The dry season of REE

Ha Cuc Friday | 09/15/2023 13:23

The potential from public investment activities and the real estate market recovering sooner than expected can bring great advantages to REE. Photo: Quy Hoa

Hydropower, REE's new growth pillar, is facing challenges amid the gloomy business of refrigeration mechanical and electrical segments.

Refrigeration Electrical Engineering Corporation sets a 2023 revenue target of VND10,962 billion ($455 million), up 17% from a year ago, and a net profit of VND2,700 billion ($112 million), an increase of 0.3% compared to 2022.

However, VNDirect Securities estimated that REE's 2023 revenue may drop by 11%, reaching VND8,346 billion, mainly due to gloomy electromechanical activities as well as the weakening of hydropower.

REE plans to increase revenue and profit after tax in the real estate segment by 115% and 60.7%, respectively. In particular, the office rental segment is expected to grow slightly, with revenue increasing by 4.7% and profit after tax increasing by 1.8%, reaching VND1,085 billion and VND525 billion, respectively.

Despite enjoying many years of success thanks to the hydropower segment, the current dry weather is hindering Refrigeration Electrical Engineering Joint Stock Company (REE) from completing its upcoming business goals.

Profit of the power segment at REE fell by VND95 billion compared to the second quarter of 2022, of which the main impact was from the profit of member companies of the hydropower group decreasing over the same period when the amount of water flowing into the reservoir decreased, affecting output such as at Thac Ba Hydropower Plant, Thac Mo Hydropower Plant, and Central Hydropower Plant.

Hydropower is REE's most valuable investment portfolio, so difficulties in this field will affect the group's business plan. In addition to difficulties due to the weather, REE believes that uncertainties in the macro situation and financial market will affect companies with high debt balances in REE's portfolio, such as Vinh Son Hydropower Joint Stock Company, Song Hinh, and Thuan Binh Wind Power Company.

In the second quarter, REE revenue decreased by 7% over the same period, reaching VND2,176 billion, supported by a 41% increase in mechanical and electrical refrigeration revenue and a 4% increase in office rental, offsetting a 1% decrease in the electrical segment mainly due to the less positive results of hydropower.

REE has four main business pillars, including refrigeration, real estate, energy, and water. Ms. Nguyen Thi Mai Thanh, Chairwoman of the Board of Directors of REE, said that the energy segment is focused on investing in clean energy, which will also be the main growth pillar of the business in the future. REE's leaders have long believed that as electricity prices definitely increase, the hydropower industry will prevail, especially hydropower plants with large capacity tanks.

Despite difficulties, REE continues to focus on increasing its asset portfolio by 100 MW, mainly on renewable energy projects, according to the strategic direction of the Draft Power Plan VIII (PDP VIII).

While the key segments of energy and refrigeration have declined, the real estate segment is targeted by REE's Board of Directors for high growth, despite the difficulties the market is facing.

This group still maintains many advantages for creating big changes. In particular, possessing abundant cash flow thanks to specific business segments, REE always maintains a strong operating cash flow, more than 15% in the period 2018–2022, and reaching 45% in the second quarter.

Abundant cash thanks to the ecosystem of utility industries, characterized by large and stable cash flows including electricity, water, and office rental. By ensuring a ready source of money, REE has the initiative to decide on the next investment deal.

The potential of public investment activities and the real estate market recovering sooner than expected can bring great advantages to REE. There is information that REE is pursuing a number of rental building deals in the northern region.

However, according to VNDirect, this multi-industry group still faces many significant challenges, such as electricity output growing slower than expected and the hydropower group recording low output in 2024.

The anchor interest rate has been high for a long time. than expected. As the leading mechanical and electrical refrigeration contractor in Vietnam, but from 2018 until now, the mechanical and electrical refrigeration business has had declining results.

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