BSR – Refining margin to stay high in FY23F – Update

• 4Q22 net profit (NP) slid 44% yoy to VND1,499bn due to the slump in gasoline crack spread.
• We expect BSR’s gross refining margin to stay high in FY23F (-US$4.6/bbl yoy from FY22 record level, but US$6.8/bbl higher than FY19 level).
• Reiterate ADD at unchanged target price (TP) of VND27,300.

4Q22 earnings eased due to the slump in gasoline crack spread
4Q22 revenue grew by 17.2% yoy to VND40,430bn mainly thanks to higher average selling price, coming from c.30% yoy increase in diesel and jet fuel prices. However, 4Q22 gross margin (GM) contracted 4.8% pts yoy due to the slump in gasoline crack spread (4Q22 Asian gasoline crack spread: 7.6 US$/bbl; -51% yoy) and lower petrochemical margin. In 4Q22, BSR gained benefits from higher interest rates combined with its strong net cash position, leading to a 171% yoy surge in net financial income to VND409bn. Consequently, 4Q22 NP declined 44% yoy to VND1,499bn, but significantly higher than 3Q22 NP (+3.1 times qoq). For a whole 2022, revenue increased by 65% to VND167,171bn and NP surged 115% yoy to VND15,450bn, fulfilling 94.2% of our full-year forecast.
Crack spreads to remain at high level in FY23F
We expect Asian gasoline crack spread to averaging around US$13/bbl (24% lower than FY22 high level but still 56% higher than FY19 level) thanks to China’s demand recovery to ease supply surplus. For diesel crack spread, we expect it to normalise highly in FY23F around US$25/bbl (27% lower from the outsized level of US$34.2/bbl in FY22 but still 82% higher than FY19 level) due to mixed impact of: (1) the upcoming EU ban on Russia refined products to keep market remain tight, and (2) supply additions triggered by high refining margin.
We expect FY23-24F earnings to remain at high level
We tweak our FY23-24F EPS forecasts by 6.6%/2.2% as we apply lower FY23F Brent oil price of US$85/bbl (from US$90/bbl previously) and reduce FY23-24F gross refining margin (GRM) by 2.3%/2.8%. We anticipate BSR’s NP to falter by 40.6% yoy in FY23F due to the periodic maintenance and GRM compress, but still 28% higher than pre-Ukraine crisis. Earnings is expected to be back to growth trajectory in FY24F with a growth rate of 17.6% yoy.
Reiterate ADD with a lower TP of VND27,300
Though earnings have likely peaked out in 2022, we prefer BSR for its attractive valuation at 3.2x FY23F EV/EBITDA, its rich-cash position and the expected high base of crack spreads. Hence, we reiterate ADD at unchanged TP of VND27,300, still based on FY23F target EV/EBITDA of 6.5x and FY23F target P/B of 1.5x, weighted equally. Re-rating catalyst is higher crack spreads. Downside risks are lower-than-expect crack spreads, the drop in oil prices, and longer-than-expected maintenance period.

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