PC1 - Stronger-than-expected nickel boosts earnings beyond forecast, upside potential evident

* PC1 announced strong Q3 results with revenue of VND2.2tn (USD89mn, +3% YoY) and reported NPAT-MI of VND160bn (USD6.4mn, vs VND1bn in Q3 2023). The slight YoY uptick in revenue was mainly due to growth from power construction and power generation (more favorable hydrological situations), which outweighed the plunge from steel pole manufacturing. We attribute the surge in reported NPAT-MI to the FX gain of VND84bn vs the loss of VND101bn in Q3 2023 and core NPAT growing 13% YoY.

* For 9M 2024, PC1’s revenue was VND7.5tn (USD302mn, +47% YoY) and reported NPAT-MI reached VND399bn (USD16mn, vs VND3bn in 9M2023), completing 76%/84% of our respective full-year forecasts. We attribute the outperformance of reported NPAT-MI vs revenue to 17% YoY lower financial expenses and core NPAT rising ~5x YoY.

* We see potential upside to our reported NPAT-MI forecast while 9M core NPAT-MI completes 76% of our full-year projection, slightly ahead our forecast as the better-than-expected nickel segment (with revenue and profit completing 121%/117% of our respective full-year forecasts) could potentially outweigh lower-than-expected GPM from the power construction segment (9M GPM was 7.0%, 130 bps behind our 2024F projection).

* We currently have a BUY rating for PC1 with a target price of VND33,200/share.

* Note: PC1 has released its Q3 2024 financial statements, which include retrospective adjustments to Q3 2023 and year-end 2023 figures for its nickel mining business. These adjustments account for VAT, discrepancies between actual and estimated nickel revenue, and the environmental resource tax as stated in the H1 audited report. Consequently, we revise Q3 and 9M 2023 results in our analysis.

Previously, PC1 reported a 68% increase in H1 2024 NPAT-MI post-audit, reaching VND240bn compared to VND143bn in the pre-audit report. We attribute this significant difference to (1) an 11% (VND101bn) rise in gross profit, primarily driven by 6.1% (VND50bn) higher revenue and an 8.0% (VND51bn) reduction in COGS related to the nickel mining business, and (2) a 59% (VND24bn) increase in gains from associates.

PC1’s 9M 2024 results

VND bn	Q3 2023	Q3 2024	YoY	9M 2023	9M 2024	YoY	% of Vietcap’s 2024F
Revenue	2,162	2,233	3%	5,140	7,538	47%	76%
Power construction*	478	705	48%	1,481	2,457	66%	65%
Electric steel pole manufacturing	402	161	-60%	745	1,229	65%	77%
Power generation	381	448	18%	1,047	1,197	14%	72%
Real estate	39	4	-90%	54	26	-51%	95%
Nickel (57% stake)	598	565	-6%	598	1,431	139%	121%
Nomura (70% stake)	182	169	-7%	474	443	-7%	72%
Others	83	181	117%	741	755	2%	73%
Gross profit	466	482	4%	1,056	1,490	41%	74%
Power construction*	33	30	-8%	172	171	0%	55%
Electric steel pole manufacturing	44	17	-61%	72	112	55%	77%
Power generation	192	233	21%	513	631	23%	65%
Real estate	17	3	-82%	26	14	-45%	77%
Nickel (57% stake)	197	162	-18%	197	435	121%	117%
Nomura (70% stake)	50	36	-27%	117	118	1%	83%
Others	-66	1	N.M.	-41	9	N.M.	26%
SG&A expense	-105	-108	3%	-391	-356	-9%	68%
Operating income	361	374	4%	800	1,134	42%	77%
Financial income	42	29	-32%	137	123	-10%	107%
Financial expense	-324	-98	-70%	-765	-635	-17%	73%
In which: Interest expense	-214	-183	-14%	-636	-567	-11%	74%
In which: FX loss & others	-101	84	N.M.	-108	-52	-52%	48%
Income from JVs	-4	-3	-43%	-2	51	N.M.	48%
Other income	-3	-3	-25%	-14	-5	-66%	N.M.
PBT	72	289	303%	156	668	328%	81%
NPAT before MI	34	260	655%	93	578	522%	82%
Minority interest	-33	-100	200%	-90	-179	99%	79%
Reported NPAT-MI	1	160	15,052%	3	399	13,079%	84%
NPAT-MI (core)	82	93	13%	89	440	392%	76%

Source: PC1, Vietcap (* Power-related construction segment includes grid erection & installing activities and EPC contracts for renewable energy projects. ‘Others’ mainly includes low-margin machinery trading.)