DPM – Bright outlook remains intact – Update

• 2021F is expected to be a promising year for the fertilizer market thanks to improved urea prices to support the higher production costs.
• Upgrade to ADD rating with higher TP of VND24,100 on the back of FY21-22F EPS upgrade and higher target P/E.

Stellar FY20 results regarding subdued gas prices

PetroVietnam Fertilizer and Chemicals Corporation’s (DPM) FY20 net revenue edged up 1.1% yoy while its urea sales volume rose 19.6% yoy. Weak gas input prices had lifted FY20 gross margin to 22.3% from 18.2% in FY19. FY20 net financial income increased from VND33bn to VND85bn thanks to a rise in short-term investment while loan interest expenses dropped leading to a decrease in financial expenses. Consequently, FY20 net profit jumped 83.0% yoy, exceeding 64% of DPM’s annual target.

FY21F urea sales volume might drop slightly 5% yoy

DPM has delayed its maintenance plan till Apr 2021 as the company utilized the current low gas prices. Thus, we expect DPM’s FY21F sales volume to drop 5% yoy to 785,000 tons due to its upcoming maintenance plan in Apr 2021.

We raise FY21F GPM on the back of higher urea prices

We raised our forecast for 2021F average Brent crude oil price by 20% yoy to US$60/barrel, as oil demand recovers from expected stimulus packages, while OPEC+ is balancing the oil market for a healthy price recovery in FY21. Urea prices are also on the rise (+51.6% ytd) thanks to: (1) gas prices rose leading to higher production costs, (2) higher food prices supports fertilizers’ price rise, (3) current worldwide fertilizers prices uptrend. Therefore, we expect urea ASP to rise 20% yoy, resulting in a slight increase in DPM’s GPM at 23.1% for FY21F.

Promising FY21 outlook

We revise up FY21F net profit by 21.0% to VND799bn, on the back of a 2.6% pts increase in GPM due to higher urea prices, and 4.7% increase in net revenue to VND9,144bn. We expect urea, NH3, UFC85, and NPK revenues to reach VND5,855bn/VND370bn/VND132bn/VND1,210bn, respectively.

Upgrade from HOLD to ADD with a higher TP of 24,100

Our TP price is based on an equal weighting of FY21-25F DCF and target FY21F P/E of 13x. We raised our TP by 40.9% on the back of a higher P/E and increased FY21-22 EPS thanks to the brighter outlook of the upcoming years. Upside risks includes higher-than-expected urea ASP. Downside risks includes higher-than-expected oil prices and transportation tariffs.

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