BSR – Appealing stories ahead – Update

• 1Q23 net profit (NP) slid 30% yoy to VND1,629bn due to lower gasoline crack spread and lower petrochemical spread.
• FY23F NP is expected to drop 46.3% from FY22 record level due to GRM compress, but still 17.7% higher than FY21 level, in our estimate.
• Reiterate ADD with a lower target price (TP) of VND22,600.

1Q23 NP was hit by lower gross refining margin (GRM)
1Q23 revenue declined 2.1% yoy to VND34,066bn as a 5.4% yoy increase in consumption volume partially offset to the decrease in oil price. However, 1Q23 gross profit dropped 20.7% yoy to VND2,072bn due to: (1) gasoline import tax reduced from 8% to 5% in 1Q23 leading to the decrease in domestic gasoline premium, and (2) petrochemical gross loss of VND226bn. Meantimes, 1Q23 net financial income rose 2.6% yoy on the mixed impact of higher deposit income (+96% yoy), but recognizing net FX loss of VND86bn. Consequently, 1Q23 NP eased 30% yoy to VND1,629bn, meeting 19% of our full-year forecast.
Asian diesel crack spread dropped faster and deeper than our expectations
Asian diesel crack spread has tumbled to US$13.4/bbl from the level of US$30/bbl in Feb, significantly deeper and faster than our expectations. It was due to economic slowdown intensifying and global gas market easing amidst ample diesel supply (from China and Middle East). For 2H23F, we believe middle distillate crack spreads, particularly diesel crack spread, to gradually recover, supported by driving season and heating fuel demand in winter in Western countries. Overall, we cut our Asia diesel crack spread assumptions to US$19.5/US$17/ US$14 per barrel in FY23-25F from US$25/ US$21/US$18 per barrel previously. This leads to our 18.1%/14.3%/15.4% downward revision in FY23-25F GRM assumptions. Following that, our FY23-25F NP forecasts are trimmed by 7.9%/36.5%/18.7%, respectively.
Appealing stories still be ahead
The Government approved the revised Dung Quat refinery upgrade and expansion project this May, setting the stage for BSR to implement the project in coming times. It will be the strong driver for BSR in long-term, boosting the company revenue thanks to new added capacity as well as enhance company’s profitability through raising proportion of high value products after coming online in 1Q28F. Besides, in short-term, we expect listing on main bourse (HOSE) to be a potential upside catalysts for BSR. Presently, the company just misses one criteria related to overdue liabilites to be listed on HOSE. BSR is engaging in coordinating with competent authorities to solve this problem, and target to list its shares on HOSE in 3Q23F.
Reiterate ADD with a lower TP of VND22,600
Our TP is revised down by 17% to VND22,600, based on DCF valuation. We retain our ADD rating for BSR thanks to its its potential growth in long-term coming from the upgrade and expansion project which has been approved, its potential from listing on the main bourse, and strong financial position. Downside risks are lower-than-expected crack spreads and futher decline in oil price.

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