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GAS – Past its trough – Update

Company Note 02/02/2021    190

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  • We raise FY21F average oil price assumption to US$53/bbl from US$50/bbl on top of Saudi Arabia’s additional output cut and expected global economy recovery thanks to the roll-out of vaccines.
  • FY20 net profit was reported at VND7,812bn (-34.4% yoy), in line with our full-year forecast.
  • Upgrade to Add with higher TP of VND89,100.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 75,200

VND 89,100

5.3%

ADD

Utilities

FY20 results in line with our forecasts

GAS recorded an 8.5% yoy decrease in 4Q20 revenue on the back of: 1) lower dry gas sales volume (-15% yoy) and 2) lower LPG ASP (-3.4% yoy). However NP declined 44.1% yoy to VND1,682bn due to a 5.3-pts contraction in GPM, VND74bn of provision expense booked in 4Q for POW’s bad debt and 45% yoy lower financial income as GAS continued to disburse capital for its pipeline projects. For FY20, GAS reported a 14.5% yoy decrease in net revenue to VND64,150bn and 34.4% drop in NP to VND7,812bn, driven by a 32.7% slide in Singapore FO price. Net profit was in line at 96.9% of our full-year forecast.

We raise FY21F average oil price assumption by 6% to US$53/bbl

Despite the demand concerns on extended Covid-19 lockdowns, Brent crude oil price has remained over US$50/bbl since mid-Dec after Saudi Arabia announced to voluntarily imply an additional 1mbd production cut in Feb and Mar. We consider this a positive signal for supply-demand balance, in addition to the roll-out of vaccines globally. We raise average oil price assumption for 2021F by 6% to US$53/bbl, in line with EIA’s forecast in its Jan outlook report.

EPS forecasts increased 3.4% in FY21F but trimmed 3-10% in FY22-23F

As oil prices recovers, GAS would only gain the benefit from higher ASP with regards to above take-or-pay (TOP) volumes (~50% of total volumes), whereas for TOP volumes the benefit would be transferred to the State Budget. As we adjust our model for this factor, FY21-23F EPS forecasts is cut by 3-10%. FY21F EPS forecast is still 3.4% higher than previous forecast as the upward revision in oil price outweighs the effect of TOP price revision.

Upgrade to Add on price weakness

We raise our TP by 1.3% to VND89,100 on the back of the changes in FY21-23F EPS and lower risk free rate of 3% (based on 10-yr bond rate). Our TP is based on DCF valuation (WACC: 16.6%, LTG: 1.7%) and target FY21-23F P/E of 15.3x, weighted equally. We upgrade the rating to Add and expect a market rebound post the third Covid-19 wave in Vietnam to be a potential re-rating catalyst. Downside risks include the delays in gas field development and lower-than-expected oil prices.

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