REE - Slower-than-expected sales recognition from real estate segment, downside risk apparent

REE released its Q3 2024 results with revenue of VND2.0tn (USD81mn, +3% YoY) and reported NPAT-MI of VND480bn (USD19.2mn, +7% YoY). The YoY uptick in revenue was driven by 13% YoY growth from the power segment (mainly from hydropower), which outweighed lower revenue from the M&E segment. Additionally, favorable hydrological situations, as well as high mobilization from hydropower in Q3, overshadowed lower earnings from the office leasing segment.

For 9M 2024, REE’s revenue declined slightly to VND6.0tn (USD242mn, -7% YoY) and reported NPAT-MI fell more significantly to VND1.3tn (USD53mn, -22% YoY), completing 69%/65% of our respective full-year forecasts. We attribute the YoY contracted earnings to weaker YoY revenue and earnings from the power segment (mainly due to hydropower with significant low mobilization and unfavorable weather conditions in H1).

We see downside risks to our 2024F NPAT-MI forecast, mainly due to the slower-than-expected earnings recognition from the real estate segment, pending a fuller review. Additionally, capex and new project developments are broadly in line with our expectation.

We currently have a MARKET PERFORM rating for REE with a target price of VND68,100/share.

The power segment’s 9M revenue was VND2,942bn (USD118mn, -17% YoY) and reported NPAT-MI was VND602bn (VND24.1mn, -35% YoY), fulfilling 75%/66% of our respective full-year forecasts. These results are broadly in line with our projections as stronger-than-expected hydropower earnings potentially offset slightly lower-than-expected profit from the wind segment and the lower-than-expected dividend received from PPC, and its lower stake (reduced by 2.8% to 20.7% by end-Q3).

Office leasing and real estate NPAT-MI complete 68%/8% of our respective full-year forecasts. We see downside risks from the slower-than-expected earnings recognition from sales of the Light Square project in Bo Xuyen (Thai Binh Province) with respective 9M revenue and NPAT of VND80bn and VND17bn, completing 13%/8% of our respective full-year forecasts.

The M&E segment recorded 9M NPAT-MI of VND72bn (USD2.9mn, +7% YoY), completing 51% of our 2024F full-year forecast, slightly trailing our expectation due to ~VND59bn of provision expenses booked for accounts receivable in Q2.

The water segment’s 9M revenue and NPAT-MI respectively declined by 25%/25% YoY, mainly driven by higher depreciation from Song Da Water volume expansion phase 2 and weak performance from its subsidiary, TK Plus JSC. 9M sales volume ticked up 2% YoY while earnings are in line with our forecast (completing 71% of our 2024F projection).

Figure 1: REE’s 9M 2024 results

VND bn	Q3 2023	Q3 2024	YoY	9M 2023	9M 2024	YoY	% of our 2024F
Net Revenue	1,962	2,029	3%	6,505	6,048	-7%	69%
M&E	767	705	-8%	2,081	2,186	5%	73%
Office leasing & real estate	267	282	6%	801	876	9%	50%
Power	895	1,008	13%	3,564	2,942	-17%	75%
Water	32	33	5%	59	44	-25%	66%
Others	0	34	N.M.	0	0	N.M.	N.M.
Reported NPAT-MI	450	480	7%	1,684	1,315	-22%	65%
M&E	41	38	-7%	67	72	7%	51%
Office leasing & real estate	143	109	-24%	421	396	-6%	51%
Power	195	258	32%	931	602	-35%	66%
Water	77	71	-8%	262	197	-25%	71%
Others	-6	4	N.M.	2	48	1879%	N.M.

Source: REE, Vietcap

Figure 2: REE’s 9M 2024 power revenue and NPAT-MI

VND bn	9M 2023	9M 2024	YoY	% of Vietcap's 2024F
Revenue	3,654	2,942	-19%	75%
Hydropower	2,311	1,626	-30%	79%
Wind power	588	573	-3%	65%
Solar power	198	209	6%	71%
Retail electricity*	467	534	14%	79%
NPAT-MI	931	602	-35%	66%
Hydropower	731	392	-46%	87%
Wind power	121	156	29%	60%
Solar power	38	58	53%	77%
Retail electricity	18	21	17%	123%
Thermal power	52	34	-35%	21%
Holdco power financial expenses*	-29	-59	103%	128%

Source: REE, Vietcap (* Revenue and NPAT-MI from the Tra Vinh Electric Development JSC – UPCoM: DTV)