After more than a year of declining results due to unfavorable hydrological conditions, hydropower enterprises expect business to pick up when the La Nina phenomenon returns.
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Expectation of La Nina returning after El Nino period
The prolonged El Nino phenomenon has led to a continuous decline in hydropower plant electricity output, after peaking in 2022. When El Nino shows signs of ending in the first half of 2024, observers expect the La Nina phenomenon to return soon. Accordingly, Rong Viet Securities Joint Stock Company (VDSC) forecasts that the La Nina phenomenon will return from August 2024 and expects the business activities of hydropower enterprises to gradually recover and grow strongly in 2025.
Data from the International Climate Research Institute (IRI) shows that La Nina usually lasts from 9 to 12 months, or even up to 2 years. A prolonged La Nina will help hydropower companies benefit after a continuous decline in output. According to VDSC's observations, the commercial output of hydropower companies during the La Nina cycle is about 10-20% higher than the El Nino cycle.
No longer cautious about the hydropower sector as at the General Meeting of Shareholders in early 2024, sharing with reporters of Investment Newspaper, Ms. Nguyen Thi Mai Thanh, Chairwoman of the Board of Directors of Refrigeration Electrical Engineering Joint Stock Company (code REE) said: "The prospect of the group of hydropower plants in the late 2024 will improve output, with the forecast of a high probability of La Nina occurring, with strong impact intensity".
It is known that for the hydropower industry, there are many listed enterprises on the stock exchange. Among them, the largest enterprise is Refrigeration Electrical Engineering - owning a total operating capacity of 1,364 MW, producing up to 6,173 million kWh of electricity and this is the sector that has contributed the most to the profit structure of the energy sector for many years.
High Alpha Barrier
Although the return of La Nina is expected to help hydropower plants increase electricity output in the second half of 2024, the biggest obstacle for hydropower enterprises at present is that Vietnam Electricity Group (EVN) is facing cash flow difficulties and operating at a loss, so it has implemented many solutions to stabilize cash flow and fix costs, including changing the Alpha ratio for the hydropower group.
It is known that at the 2024 General Meeting of Shareholders of Refrigeration Electrical Engineering, Mr. Huynh Thanh Hai (resigned from the position of General Director of the Company from July 1, 2024) said that in 2024, the Alpha coefficient will increase to 98% (the period 2020 - 2023 is 90%). This means that the factories only have 2% of the electricity produced participating in the competitive market, the remaining 98% is the electricity output calculated according to the contract.
VDSC also commented that at such a high Alpha level, hydropower plants are unlikely to increase their operating efficiency at times when market electricity prices are high. This puts pressure on the business results of hydropower plants - which depend on the competitive electricity market to improve operating efficiency.
It can be seen that in 2024, favorable and unfavorable factors are intertwined with the group of hydropower enterprises. In which, enterprises benefit from more favorable hydrological phenomena, but the proportion of electricity output participating in the competitive electricity market is decreasing, so it is difficult to improve the efficiency of gross profit margin and net profit margin as in previous years.
It is known that in 2023, hydropower enterprises such as Refrigeration Electrical Engineering, Vinh Son - Song Hinh Hydropower Joint Stock Company (code VSH), Truong Thanh Construction and Development Investment Joint Stock Company (code TTA), Hua Na Hydropower Joint Stock Company (code HNA) ... all recorded a sharp narrowing of gross and net profit margins. Entering 2024, in the first quarter, Vinh Son - Song Hinh Hydropower's profit decreased by 99.6%, to 1.77 billion VND; In the first 6 months of the year, Hua Na Hydropower recorded a loss of 13.87 billion VND, down 129.6% over the same period.
Source: https://baodautu.vn/doanh-nghiep-thuy-dien-hy-vong-kinh-doanh-khoi-sac-d221622.html
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