), VS-SH (Europe)

packages for power plants is hurting businesses expansion plans.

Manufacturing Capacity
Turbines up to 50MW Power generator up to 50MW Auxiliary equipments Hydraulic mechanical equipments Source: EVN, MoIT

16

Factors

Technology / Landscape/ Weather

VIETCOMBANK FUND MANAGEMENT

Power system is functioning under a traditional vertical alliance

model. The Electricity of Vietnam (EVN) holds a dominant share in power generation segment, and has control of the power distribution, operation and trading systems.

Power prices remain low at present and fail to truly reflect

actual production cost fluctuations

Low power costs fail to stimulate economical use of power

among businesses and the community

Currently, all power plants have to conduct negotiations with EVN

on power purchase agreement (PPA)

Competition does not exist in any power production phase at

present.

EVN currently manages 48 projects with overall installed capacity

of 20,062 MW and about VND 22,000 billion capital invested per year over past 10 years; account for 70% of the market. During period 2010 2015, power demand is set to rise by 15% annually.

Vietnam has not been able to meet demand for electricity by about
3% in the past five years and EVN will need to invest VND 60,000 billion a year for new power plants and transmission infrastructure between 2011 and 2015, during which 38 projects would come online.

17

Factors

Government & Controlling of Electricity Power

VIETCOMBANK FUND MANAGEMENT

Before 2009, power charges were set by EVN and submitted to Prime Minister for approval. Retail prices were revised three
times from 2002-2008:

Current price is much lower than that in other countries: 5.3 cent kWh (2009), 5.5 cent kWh (2010), 6.1 cent kWh (2011) The energy sector fails to sufficiently recoup operation costs with such low prices Low prices also make it tougher for EVN to reinvest in the power network and develop new sources of energy. Low-power costs have led to power intensive foreign industrial manufacturers with less-than-modern technology
setting up factories in Vietnam, causing local demands to spike and creating a serious supply and demand imbalance

From 2010, according to Decision 21/2009/QD-TTg, electricity prices are to be revised annually and the retail price must
reflect power generation and transmission costs to end-users.

Different development stages of Vietnams energy market

First stage: 2005 - 2014 Power end-users do not have the right to choose power suppliers Power generators will compete for selling power to a single buyer through PPA

Competitive wholesale market

Second stage: 2015 - 2022 New wholesalers will be allowed to enter the market to enhance competitiveness Large users and distributions firms will have right to purchase power directly from power generators

Last stage: after 2022 Competition is to occur in power generation, wholesale and retail areas. Power users across the country have the right to select power suppliers or purchase directly from the market

Competitive power generation market

Competitive retail market

18

Factors

Setting market-ruled power prices a long-term target

VIETCOMBANK FUND MANAGEMENT

In summarizing the implementation of 2001-2010 national socio-economic development strategy, the 11th
National Party Congress stated: Vietnam lifted itself out of the group of countries with a low level of development and joined the group of low-end middle-income countries. A number of key targets in the 2001-2010 strategy were achieved beyond expectations, particularly in regard to production forces. The economy was moving rapidly with an average growth of 7.26% annually. Per capita GDP averaged $1,168 in 2010.

The energy sector played a major role in the countrys impressively achievements. The growth rate of power
output/consumption is far exceeding the GDP growth rate in the same period.

Stepping into the 21st Century the country is facing a crucial moments as shifting from an energy exporting country
to an energy importing one. The economy will become more reliant on outside energy sources.

Items Capacity (MW) Output (mil kWh) Consumption (mil kWh) Loss Rate (%) GDP (PPP, billion USD)

Value 1954
31.5 0.53 0.42 20% 5

CAGR (%) 2015f

40,000 200,000 180,000 10% 340

2000
6,100 25,000 21,250 15% 110

2005
11,700 52,079 44,946 14% 178

2010
20,062 97,300 85,624 12% 250

2020f
75,000 350,000 320,000 8% 500

00
12.4% 27.0%

05
13.9% 15.8%

10
11.4% 13.3%

15
14.8% 15.3%

20
13.4% 10.5%

7.1%

10.1%

7.0%

6.3%

8.0%

19

Factors

Socio-economic development

VIETCOMBANK FUND MANAGEMENT

According to the 7th Power Plan: luring foreign investors into power sector development continues to be a
focus in the master plan for national development during 2011 - 2020 Foreign-invested projects can make payments using VND currency or through commodities exchanges and do not require a
guarantee from the Vietnamese government

Encourage large scale projects with huge capital and long investment horizon.

However, the lack of an incentive policy, the complication of contract structure, the negotiation of electricity price
have caused determent of investment in the forthcoming period Taking 6 to 7 years to complete relevant contract negotiations for power plants because these projects involved large loan
packages of up to 70-80% of investment cost

Developers selected through appointment, not through bidding process

BOT Power Project List Phy My 3 gas-fired thermal power plant (BR-VT) Phy My 2.2 gas-fired thermal power plant (BR-VT) Mong Duong 2 coal-fired thermal power plant (Q.Ninh) Hai Duong coal-fired thermal power plant (H.Duong) Vinh Tan 1 coal-fired thermal power plant (B.Thuan) Nam Dinh coal-fired thermal power plant (N.Dinh) Vung Ang 2 coal-fired thermal power plant (H.Tinh) Van Phong 1 coal-fired thermal power plant (K.Hoa) Scale 720 MW 720 MW 1,200 MW 1,200 MW 1,200 MW 2,400 MW 1,200 MW 1,200 MW Note Operational Operational Licensed in 2010 Licensed in 2011 Developer MECO Phu My 3 BOT Power Co. Ltd AES/POSCO/CIC Jaks Resources Berhad Chinas Southern Gid Power Network Co. Teakwang OneEnergy/Lilama/REE Sumitomo/Hanoinco

O Mon 2 gas-fired thermal power plant (C.Tho)

720 MW

Bidding to select developers

Source: EVN, VIR

20

Factors

Foreign investors & power sector development

VIETCOMBANK FUND MANAGEMENT Demand

Growth & Demanding of Energy

Socio-economic development:
Economic expansion and fast industrialization Population growth and better living standard Public investment and infrastructure improvement
GDP growth Industry growth Energy growth 9500 6.0 % 15.0 % 0005 7.2 % 16.0 % 2005 8.4 % 16.9 % 14.1 % 2006 8.2 % 16.7 % 14.3 % 2007 8.5 % 16.8 % 13.8 % 2008 6.3 % 13.9 % 12.7 % 2009 5.3 % 8.5 % 10.8 % 2010 6.8 % 15.3 % 23.3 % 1015 7.0 % 12.0 % 13.0 %

The growth rate of power consumption is

Twice as much as the GDP growth rate Same line with industrial production growth

13%

14%

Source: GOS, EVN

120,000 100,000

Electricity Consumption
38%

Million kWh 60,000

40,000 20,000 TOTAL Residential Services Industrial Agricultural 1954 31 19 12 1965 1,173 323 19 797 35 1975 1,786 608 59 969 150 1985 3,867 981 464 2,114 309 1995 11,198 4,046 1,008 4,619 1,524

80,000

44% 46%
2005 44,945 19,617 4,295 20,459 575 2006 51,371 22,071 4,369 24,340 591 2007 58,438 23,704 4,958 29,212 565 2008 65,890 26,524 5,559 33,156 651 2009 72,999 30,009 6,263 35,968 759 2010 97,397 36,974 8,757 50,596 1,070

52%
2011 103,014 39,145 9,271 53,567 1,030 2015* 180,000 70,200 18,000 90,000 1,800 2020* 300,000 132,000 30,000 135,000 3,000

Source: EVN, *Master Plan VII

21

VIETCOMBANK FUND MANAGEMENT

Viet Nam is endowed with diverse river systems which currently generating about 41.42 billion kWh; and could
supply utmost of 83.42 billion kWh

To fulfilling the shortage of commercial power and the hungry of industrial electricity, according to the Power
Plan VII, there should be total of USD 5 billion investment capital annually.
No. Rivers Capacity (MW) Output (TWh) Density (MWh/ km2) Output Weights (%) Plants
Ha Bnh, Sn La, Lai Chu Tr An, Thc M, Cn n, N1-6, a Nhim, Hm thun a Mi Yaly, SS3-4, Kontum Upstream, PleiKrong A Vng, Sng Boung 2-4, Dak Mi 1-4, SC, ST, SG Thc B, Nm Mu

1 2 3 4 5 6 7 8 9 10 11

river ng Nai river Sesan river Thu Bn river L river M river Srepok river Ba river C river Hng river Others

6,960 2,870 1,980 1,360 1,120 890 700 670 520 480 3,010

26.96 11.64 9.36 5.10 4.10 3.37 3.32 2.7 2.09 2.13 12.65

1,400 436 700 475 212 74 143 150 147 531

32.3% 14.0% 11.2% 6.1% 4.9% 4.0% 4.0% 3.2% 2.5% 2.6% 15.2%

BunKuop, KrongKma, DH 1-2, Srepok3-4 SongHinh, SongBaHa

A Li, Sn H, DakDrinh 2, asiat

Total Hydropower
22

20,560

83.42

250

100%

Source: EVN, 1 TWh = 1,000 GWh = 1 mil MWh = 1 bil kWh

Supply

Potential Hydropower Rivers

VIETCOMBANK FUND MANAGEMENT

No.
1 2 3 4 5 6 7 8 9 10

Name
Vinh Son Song Hinh (B.Dinh) Thac Ba (Y.Bai) Thac Mo (D.Nai) Can Don (B.Phuoc) Nam Nu (H.Giang) Na Loi (D.Bien) Ry Ninh II (G.Lai) Mien Nam (L.Dong) Mien Trung (D.Nang) Gia Lai (G.Lai)

Ticker
VSH TBC TMP SJD HJS NLC RHC SHP CHP GHC

Chartered Capital (Bil VND)

2,062 635 700 359 150 50 51 770 1,003 100

Capacity (MW)
136 120 150 77 12 9 8 123* 213* 28* 876 (10%) 110

Output (Mil kWh)

850 400 610 292 60 46 55 550 850 144 3,857 (11%) 508

Recently, and cooping with

the development framework of competitive energy market, therere more SOEs equitized and listed as public entities for more transparent development.

With potential and important

of energy infrastructure contributing to countrys prosperity, waves of private sector investments in power projects are rolling rapidly

Public Hydropower (1 MW = 4.5 mil kWh) 1 2 Bitexco Nho Que (H.Giang) PVN Invest Capital = 2,917

EVN has been making great

efforts to build power systems exploiting hydropower sources of river system (North), SeSan river system (Central), and ng Nai river system (South).

3
4 5

TKV

IPP & BOT Hydropower 1 2 3 Son La Hoa Binh Yaly Total Hydropower EVN 2,400 1,920 720 7,841 10,246 8,160 3,680 33,984

Source: EVN, Bloomberg 2/2012 23

Supply

Public & IPP Hydropower Plants

VIETCOMBANK FUND MANAGEMENT

Electricity Forecast Growth Rate

According to the Power Plan 7th:
Power demand will climb around 14% annually from 2011-2015, over 11% from 2016-2020, and stabilizing around
8% from 2020-2030 The country will need around 194 211 billion kWh per year by 2015, increasing to 329 362 billion kWh by 2020, and 695 834 billion kWh by 2030 Hydropower output will fall sharply from 39% of total electricity output (41 bil kWh) in 2011 to 32% (64 bil kWh) in 2015, 26% (91 bil kWh) in 2020, and about 15% (208 bil kWh) in 2030 Vietnam power generation capacity will rise from 23,000 MW in 2011 to 43,000 MW in 2015, 75,000 MW in 2020, and 140,000 MW in 2030 Hydropower capacity will be built with a pace of 11% from 2011-2015, around 7% until 2020, and leveling at 3% afterward being reach full country capacity (about 21,000 MW) Capacity (MW)
Import Renewable & Nuclear

MW
160,000 140,000 120,000 100,000 80,000 60,000 40,000

Capacity (MW)

Production (mil kWh)

Million kWh
1,600,000 1,400,000 1,200,000

CAGR = 14% - 11% - 8%

350,000 75,000

Tourbin gas
Thermalpower Hydropower

1,000,000 800,000 600,000 400,000

8,994
2011

13,631
2015

19,125
2020

20,580
2030

20,000 -

53
1934 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2015 2020 2030

200,000 -

Source: EVN, Power Plan VII

24

Profitability

VIETCOMBANK FUND MANAGEMENT

Capacity, Production & Demand Forecast

Forecast:
Power production will continue to fall shortly in meeting the demand of consumption and production from 2011-

2015, but thanks to come in live of several large-scale projects the shortage will be eliminated afterward More expensive retail power prices after 2014 also contribute to energy efficient consuming patterns and help saving extra energy sources

160000

Capacity (MW)

Output (mil kWh)

Demand (mil kWh)

800000

140000
120000 100000 80000 60000 40000 20000 3,900 MW Power Plan VI MW Power Plan VII 23,000 MW 75000

137000

700000
600000 500000 400000 300000 200000 100000

0 2000 2005 2010 2015 2020 2030

1990

1995

25

Profitability

VIETCOMBANK FUND MANAGEMENT

Energy Firms listing on HSX, HNX, and UPCOM

No.
1 2 3 4 5

M
BTP CHP DNC DTV GHC

Tn Cng ty
Nhit in B Ra Thy in Min Trung in nc Hi Phng PT in Nng thn Tr Vinh Thy in Gia Lai

Board
HOSE UPCOM HNX UPCOM UPCOM

Vn ha
171,9 501,7 12,8 28,5 121,0

Price
3,4 5,3 6,4 5,4 10,5

P/E

P/B
0,3 0,5

EPS (VND)

ROA (%)

ROE (%)

N/ TTS
63,2% 52,6%

EV/ EBITDA
6,2 1.832,8 5,8 1,7 3,6

7,3 2,6 3,3

0,5 0,4 0,9

795 2.087 3.636

2,5 14,8 9,5

7,7 15,8 28,5

64,8% 4,6% 66,6%

6
7 8 9 10 11 12 13 14

HJS
KHP NBP ND2 NLC NT2 PPC RHC SEB

Thy in Nm Mu
in lc Khnh Ha Nhit in Ninh Bnh u t v PT in Min Bc 2 Thy in N Li in lc Nhn Trch 2 Nhit in Ph Li Thy in Ry Ninh II in min Trung

HNX
HOSE HNX UPCOM HNX UPCOM HOSE HNX HNX

61,5
275,7 193,0 59,4 65,0 844,8 2.227,1 59,4 138,8

5,1
7,3 14,9 3,3 14,2 4,5 8,0 11,5 13,2

8,2
2,5 15,2 85,2 5,3 26,7 7,6 4,1

0,4
0,5 1,1 0,4 0,6 0,3 0,7 0,9 0,8

503
2.668 986 53 2.455 124 1.533 2.687

1,3
9,8 4,5 0,1 10,9 0,4 5,3 9,2

4,5
21,6 6,5 0,5 11,7 1,1 11,6 20,2

72,1%
52,9% 32,3% 76,4% 5,4% 75,9% 74,0% 44,3% 50,9%

3,9
2,1 7,0 7.479,9 3,1 205,1 1,1 3,0 2,5

15
16 17 18 19 20

SHP
SJD TBC TIC TMP VSH

Thy in Min Nam

Thy in Cn n Thy in Thc B in Ty Nguyn Thy in Thc M Thy in Vnh Sn SH

UPCOM
HOSE HOSE HOSE HOSE HOSE

292,6
348,0 635,0 213,7 553,0 1.678,6

4,5
10,3 10,5 8,9 8,5 8,5

12,0
3,9 22,9 8,2 4,6

0,4
0,6 0,8 0,8 0,8 0,6

317
2.508 437 1.132 1.788

1,9
8,8 3,4 10,2 11,6

3,2
16,8 3,6 10,2 14,1

44,7%
45,1% 3,9% 0,2% 40,9% 17,1%

9,8
1,9 7,9 169,9 3,9 3,9

Source: VCSC, Bloomberg 2/2012

26

Competition

VIETCOMBANK FUND MANAGEMENT

Hydropower Competition
No. 1 2 3 4 5 6 7 8 9 10 Ticker CHP GHC SHP HJS NLC RHC SJD TBC TMP VSH Name T Min Trung T Gia Lai T Min Nam T Nm Mu T N Li T Ry Ninh II T Cn n T Thc B T Thc M T Vnh Sn SH Board UPCOM UPCOM UPCOM HNX HNX HNX HOSE HOSE HOSE HOSE Liquidity Market Price at P/E (10 day avg.) Cap 17/1/2012 310 1,540 970 35,660 6,300 120 2,304 10,366 4,823 238,427 502 121 293 62 65 59 348 635 553 1,679 5.6 10.5 4.3 5.3 13.9 11.5 10.3 10.6 8.5 8.9 4.6 3.3 12.0 8.2 5.3 7.6 3.9 22.9 P/B 0.5 0.9 0.4 0.4 0.6 0.9 0.6 0.8 0.8 0.6 1,788 11.6 14.1 3,636 317 503 3,018 1,533 2,508 437 9.5 1.9 1.3 13.2 5.3 8.9 4.5 28.5 3.2 4.5 14.4 11.6 17.8 4.8 68,2% 50,6% 54,7% 54,5% 55,2% 69,5% 41,1% 26,5% 65,5% EPS ROA (VND) (%) ROE Net Profit (%) (%) Debt/ Assets 52,6% 66,6% 44,7% 72,1% 6,3% 44,3% 50,0% 9,1% 40,9% 17,1% EV/ EBITDA 1.832,8 3,6 9,8 3,9 2,5 3,0 3,0 7,6 3,9 3,9

Source: VCSC as of 2/9/2012

P/E
22.9

28.5

ROE (%)
16.8 14.1 3.6

8.2 3.3

12 5.3 7.6

11.7

11.6 3.2

3.9

4.6

6.7

10.8

4.5

27

Competition