Quang Ninh Thermal Power Joint Stock Company (UPCoM: QTP) nearly ran its designed capacity in 2021.

EVN basically holds the monopolistic role in Vietnam’s power market when it has the decisive role in terms of output and selling price through a Power Purchase Agreement (PPA) with each power maker. Thanks to the economic rebound and the removal of harsh lockdown measures, Vietnam’s power consumption is expected to grow 8.2% yoy in 2022. As La Nina has been weakening since early 2022F, hydropower reservoirs in the northern provinces may experience water shortages from January to June 2022F. Accordingly, Kis Vietnam expects that EVN will shift its focus to coal-fired plants to ensure power supply.

If the Russia- Ukraine tension is prolonged and sanctions on Russia are persistent, the gross margin of gas-fired power could be hit when gas input prices are highly correlated with fuel oil (FO) prices in the Singapore market. In the base case, Kis Vietnam estimated that FO prices would rise up to an annual average of USD580/tonne, causing the input gas price to jump by 40–45% yoy in 2022F. The gas price supplied to domestic gas-fired power could trend upward in 2022 due to the increasing FO Singapore price. For gas-fired power makers, gas accounts for about 75%–80% of total cost of goods sold (COGS). Therefore, with the continuous rise in the FO Singapore price, the gross margin of domestic gas-fired power firms could be squeezed.

Meanwhile, imported coal often makes up only 20–25% of total coal consumption, and Vietnam primarily imports from Indonesia and Australia. Domestic coal prices for feedstock to coal-fired plants supplied by Vinacomin (TKV) are periodically modified (usually quarterly/semiannually) by the Ministry of Industry and Trade (MoIT) and the Ministry of Finance (MoF), which usually have a large gap with global coal prices. Hence, MoIT’s assigned prices are normally less volatile than global coal prices, which could swing dramatically in 2022.

Despite rising global coal prices, domestic coal prices for thermal plants remained unchanged in 2M22. However, the Newcastle coal price has risen sharply in the last month, reaching USD369/tonne on March 11, a 51% increase. Thus, Kis Vietnam forecasts that, in the base case, MoIT will increase the domestic coal price supplied to thermal power since 2Q22F by 10% and keep this price unchanged throughout the year. However, EVN will prioritize the cheaper coal-fired power plants driven by their lower COGS than gas supply and increase the bidding price of coal-fired power to compensate for the rising price of input.

Given the coal price increase of 10% YoY, COGS could go up by 11% YoY. Quang Ninh Thermal Power Joint Stock Company (UPCoM: QTP) nearly ran its designed capacity in 2021, thus Kis Vietnam forecasts total volume will inch only 5.7% YoY in 2022F. In addition, QTP could leverage the contracted volume sold to EVN by 12.3% YoY and, hence, QTP could enjoy a higher average selling price (ASP) by 7.7% YoY. Overall, net revenue could rise by 13.8% YoY, leaving gross margin to expand by 2.4% YoY to 10.8%.

In the worst case, if the global coal price keeps its rising trend in 2022F, the domestic coal price may deliver a significant increase of 15% YoY, causing the COGS to go up 14% YoY. However, ASP could grow by 11% YoY and the total output sold to EVN could only edge up by 3.4% YoY, QTP’s gross margin could stay at 9.2% or 0.8% YoY.