Equity Analysis /
Vietnam

PetroVietnam Fertilizer & Chemicals: 4Q2019 – urea sales improve due to a recovery in volume

  • 2020 prospects: Both sale volume and profit should rise from the low base of 2019

  • But DPM will experience some maintenance in 4Q2020 and fertilizer demand is forecast to remain low.

  • We have an ACCUMULATE recommendation with a target price of VND13,600 per share, based on the FCFF and P/E method.

Vu Tran
Vu Tran

Oil & Gas, Fertilizers

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Rong Viet
4 March 2020
Published byRong Viet
  • 4Q2019 sales of domestic product increased by 12.4% to VND1,983bn, improving significantly compared to the three previous quarters thanks to the urea segment.
  • 4Q2019 sales of imported product decreased by 42.7% to VND319bn.
  • Gross margin rose from 20.7% to 24.4% thanks to the slump of FO price amid higher tariff.
  • Total sales were VND2,285 bn in 4Q2019, down 1.5% YoY but NPATMI reached VND234bn, up 57% YoY.

2020 prospects: Both sale volume and profit should rise from the low base of 2019

In 2020, we believe that total sales will recover but will still be lower than the normal level as DPM will experience some maintenance in 4Q2020 and the fertilizer demand is forecasted to remain low.

In term of NPK, the extension of depreciation time from 10 years to 15 years will help to reduce the loss but the plant will not be likely to generate profit.

In addition, DPM can get some extra profit from lower final tariff and insurance claim.

For 2020, we project revenue and net profit for the parent company to be VND 8,674 bn (+12.9% YoY) and VND 592 bn (+56.6% YoY), respectively. We have not counted potential extraordinary profit in our forecast.

Valuation and recommendation

Sale volume and net profit is forecasted to grow in 2020 from a low 2019 base. We still concern about the unfavorable condition of the Agriculture sector that will lower the fertilizer demand. Besides, the loss from the NPK plant and temporary tariff are negative points. However, there will be a potential catalyst from lower final tariff and insurance claim in 2020 for DPM. Besides, the cash dividend of VND 1,000, generating a dividend yield of 8% at this current price, is likely fine compared to the deposit rate.

We have an ACCUMULATE recommendation with a target price of VND13,600 per share, based on the FCFF and P/E method. Including the VND1,000 cash dividend, we arrive at a total return of 17.7%, based on the closing price on 3 March 2020.