GAS – Top picks on energy price spike – Update

• GAS reported a 19.5% yoy increase in 3Q21 net profit to VND2,417bn trailing to the energy prices hike.
• We expect Brent oil price higher for longer as gas-to-oil switching could significantly boost global oil demand.
• Reiterate Add with a higher target price of VND130,800.

Energy prices hike supported for 3Q21 performance

Despite the slump in both dry gas sales volume (-26% yoy) and LPG sales volume (-10% yoy) in 3Q21 due to Delta variant outbreak, GAS’s 3Q21 revenue still grew 16.3% yoy to VND18,543bn mainly thanks to the energy prices surge, in which the benchmark Singapore FO price and the benchmark LPG price increased by 66.1% yoy and 82.4% yoy, respectively. At the bottom line, GAS posted a 19.5% yoy growth in 3Q21 net profit to VND2,417bn as selling expenses savings (-8.7% yoy) partially offset the decrease in net financial income (-19.1% yoy). For 9M21, GAS reported a 9.5% yoy increase in net profit to VND6,709bn, fulfilling 64.3% of our FY21 full-year forecasts.

Gas-to-oil switching to boost oil demand in the next couple of quarters

Currently, in the context of natural gas in short supply leading to the soaring gas prices all over the world, there would be more focus on crude oil as one of the only viable alternatives. We expect this would be potential bullish catalyst for the oil market until next year. On the other hand, OPEC+ is still conservative in its actions, maintaining a steady and gradual increase in production. Hence, we raise our average Brent oil price assumptions for FY21-23F to US$72/bbl, US$78/bbl and US$75/bbl, respectively.

Positive growth prospects in the next two years

We trimmed in FY21F EPS forecast by 8.8% to reflect slower-than-expected recovery pace in 9M21 due to the current Delta variant outbreak which hurt dry gas sales volume for power plants. However, we are still optimistic in GAS’s outlook in FY21-23F, especially when dry gas sales volume is expected to strongly recover from 2022 onwards combined to the high energy prices environment. Overall, we expect GAS’s net profit to increase by 21.2% yoy in FY21F, then continuing to grow 25.1%/10.9% yoy in FY22-23F, respectively.

Reiterate Add with a higher target price of VND130,800

Our target price is raised to VND130,800 mainly as we revise up the target FY22F P/E from 17.3x to 21.4x on the back of: (1) higher oil price, and (2) LNG Thi Vai terminal to expectedly contribute from 2H22. Thus, we reiterate our Add rating for GAS following the energy prices rally. Re-rating catalyst is higher oil price. Downside risks come from lower-than-expected oil price and the delay in major energy infrastructure projects.

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