GAS – Attractive entry point – Update

• 1Q21 revenue grew 2.8% yoy to VND17,570bn whilst net profit eased 13% yoy to VND2,030bn, coming in at 17.9% of our full-year forecast.
• Upgrade to Add on recent price weakness.

1Q21 net profit contracted on lower gross margin and higher expenses
In 1Q21, the dry gas business dropped on the combination of: (1) higher average selling price (ASP) of dry gas thanks to c.30.5% yoy surge in the benchmark Singapore FO price, and (2) 15.4% yoy drop in dry gas sales volume to 1,925 mcm, mainly due to decreasing dry gas demand of power plants. Meanwhile, LPG business sustained its growth with a 11% yoy increase in LPG volume to 473,100 tonnes and a c.12% yoy rise in the benchmark LPG price. Consequently, 1Q21 net revenue slightly increased 2.8% yoy to VND17,570bn. Besides, GPM contracted 0.8% pts on the decreasing dry gas segment contribution. Additionally, 1Q21 SG&A expenses increased 40% as the company booked an abnormal brand charge of VND147bn for PVN in 1Q21. As a result, 1Q21 net profit declined 13% yoy to VND2,030bn, completing 17.9% of our FY21F full-year forecasts.

GAS still on track to meet our FY21F forecasts
We believe dry gas sales volume to recover from 2Q21 onwards on the weakening of the La Nina and the peak of imminent electricity use season. We also expect dry gas ASP to be c.26% higher versus 2020 (based on our FY21F average Brent oil price assumption of US$60/bbl vs. US$43/bbl in 2020) due to the expected steady recovery of oil price in 2021F. Hence we expect GAS to meet our FY21 full-year forecasts.

Key takeaways from 2021 AGM
PVGas targets FY21F capital expenditure of VND6,256bn in (equivalent to FY20 capex) in order to develop its energy infrastructure projects in pipeline (Figure 3). In addition, GAS expects PVN to approve its investment plan in Petec (PEG:UPCoM) in 2021, beside the divestment plan from Gas South (PGS:HNX) and PV PIPE. At the AGM 2021, GAS announces to pay a cash dividend of 30% and 25% on par value in 2020 and 2021F, respectively.

Accumulate a cash-rich stock on price weakness
We consider the recent price weakness as the opportunities to accumulate a good stock with strong position like GAS. Our TP is unchanged at VND97,300, based on DCF valuation and target FY21-23F P/E of 16.6x, weighted equally. Downside risks include lower-than-expected oil price and the delay in gas field development.

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