VPower made a voluntary announcement on 9 Oct, stating that a consortium formed by VPower and a strategic partner had won 3 LNG power projects with total capacity of 900MW, and VPower itself won 20MW gas power project in Myanmar. We believe it was a significant move for VPower’s business in Myanmar, as those 920MW power plants represent 18.5% of installed capacity of the country by 2018. New projects will likely commence operation by 1H20E contributing as associate companies, and we expect those projects will contribute HK$85.3/171.3mn share profit in FY20/21E.
- Won four out of the five tenders. According to Myanmar Ministry of Electricity and Energy (MOEE), the country’s Electric Power Generation Enterprise (EPGE) had invited bid for 1,040MW gas engine power plant project in Jul, 2019. VPower and a strategic partner formed consortium won 3 LNG to power projects with total capacity of 900MW for 5 yrs, and VPower itself won one piped gas project with capacity of 20MW for 5 yrs. Together with VPower’s existing operating generators, the Company will have 1,284MW distributed gas power generation assets in Myanmar, accounting for 77.8% of the Company’s confirmed IBO projects. We believe VPower and its consortium’s successful winning bids demonstrate its competitiveness in providing power generation services to developing markets in Southeast Asia.
- Contribution will mostly come from associates profit from 2H20E. According to the Company, the strategic partner of the consortium would be a SOE from China, and the partner will not only provide financial support, but also participate in operations, implying VPower will likely take minority stakes for those 900MW projects. Taking minority stake will free VPower from heavy financial burdens, given that new projects’ scale in Myanmar would be quite significant. We estimate new projects will contribute attributable effective capacity of 231MW/462MW in 2020E/21E, respectively, representing 31.6%/63.3% capacity growth based on installed capacity by 1H19.
- Earnings growth to accelerate from 2020E. Based on VPower’s new project update in Myanmar, we estimate the Company will receive additional share profit contribution of HK$85.7/171.3mn. We raise FY20/21E EPS forecast by 22.1%/29.3% to HK16/26 cents. Our DCF valuation is largely unchanged, and we add an estimate of HK$0.34 per share at 80% share profit distribution from those 900MW project associates. We raise our TP by 12.4% to HK$3.25, representing FY20/21E PER of 20.3/12.7x. Reiterate BUY.
