Thermal power stocks expect to benefit from El Nino as hydropower declines

The majority of thermal power companies reported disappointing business results in the first quarter of 2023, but analysts say the outlook for 2023 remains bright given the El Nino effect.

PetroVietnam Power Coporation (PV Power), listed on the Ho Chi Minh Stock Exchange (HoSE) as POW, posted consolidated revenue of VND7.7 trillion ($327.9 million) in Q1, up 8% year-on-year, and after-tax profit of VND803.5 billion ($34.2 million), down 19%.

PV Power said revenue rose as output increased. However, the high cost of coal ate into gross profit.

Power Generation Joint Stock Corporation 3 (HoSE: PGV) recored after-tax profit of nearly VND621 billion ($26.4 million), down 26% compared to the same period in 2022.

Similarly, Pha Lai Thermal Power JSC (HoSE: PPC) posted net revenue of nearly VND1.31 trillion ($55.8 million) in the quarter, up 22%, but post-tax profit decreased by 50% to VND39.8 billion ($1.69 million).

A company leader said that in Q1, fuel prices increased along with a number of expenses like major repair costs and increased wages.

Hai Phong Thermal Power SJC, registered on the unlisted public company market UpCOM as HND, reported after-tax profit of over VND10 billion ($425,700), down 96.1%.

The company said this was due to lower power output in Q1 compared to the same period last year, while coal prices and administrative expenses increased.

PetroVietnam Power Nhon Trach 2 JSC (HoSE: NT2) was the only company that recorded revenue and after-tax profit growth with nearly VND2.18 trillion ($92.93 million), up 8.8%, and VND233.8 billion ($9.95 million), up 46%, respectively.

The La Nina cycle ended in February 2023, and the El Nino cycle started in May. The El Nino cycle usually lasts on average more than 10 months, so thermal power output is expected to be high until 2024 as output of hydropower plants dramatically declines.

Leading securities broker VNDirect commented that domestic coal-fired power plants in the north will benefit from lower input prices and increased demand in the region in 2023. In 2023-2024, the broker expects coal-fueled power output to gradually rise by 8-12% year-on-year.

The northern region is home to many large and rapidly developing industrial centers. In addition, the National Centre for Hydrometeorological Forecasting (NCHMF) forecasts a hotter summer with an increase of about 0.5°C above the average of many years, causing a sudden spike in summer demand.

VNDirect believes that stable domestic coal prices will be a great advantage for power plants that use domestic coal soures in the context of rising global prices. Moreover, coal plants in the north often record lower transportation costs due to their proximity to coal mines.

Meanwhile, Vietcombank Securities (VCBS) cautioned that companies in the industry need to ensure supplies of coal along with the ability to operate stably in the hot season.