DPM – Positive 3Q20 as expected – Earnings Flash

• DPM reported an impressive 3Q20 net profit growth of 201% yoy, fueled by strong sales volumes, low gas input price and effective cost-cutting efforts.
• 9M20 net profit jumped four-fold yoy to VND590bn, in line at 76.8% of our full-year forecast.
• Maintain Hold rating and TP, based on a 40:30:30 weighting of DCF, target FY20F P/E of 8.0x and target FY20F P/BV of 0.7x.

No major surprises in 3Q20 results

On 20 Oct, DPM released its 3Q financial reports, with net revenue increasing 3.3% yoy to VND1,955bn but net profit surging 200.5% yoy to VND182bn.

Net revenue still recorded a positive growth as the 16% yoy increase in urea sales volume outweighed the estimated 12% yoy decrease in urea ASP. In 3Q, a temporary surge in demand from foreign markets (India, Brazil) helped DPM expand its market abroad. The company reported an export volume of 60,000 tonnes of urea in Sep 20 at a slightly higher selling price than the domestic price, which contributed to the revenue growth.

3Q20 net profit increased 200.5% yoy on the back of (1) an estimated 21.3% yoy slide in gas input price with the 34.3% yoy fall in the benchmark Singapore fuel oil price, (2) a 21.8% yoy decrease in G&A expenses, thanks to continuous cost-cutting efforts, and (3) 33.5% higher financial income on higher short-term investments and FX gains.

9M20 in line with our expectations

9M20 net revenue rose 8.0% yoy as the plants restored normal operations after the 72-day maintenance shutdown in 1H19. Urea sales volumes jumped 41.5% yoy while average 9M selling price fell 16% yoy.

The 9M bottomline recovery was supported by the sales volumes growth, a 39.7% decline in benchmark oil price, and aggressive cost-control initiatives, which helped boost 2Q and 3Q results.

9M net profit was largely in-line at 76.8% of our full-year forecast. We believe global oil prices would stay relatively flat qoq at US$42-43/bbl in 4Q20F (Brent crude oil price), which would help the company achieve our FY20F net profit forecast of VND768bn.

Risks

Upside risks to our forecast: (1) A change in VAT policy applied to fertiliser products; the Resolution on which is at the final stage of preparation to be submitted at the current National Assembly meeting (20 Oct to 17 Nov). If the VAT policy is approved and takes effect from 1 Jan 2021, we estimate DPM could receive a tax deduction of VND300bn-350bn, translating to 15-17% upside to our target price. (2) Possible one-off insurance claim for the 2019 operational issues at the plants.

Downside risks are lower-than-expected urea and NPK selling prices.

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