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Vietnam

PetroVietnam Fertilizer & Chemicals: Q1 20 – Decline in gas input price and Urea sales recovery support earnings

  • VND1,697bn in net revenue, up 7.8% yoy; gross margin climbed to 20%

  • Following the Q1 20 results, we adjust some of our assumptions for Urea

  • We keep our target price of VND13,600; Accumulate

Vu Tran
Vu Tran

Oil & Gas, Fertilizers

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Rong Viet
24 April 2020
Published byRong Viet

DPM released its business results for Q1 20 with VND1,697bn in net revenue, up 7.8% yoy. Gross margin climbed to 20% in Q1 20 from 17.1% in Q1 19. Gross profit increased by 26.1% yoy to VND339bn. SG&A expenses over net revenue increased slightly to 12.5% from 12% in Q1 19. NPATMI doubled to VND105bn.

The growth in net revenue came mostly from domestic products. In Q1 20, the Urea plant ran smoothly, compared to the same period last year, with Urea production volume increasing by 81% and consumption volume posted a 39% growth to 186,000 tons. However, the selling price dropped 14% yoy. Despite the strong growth in sales volume, the Q1 20 results are not as high as the previous year, showing that fertiliser demand was weak due to unfavourable weather conditions and the coronavirus pandemic.

Gross margin climbed to 20% from 17.1% as gas price decreased by 22%. The tariff was cUSD1.53/MMBTU, implying that 65% of gas input volume was from Bach Ho-Rong Doi Moi, in our view.

Following the Q1 20 results, we adjust some of our assumptions for Urea:

  • Selling price of VND6,569/kg, 3% lower than our previous assumption.
  • FO price is forecast to decrease by 20%.
  • The total gas input price is USD5.57/MMBTU, down 9.7% yoy, of which the tariff is USD1.69/MMBTU.

In terms of NPK, we also lower the total sales volume from 135,000 tons to 110,000 tons. ASP is projected at VND8,600/kg and total revenue at VND974bn. The thin gross margin can ensure profit for the NPK segment.

2020 revenue is forecast at VND8,267bn (+7.5% yoy) while the NPATMI is estimated at VND592bn (+56%), equivalent to an EPS of VND1,287. We think that the slump of FO price has been priced in the business results and the stock price. The only outlier is the amount of insurance claimed. The dividend yield at this current price range from 3.3%-6.6%. We keep our target price of VND13,600; Accumulate.