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GAS – Decreasing gas sales volume blurs positive impact of oil price rally – Update

Company Note 05/04/2021    668


  • We upgrade our average Brent oil price assumption to US$60/bbl in 2021 on the back of global economy recovery and positive supply side signals.
  • FY21-23F EPS forecasts are slightly raised by 0.7%-5.8% due to the combination of higher oil price and lower dry gas volume assumption.
  • Downgrade to Hold with higher TP of VND97,300 as share price has largely priced in GAS’s positive prospect in FY21F.

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Higher Brent oil price to benefit GAS’s core business…

We upgrade our 2021F average Brent oil price forecast to US$60/bbl (+13.2% vs previous assuHamption) to reflect: 1) the positive supply-side signals, especially OPEC+ members unexpectedly extended the production cuts since Jan, and 2) the global vaccines rollout and the U.S. stimulus could boost the oil demand recovery. GAS can be directly benefited from higher ASP on the above take-or-pay (TOP) dry gas sales volume as well as higher LPG price premium. We estimate that this adjustment alone could boost FY21F EPS forecast by 4.7%.

… but lower-than-expected dry gas volume blurs this positive effect

We observed that the electricity volume generated by gas-fired plants declined c.36% yoy in 2M21, as the hydropower sector recovered thanks to the La Nina phenomenon. Given that La Nina would last by May 2021, we believe the gas demand from power plants would trail our expectation of dry gas sales volume in 1H21F. Hence we reduce our FY21F dry gas sales volume forecast by 2.1%. Overall, we slightly raise our FY21-23F EPS by 0.7%-5.8% on the combined effects of a higher oil price and lower gas sales volume.

 We forecast net profit CAGR of 16.0% in FY21-23F

The bottom line is forecasted to strongly recover after the pandemic, based on: 1) a dry gas sales volume CAGR of 4.6% in FY21-23F thanks to higher contribution of Sao Vang – Dai Nguyet fields from 2021 onwards, 2) the improvement in oil price to lift blended GPM by 2.7% pts to 20.5% in FY21F, and 3) the stable profit from gas transport segment, which is less affected by oil price fluctuation (~20% of total gross profit in FY21-23F, in our estimate).

 Downgrade to Hold with a target price of VND97,300

Our TP is based on DCF valuation and target FY21-23F P/E of 16.6x, weighted equally. We downgrade to Hold as the current market price has largely priced in the company’s positive FY21F outlook. Upside risk is higher-than-expected oil price. Downside risks come from lower-than-expected oil & gas demand and the delay in gas field development.

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