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PetroVietnam Fertilizer & Chemicals: Expect outstanding growth in Q2

  • Q1 revenue increased by 14.6% yoy but NPAT surged by 63% due to high selling price and lower interest payment
  • Outstanding growth in Q2 profit as a result of selling prices peaking and insurance compensation
  • The target price one year out is VND26,100/share. Upside of 48%, corresponding to a Buy.

Q1 revenue increased by 14.6% yoy but NPAT surged by 63% due to high selling price and lower interest payment.

Outstanding growth in Q2 profit as a result of selling prices peaking and insurance compensation.

Urea price will gradually decrease towards the year-end and be maintained within the range of VND7,100-7,200/kg in the coming years when supply and demand return to equilibrium. Meanwhile, the recovery of input gas price will make profit margins shrink.

Not much growth momentum in the long term, but DPM can maintain a stable cash dividend of around VND1,000/share, equivalent to a dividend yield of 5.3% at the closing price on 26 May 2021. The target price one year out is VND26,100/share. Cash dividend is expected to be VND1,700/share in the next 12 months. Upside of 48%, corresponding to a Buy.

Q1 21: Profit grew strongly because of high urea price and lower interest payment

Low domestic fertilizer inventories and China's restrictions on fertilizer exports amid rising global demand have pushed domestic and world fertilizer prices to historic highs. As a result, DPM's total revenue in Q1 21 increased by 14.6% yoy to VND1,945bn. Of which, two main product lines, urea and NPK, recorded sales of VND1,291bn (+9% yoy) and VND217bn (+135% yoy), respectively.

Urea segment: Sales reached VND1,291bn, up 9% yoy. Gross profit margin expanded to 28% from 26% in Q1 20. In Q1, urea price at some point jumped to more than VND8,000/kg, but the average selling price in the quarter was only VND6,822/kg, up 7.4% yoy and 10.5% qoq. Sales volume reached 189,234 tons, rising by 1.5% yoy. Actual price and volume growth are both lower than our forecast (26% yoy in price and 12.6% yoy in volume). Given April sales volume of 66,000 tons despite a 32-day technical maintenance, DPM may have held part of its March production to support Q2 revenue.

Input gas price in Q1 increased 22% yoy, in line with our assumption. Gross margin widened to 28% (Q1 20: 26%), thanks to sales volume in Q2 including part of finished products from Q4 20 when average gas price was low.

NPK segment: Sales increased strongly by 135% yoy to VND217bn. The plant recorded a slight gross profit. NPK price only increased slightly by 3.2% qoq and was similar to the same period last year (VND8,500/kg) due to fierce competition in the market. Sales volume surged by 136% yoy to 25,531 tons. Thanks to better utilisation of capacity, the factory recorded a gross profit of about VND2bn while suffering a loss in the same period last year. Revenue from other products (NH3, UFC 85 and imported fertilizer) decreased slightly by 1.9% to VND413bn, but gross profit margin of NH3 and imported fertilizer improved (NH3: 31%, same period 25% and imported fertilizer: 7%, same period 4%) owing to high selling prices. Overall, gross profit went up by 27.7% yoy with gross margin improving to 22.2% vs. 20% in Q1 20. Along with the reduction in interest payment due to debt reduction, NPAT-MI reached VND171bn, a sharp increase of 63% yoy.


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