SSI RESEARCH

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

Petrovietnam Fertilizer and Chemicals Corporation (DPM: HOSE)

HOLD 1Y Target Price: VND 36,900
Current price: VND 31,600

Kien Tran Nguyen

A beneficiary of low oil price

kiennt1@ssi.com.vn

2Q15s earnings results

+84 4 3936 6321 ext. 679

05 October 2015
MATERIALS - VIETNAM

Key figures
Market cap (USD mn)

534

Market cap (VND bn)

12,006

Outstanding shares (mn)

380

52W high/low (VND 1,000)

33.8/28.5

Average 3M volume (share)

740,152

Average 3M value (USD mn)

1.03

Average 3M value (VND bn)

23.25

Foreign ownership (%)

26.61

State ownership (%)

61.38

Management ownership (%)

In 2Q15, DPM posted VND 2,804bn (+13% YoY) in revenue and VND 372bn
(+16% YoY) in pretax profit. The increase in net sales was mainly contributed
by the increase of 57% YoY in imported products (accounted for approx. 36%
of total net sales) while net sales of domestic produced products declined by 2%
YoY. In regards to DPMs Urea product, 2Q15s Urea sales volume declined
approx. 5.3% YoY due to 26-day maintenance in May and June 2015 while
average selling price increased roughly 5.1% YoY given the shortage supply
during this period.

n.a

Figure 1: Quarterly revenue contribution by segments, unit VND mn

3,500,000
3,000,000

Domestic produced products

Imported products
Total

2,500,000
2,000,000

Stock performance

1,500,000
1,000,000
500,000
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Source: DPM

Source: Bloomberg
Company Snapshot
DPM was established on 28 March 2003 and
is currently one of Vietnam's largest domestic
fertilizer manufacturers. As of today, the
current charter capital is VND 3800 bn ($180
mn). The plant costs $ 397 mn with a design
capacity of 800 thousand tones urea per year.
Besides urea fertilizer manufacturing, DPM
also participates in electricity production,
importing fertilizer and others. However, these
activities only contribute a small percentage
toward net profit and fertilizer manufacturing
remains the largest contributor to net profit.

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Figure 2: Urea and imported fertilizers sales volume by quarter, unit tons

300,000
Urea DPM

Imported fertilizers

250,000

200,000

150,000

100,000

50,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Source: DPM
Prolonged decline in oil prices supported DPMs 2Q15 gross profit margin. 2Q15s gross
profit margin reached 24% compare to 23% in 2Q14. In 2Q15, imported fertilizers contributed
36% to total revenue compared with 18% in 1Q15 which adversely affected 2Q15s gross
margin. Urea contributed the most to DPMs 2Q15 earnings, contributing 93% of total gross
profit.
DPMs 1H15 revenue and pretax profit reached approx. VND 5.128 (+3% YoY), and VND 953bn
(+26% YoY) which were mainly contributed by low oil prices during 1H15. Average natural gas
price in 1Q15 and 2Q15 were approx. USD 4.5/MMTU and USD 5.07/MMBTU, a decline of 33%
YoY, and 32% YoY respectively.
In 2Q15, DPM recorded approx. VND 99bn loss resulted from associated companies which
negatively affected DPMs 2Q15 pretax profit margin compared with a loss of approx. VND 48bn
in 2Q14 (2Q15s pretax profit margin stood at 13.3% compared with 12.9% in 2Q14). In 1H15,
DPM incurred a loss of approx. VND 168bn from associated companies which is higher than
that in 1H14 of approx. VND 112bn. Petrovietnam Petrochemical and Textile Fiber JSC
(PVTEX) and Petrovietnam Urban Development JSC are the two associated companies of of
DPM in which DPM is holding 35.63% and 25.99% stake respectively (or VND 563bn and VND
100bn respectively). PVTEX just started operation in the last 3 years and still facing difficulties in
early stage of the business.
By the end of 2Q15, DPMs total debt reached VND 142bn compared with VND 30bn by the end
of 1Q15. Current debt-to-equity ratio stands at 0.01x.
2Q15s earnings results
(bn VND)

2Q15

2Q14

YoY

QoQ

Net sales
Gross profit
Operating profit
EBIT
EBITDA
Pretax profit
Net income
NI attributable to
shareholders

2,804
673
388
373
439
372
298

2,477
570
269
321
387
321
280

13%
18%
44%
16%
13%
16%
7%

21%
-25%
-36%
-36%
-32%
-36%
-39%

290

269

8%

-39%

Completion
of 2015
target
55%

74%

Margin
2Q15

2Q14

1Q15

2014

24%
14%
13%
16%
13%
11%

23%
11%
13%
16%
13%
11%

38%
26%
25%
28%
25%
21%

25%
13%
13%
16%
13%
12%

10%

11%

21%

11%

Source: DPM
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2H15 and beyond outlook

Natural gas is the key driver of DPMs profit margins, accounting for approx. 56% of total
production cost. If oil prices continue on a downward slope, DPM will invariably stand to benefit.
Average brent oil prices are expected to remain low for the rest of 2015. Given the pressure on
oil supply after the Iran Nuclear deal, we have revised down the base case of FO prices in DPM
valuation from USD 339/ton to USD 316/ton (-43% YoY) in 2015. In our estimate, if FO price
declines 10%, gross profit margin will expand 3%, equivalent to approx. VND 290bn.
Figure 3: Monthly average brent oil price, USD per barrel.

120
100
80
60
40
20
0

Source: Bloomberg
Urea production capacity of domestic producers reachs 2.66mn tons per year since June
2015 including 4 major producers PVFCCo (DPM 800K tons), PVCFC (DCM 800K tons),
Ninh Binh Urea (560K tons), and Ha Bac Urea (500K tons) which will exert pressure on Urea
prices given the total domestic demand of approx. 2.2mn tons per year.
We expect average selling price of Urea in 2015 to be 1% higher than the average of 2014
due to shortage in supply stemmed from maintenance of DPMs plant in May and June, and the
upgrade of Ha Bac Urea plant was accomplished in June.

Earnings estimates & valuation

In 2015, DPMs revenue and net profit are expected at VND 9,691 (+1.5% YoY), and VND
1,848bn (+63% YoY), translating to an EPS of VND 4,139. Our estimates are based on following
assumptions: (1) Sales volume of Urea will decline 3% YoY due to 1-month maintenance in May
2015, (2) Average selling price of Urea will increase 1% YoY, (3) Corporate income tax rate
applied for Urea fertilizer increases to 15% from 7.5% in the previous year due to tax exemption
period ended in 2014, and (4) Natural gas input price at USD 4.5/mmbtu (transportation cost
st
included), a decrease of 34% YoY. (Please note that since 1 April 2014, natural gas prices
offered to DPM is based on market prices instead of scheduled prices).
In 2016, although oil prices are expected to remain on downtrend, given the uncertainty in the
movement of oil prices, 2015 natural gas input price will be used as a based case plus an
increase of 2.2% in transportation cost of natural gas. In addition, Urea sales volume is
expected to increase by 3% YoY in 2016 while average selling price is expected to decline 1.5%
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YoY. DPMs 2016 revenue and net profit are projected at VND 10,065bn (+4 YoY) and VND
1,974 (+7% YoY), translating to an EPS of VND 4,421.
In addition, it should be noted that the original invested value in 2 associated companies of DPM
(Petrovietnam Petrochemical and Textile Fiber JSC (PVTEX) and Petrovietnam Urban
Development JSC) totaled approx. VND 663bn. However, DPM has recorded provision approx.
VND 627bn for the loss stemmed from those two associated companies. The remaining value of
the investment is approx. VND 36bn. According to Circular 202/2014/TT-BTC, if those two
associated companies continue to incur losses in 2H15 and the coming years, DPM has to
record losses from associated companies only at the remaining value of the investment which is
approx. VND 36bn. Therefore, from 4Q15 onwards, DPM will not incur any losses from
associated companies. In 2014 DPM incurred a loss of approx. 131bn from associated
companies, and in 2015 the loss is expected at approx. VND 203bn.
At the price of VND 31,700/share, the stock is being traded at 2015 P/E of 7.7x and 2016 P/E of
7.2x compared with market P/E of 12.6x and 11.38x in 2015 and 2016 respectively. At target
P/E of 8.5x, DPMs 1-year target price is adjusted to VND 36,900/share, (+16.5% compared with
the price of 31,700), equivalent to a HOLD recommendation.
DPM is a value stock with high dividend. 2015s cash dividend is planned at 25% on par,
equivalent to 8.1% dividend yield. DPM typically pays cash dividend in 2 occasions in May and
Sep of the year.
Potential change in industry policy: In 2014 the Ministry of Finance issued Regulation
17709/BTC-TCT, which categorizes fertilizer products under non-VAT bearing goods, and was
st
effective on 1 Jan 2015. Under the new regulation, fertilizer producers could no longer claim
VAT return from input materials for their production.
Nevertheless, fertilizers products have been considered for re-inclusion in the VAT taxable items
such as the previous regulations in 2014 and backwards. If fertilizers are regulated as taxable
items, production costs of fertilizer producers will decline since VAT of production inputs will be
deducted from total production costs.
In July 2015, The Prime Minister has agreed with the proposal by the Ministry of Finance (MoF)
relating to VAT applied on rice, fertilizers, and animal feed products. In regards to fertilizers, the
MoF will incorporate with the Ministry of Agriculture and Rural Development, the Ministry of
Trade and Industry, and related entities to review and assess the impact of new regulation on
VAT and report the findings to the Prime Minister. Based on the assessment, changes and/or
supplement in VAT regulations on fertilizers might be proposed to the National Assembly in the
coming time.
It is noted that, total cost increase in DPMs production cost stemmed from VAT regulation
changes is approx. 400bn.

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APPENDIX 1: ANNUAL FINANCIAL STATEMENTS

VND Billion
Balance Sheet
+ Cash
+ Short-term investments
+ Account receivables
+ Inventories
+ Other current assets
Total Current Assets
+ LT Receivables
+ Net Fixed Assets
+ Investment properties
+ LT Investments
+ Goodwill
+ Other LT Assets
Total Long-Term Assets
Total Assets
+ Current Liabilities
In which: ST debt
+ Non-current Liabilities
In which: LT debt
Total Liabilities
+ Contributed capital
+ Share premium
+ Retained earnings
+ Other capital/fund
Owners' Equity
NCI
Total Liabilities & Equity

2013

2014

2015F

2016F

4,032
1,735
246
1,341
161
7,515
0
2,368
285
541
0
96
3,290
10,805
1,240
65
9
3
1,249
3,800
21
2,036
3,488
9,346
210
10,805

5,078
76
404
1,492
149
7,200
0
2,295
274
232
0
110
2,911
10,111
1,099
94
7
1
1,106
3,800
21
1,470
3,497
8,788
217
10,111

5,790
76
393
1,460
147
7,866
0
2,522
264
210
0
102
3,099
10,965
940
76
334
328
1,274
3,800
21
2,092
3,499
9,413
278
10,965

6,317
76
408
1,489
152
8,443
0
3,682
255
210
0
107
4,254
12,697
1,002
81
1,209
1,203
2,211
3,800
21
2,822
3,499
10,142
343
12,697

Cash Flow
CFO
CFI
CFF
Net increase in cash
Beginning cash
Ending cash

1,529
-1,557
-1,569
-1,597
5,629
4,032

608
1,928
-1,490
1,046
4,032
5,078

1,809
-459
-638
712
5,078
5,790

2,055
-1,457
-71
527
5,790
6,317

Liquidity Ratios
Current ratio
Acid-test ratio
Cash ratio
Net debt / EBITDA
Interest coverage
Days of receivables
Days of payables
Days of inventory

6.06
4.85
4.65
-1.76
749.57
2.66
26.13
65.39

6.55
5.06
4.69
-2.87
439.24
5.35
24.86
72.59

8.37
6.66
6.24
-2.12
714.33
7.12
19.61
84.86

8.42
6.78
6.38
-1.95
64.98
7.52
17.68
79.52

0.86
0.12
0.13
0.01
0.01

0.87
0.11
0.13
0.01
0.01

0.86
0.12
0.14
0.04
0.01

0.80
0.17
0.22
0.13
0.01

Capital Structure
Equity/Total asset
Liabilities/Total Assets
Liabilities/Equity
Debt/Equity
ST Debt/Equity

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VND Billion
Income Statement
Net Sales
COGS
Gross Profit
Financial Income
Financial Expense
Selling Expense
Admin Expense
Income from business operation
Net Other Income
Income from associates
Profit Before Tax
Net Income
Minority interest
NI attributable to shareholders

2013

2014

2015F

2016F

10,363
-7,011
3,352
429
-8
-635
-552
2,586
13
-131
2,468
2,179
37
2,142

9,549
-7,121
2,428
407
-5
-702
-571
1,557
7
-280
1,285
1,134
38
1,096

9,692
-6,349
3,343
387
-5
-743
-616
2,365
9
-200
2,174
1,848
61
1,787

10,072
-6,769
3,303
440
-38
-752
-640
2,313
9
0
2,322
1,974
65
1,909

Basic EPS (VND)

BVPS (VND)
Dividend (VND/share)
EBIT
EBITDA

5,644
24,595
5,000
2,471
2,721

2,885
23,127
3,000
1,288
1,556

4,138
24,771
2,500
2,177
2,441

4,420
26,691
2,500
2,358
2,665

Growth
Sales
EBITDA
EBIT
NI
Equity
Chartered Capital
Total assets

-22.2%
-27.6%
-30.3%
-29.0%
4.3%
0.0%
2.1%

-7.9%
-42.8%
-47.9%
-47.9%
-6.0%
0.0%
-6.4%

1.5%
56.8%
69.1%
62.9%
7.1%
0.0%
8.4%

3.9%
9.2%
8.3%
6.8%
7.8%
0.0%
15.8%

Valuation
PER
PBR
P/Sales
Dividend yield
EV/EBITDA
EV/Sales

7.4
1.7
n.a
12.0%
3.7
1.0

10.7
1.3
n.a
9.7%
4.3
0.7

7.7
1.3
1.2
7.9%
2.9
0.7

7.2
1.2
1.2
7.9%
2.6
0.7

Profitability Ratios
Gross Margin
Operating Margin
Net Margin
Selling exp./Net sales
Admin exp./Net sales
ROE
ROA
ROIC

32.3%
20.9%
21.0%
6.1%
5.3%
23.8%
20.4%
23.7%

25.4%
13.0%
11.9%
7.3%
6.0%
12.5%
10.8%
12.4%

34.5%
20.5%
19.1%
7.7%
6.4%
20.3%
17.5%
19.8%

32.8%
19.0%
19.6%
7.5%
6.4%
20.2%
16.7%
18.9%

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APPENDIX 2: QUARTERLY FINANCIAL STATEMENTS

VND Billion
Balance Sheet
+ Cash
+ Short-term investments
+ Account receivables
+ Inventories
+ Other current assets
Total Current Assets
+ LT Receivables
+ Net Fixed Assets
+ Investment properties
+ LT Investments
+ Goodwill
+ Other LT Assets
Total Long-Term Assets
Total Assets

3Q14

4Q14

1Q15

2Q15

4,959
578
550
1,509
227
7,824
0
2,255
277
326
0
84
2,941
10,765

5,078
76
404
1,492
149
7,200
0
2,295
274
231
0
110
2,911
10,110

5,824
0
482
1,285
142
7,734
2
1,994
272
151
0
96
2,513
10,247

5,327
0
613
1,250
140
7,330
19
1,942
269
51
0
73
2,355
9,685

+ Current Liabilities
In which: ST debt
+ Non-current Liabilities
In which: LT debt
Total Liabilities
+ Contributed capital
+ Share premium
+ Retained earnings
+ Other capital/fund
Owners' Equity
NCI
Total Liabilities & Equity

1,328
28
11
5
1,339
3,800
21
1,897
3,489
9,208
218
10,765

1,097
94
7
1
1,104
3,800
21
1,471
3,497
8,789
217
10,110

876
29
281
1
1,157
3,800
21
1,875
3,498
9,194
0
10,351

759
41
205
101
964
3,800
21
1,521
3,498
8,840
0
9,804

135
489
-505
119
4,959
5,078

789
22
-65
746
5,078
5,824

0
0
0
0
0
0

0
0
0
0
0
0

5.89
4.58
4.17
-11.80
547.70

6.56
5.07
4.70
-19.78
176.19

8.83
7.20
6.65
-8.96
789.76

9.66
7.83
7.02
-11.81
601.31

Cash Flow
CFO
CFI
CFF
Net increase in cash
Beginning cash
Ending cash
Liquidity Ratios
Current ratio
Acid-test ratio
Cash ratio
Net debt / EBITDA
Interest coverage

VND Billion
Income Statement
Net Sales
COGS
Gross Profit
Financial Income
Financial Expense
Selling Expense
Admin Expense
Income from business operation
Net Other Income
Income from associates
Profit Before Tax
Net Income
Minority interest
NI attributable to shareholders

3Q14

4Q14

1Q15

2Q15

2,120
-1,611
509
194
-2
-181
-106
414
2
-73
343
296
8
288

2,450
-1,848
602
67
-1
-175
-210
282
-2
-94
185
167
9
158

2,324
-1,431
893
46
-1
-168
-123
648
1
-69
580
487
9
478

2,804
-2,131
673
84
-2
-176
-109
471
1
-99
372
298
8
290

Basic EPS (VND)

BVPS (VND)
EBIT
EBITDA

757
24,231
344
417

415
23,129
186
252

1,259
24,196
581
647

573
23,264
373
439

Growth (YoY)
Sales
EBITDA
EBIT
NI
Equity
Chartered Capital
Total assets

11.4%
-26.9%
-21.1%
-20.3%
-8.2%
0.0%
-5.4%

3.7%
-5.8%
-8.5%
-12.7%
-5.9%
0.0%
-6.4%

-7.1%
29.0%
33.3%
24.2%
5.2%
0.0%
-5.9%

13.2%
13.4%
16.1%
6.7%
-1.7%
0.0%
-6.4%

Profitability Ratios
Gross Margin
Operating Margin
Net Margin
Selling exp./Net sales
Admin exp./Net sales

24.0%
14.3%
14.0%
8.5%
5.0%

24.6%
8.9%
6.8%
7.1%
8.6%

38.4%
26.0%
21.0%
7.2%
5.3%

24.0%
13.8%
10.6%
6.3%
3.9%

Capital Structure
Equity/Total asset
Liabilities/Total Assets
Liabilities/Equity
Debt/Equity
ST Debt/Equity

0.86
0.12
0.15
0.00
0.00

0.87
0.11
0.13
0.01
0.01

0.89
0.11
0.13
0.00
0.00

0.90
0.10
0.11
0.02
0.00

Source: DPM, SSI Research

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1. Analyst Certification
The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect
his/her/our own personal views about the securities and/or the issuers and (2) no part of the research analyst(s)
compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report.

2. RATING
Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stocks expected
return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected to
deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below or
equal to -9%, while a HOLD rating implies returns between -9% and 18%.
Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months
because of a stock catalyst or event. Short-term rating may be different from 12-month rating.
Industry Rating: We provide the analyst industry rating as follows:

Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the
relevant broad market

Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant
broad market

Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the
relevant broad market.

*The market required rate of return is calculated based on 5-year Vietnam government bond yield and market risk premium derived from using
Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above
two constituents.

3. DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion, are based
upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of
opinion herein were arrived at after due and careful consideration and they were based upon the best information then
known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time. Expressions of opinion
contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the
solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and
employees may have positions and may affect transactions in securities of companies mentioned herein and may also
perform or seek to perform investment banking services for these companies.
This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any
information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.
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Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn

HANOI

1C Ngo Quyen Street, Ha Noi City

Tel: (844) 3936 6321
Fax: (844) 3936 6311
Email: info@ssi.com.vn

Page 7

SSI RESEARCH

INSTITUTIONAL RESEARCH & INVESTMENT ADVISORY

4. CONTACT INFORMATION
Institutional Research & Investment Advisory
Kien Tran Nguyen
Senior Analyst, Fertilizer
Tel: (844) 3936 6321 ext. 679
kiennt1@ssi.com.vn

Phuong Hoang

Hung Pham

Deputy Managing Director,

Associate Director

Head of Institutional Research & Investment Advisory

hungpl@ssi.com.vn

Giang Nguyen
Associate Director
giangntt@ssi.com.vn

phuonghv@ssi.com.vn

WWW.SSI.COM.VN

SAIGON SECURITIES INC.

Member of the Ho Chi Minh
Stock Exchange, Regulated
by the State Securities
Commission

HO CHI MINH CITY

72 Nguyen Hue Street,

District 1
Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn

HANOI

1C Ngo Quyen Street, Ha Noi City

Tel: (844) 3936 6321
Fax: (844) 3936 6311
Email: info@ssi.com.vn

Page 8