Vietnam National Petroleum Group (Petrolimex, PLX: OTC)

Transcription

1 Vietnam National Petroleum Group (Petrolimex, PLX: OTC) Earnings Update Huy Nguyen ext. 680 Trang Pham trangph@ssi.com.vn ext February 2017 ENERGY - VIETNAM Key figures Charter cap (USD mn) Charter cap (VND bn) 12,939 Outstanding shares (mn) 1,294 Management ownership (%) N.a State ownership (%) Foreign ownership (%) 8 Company Factsheet 14A 15A 16A Revenue (USD, mn) 9,306 6,445 5,400 Net profit (USD, mn) (0.4) Total equity (USD, mn) ,018 Total assets (USD, mn) 2,430 2,211 2,379 Net debt (USD, mn) (67.3) ROA (%) ROE (%) (0.1) Outstanding 2016 results Company Overview Founded in 1956, Petrolimex (PLX: OTC) is the oldest and largest petroleum importer & distributor in Vietnam with roughly 50% market share. The firm IPO in 2011 with charter capital of VND10,700 bn. Since then, PLX has sold roughly million shares (~10% stake) to its strategic partner, JX Nippon Oil & Energy Corporation (JX NOE) the largest oil retail company in Japan with 43% market share and bought roughly 155 million treasury shares in PLX s current charter capital is VND bn. The current OTC price of VND 40,000 implies PLX has a total market cap of VND 51,755bn (~USD 2.27bn), ranking in the top 20 public firms in terms of market capitalization. Ownership structure as of 31/12/2016 Shareholders No. of shares Ownership Ministry of Industrial and Trade 981,686, % JX Nippon Oil & Energy Corporation (JX NOE) 103,528,476 8%* Treasury stocks 155,064, % Others 53,598, % 1,293,878, % *locked for 5 years Company Snapshot Founded in 1956, Petrolimex (PLX: OTC) is the oldest and largest petroleum importer & distributor in Vietnam with roughly 50% market shares. The firm went IPO in 2012 with charter capital of VND10,700 bn. Since then, PLX has sold roughly million shares (~10% stake) to its strategic partner, JX Nippon Oil & Energy Corporation (JX NOE) the largest oil retail company in Japan with 43% market share and bought roughly 155 million treasury shares in PLX s current charter capital is VND bn. Page 1

2 Business model PLX s core business is petroleum retail & distribution and the firm also owns other subsidiaries and affiliates that operate in related petro-businesses. PLX plans to restructure its business model with focus on retail & distribution (core) and 3 supporting segments, including transportation, petrochemicals, and gas. Segment Type Ownership Number of firms Distribution Subsidiaries 100% capital 46 > 50% capital or retains control 20 Supporting, petrorelated Supporting, petrorelated Subsidiaries Associates Notable mentions 100% Petrolimex Tanker Corporation (PG Tanker) 79.07% Petrolimex Petrochemical Corporation (PLC:HNX) 52.37% Petrolimex Gas Corporation (PGC:HSX) 51.19% Petrolimex Insurance Corporation (PGI:HSX) 65% Petrolimex Aviation Fuel JSC (PA) > 20% capital 03 35% BP Castrol 40% PG Bank Distribution channels PLX distributes products via 3 channels, supported by a nation-wide branch network and convenient locations. Retail sales in company-owned-company-operated (COCO) model: PLX has the largest gasoline retail network in Vietnam with roughly 2,400 stations in 63/63 cities in premium locations thanks to early market penetration. These numbers have grown from 2,100 stations in 2011, with an average of 60 new stations per year. PLX plans to open roughly stations p.a. in the next 5 years. Wholesale to agents in dealer-owned-dealer-operated (DODO): strong network of roughly 2,800 agent stations. Direct sales to customers: competitive bidding and longer term payments. These customers usually are big coal mining firms or electricity power plants such as Vinacomin Minerals Holding Corporation (TKV) and O Mon Thermal Power Plant. PLX parent company s FY16 business results (bn VND) YoY Margin Net sales 81, , % Gross profit 3, , % 4.1% 3.2% Operating profit 3, , % 4.4% 2.0% EBIT 3, , % 4.7% 2.2% EBITDA 3, , % 4.8% 2.3% Pretax profit 3, , % 4.5% 2.0% Net income 3, , % 4.0% 1.9% NI attributable to shareholders 3, , % 4.0% 1.9% PLX s parent company reported VND 81,755bn in net sales (-22.6% YoY) and VND 3,278bn in net income (+59.5% YoY) in The net income is historical high thanks to (1) better gross margin, and (2) stable exchange rate. Page 2

3 PLX parent company historical performance in , , , , , , , ,000 80,000 60, ,560 81,756 40,000 20,000-14, ,125 3, Net sales (VND bn) Profit before tax (VND bn) Although PLX s total sales volume increased 10.3% YoY and domestic sales volume increased 5.9% YoY, the 12-month average WTI crude oil dropped 11.3% from $48.8 bbl in 2015 to $43.32 bbl in PLX s sales volume in ton,m Total sales volume 9,216,001 8,743,423 9,319,561 9,833,571 10,478,446 11,552,602 % YoY growth -5.1% 6.6% 5.5% 6.6% 10.3% Domestic sales 7,856,667 7,531,128 7,377,375 7,010,877 7,881,449 8,344,902 % YoY growth -4.1% -2.0% -5.0% 12.4% 5.9% Re-export 1,359,334 1,212,295 1,942,186 2,822,694 2,596,997 3,207,700 Total net imported products 8,433,598 7,321,776 6,025,444 7,344,309 8,532,112 9,824,350 Source: PLX, Vietnam General Customs, SSI Research Gross margin improved significantly in 2015 & 2016 to 3.2% and 4.4%, respectively after hitting the bottom level of 0.5% in 2014 thanks to Decree 83/2014/NĐ-CP on gasoline trading activities, which help domestic selling prices correlate with global oil prices much more closely. In such circumstances, PLX also apply different methods to match input price and selling price in gasoline trading. This is the main reason for PLX s ability to maintain stable profitability despite oil price volatility. Besides, in 2016, there were 2 favourable business conditions: (1) PLX saved cost from sourcing from favourable sources such as South Korea. The import tax of petroleum products, especially gasoline, from South Korea was lower than that from other countries under Vietnam South Korea FTA, effective on September 1 st 2016; (2) More favourable exchange rate environment in 2016 than 2015, which saved PLX roughly VND 589bn in total FX gain & loss. Interest expense also dropped roughly VND69 bn thanks to increased working capital from issuing shares to JX and declining oil price, which made total gearing value to decrease. As a result, operating margin significantly increased 240 bps compared to that of 2015, reaching 4.4%, the highest operating margin historically. Page 3

4 Products Current favourable import tax (MFN) Current special favourable import tax Asean (ATIGA) Vietnam - Korea Asean - China Gasoline 20% 20% 10% 20% DO 10% 0% 5% 8% Mazut 10% 0% 0% 5% FO 13% 0% 5% 10% Jet fuel 10% 0% 5% 15% Source: Ministry of Finance PLX parent company s historical gross margin and operating margin in % 4.5% 4.0% 3.5% 3.0% Gross margin (%) Operating margin (%) 3.2% 4.4% 4.1% 2.5% 2.6% 2.0% 1.5% 1.0% 0.5% 0.0% 2.0% 1.2% 0.9% 0.7% 0.4% 0.5% 0.5% 0.1% PLX s consolidated business results (bn VND) YoY % annual target completed Margin Net sales 123, , % 91.9% Gross profit 14, , % 11.5% 8.7% Operating profit 6, , % 5.1% 2.6% EBIT 6, , % 5.6% 2.9% EBITDA 8, , % 7.2% 4.2% Pretax profit 6, , % 158.8% 5.1% 2.6% Net income 5, , % 4.2% 2.1% NI attributable to shareholders 4, , % 3.8% 1.9% PLX reported consolidated results: VND 123,098bn net sales (-16.2% YoY) and VND 5,165.7bn net income (+69% YoY) in The consolidated net income is also historical high owing to (1) the parent company s net income contributed 63% of total net income; and (2) most of subsidiaries produced favourable results, except PLC due to significantly declining total domestic asphalts demand in Page 4

5 PLX s FY16 PBT structure 19% PLX Parent 1% 2% 2% 2% 4% 59% Petrolimex Aviation PG Tanker PLC PGC PGI 5% 6% Van Phong Terminal Petrolimex Singapore Others Source: PLX and subsidiaries, SSI Research It s also noteworthy to point out from PLX consolidated balance sheet that short-term debt decreased from roughly VND 12,560bn in 2015 to VND 6,775bn in 2016, implying debt/equity ratio declined from 0.96 to This was mainly thanks to increased working capital from issuing shares to JX. Additionally, low crude oil price level during 1H16, implying low Mean of Platts Singapore (MoPS) input price and thus, lowered the net borrowing value. Notable subsidiaries results: Petrolimex Tanker Corporation (PG Tanker) was founded in 2013, yet owned subsidiaries that have 40 years of experiences in both international and domestic water transportation. Most of PG Tanker s subsidiaries are listed, including Vietnam Petroleum Transport JSC (VIP: HOSE), Vietnam Tanker JSC (VTO:HOSE), Petrolimex Joint Stock Tanker Company (PJT:HOSE), HaiPhong Petrolimex Transportation and Services JSC (PTS:HNX). PG Tanker owns the largest oil & gas fleet in Vietnam, notably the international fleet with total capacity of roughly 500,000 DWT, transporting Mogas, diesel, Jet A1, condensate, FO, and naphtha. PG Tanker s FY16 total sales volume million ton,m Total 13.2 International 9.1 Coastal, river 4.1 PG Tanker 10.6 Others 2.7 Source: PG Tanker, SSI Research FY16 total transported volume was 13.2 million ton,m 3, flat compared to FY15. FY16 net revenue was VND 3,167bn (-5.9% YoY) and PBT was roughly VND 320bn (+32.8% YoY). The key reasons for declining net revenue and robust PBT in FY15-16 might include: (1) PG Tanker increased leasing fleets in terms of time charter contracts. (2) PG Tanker s subsidiaries withdrawal from the real estate business to focus on core business. Page 5

6 Petrolimex Aviation Fuel JSC (PA) was founded in April 2008 by Petrolimex (59%), MIPEC (35%), and PG Bank (6%) with initial chartered capital of VND 150bn. PA s current chartered capital is VND 300bn. PA mainly provides Jet A1 fuel to frequent airline firms in 5 major domestic airports, including Tan Son Nhat (2010), Noi Bai, Da Nang (2013), Cam Ranh, (2015), and Cat Bi (2016). PA benefits from high growth in the aviation industry in Vietnam and strict safety control, which makes for high barrier for new entrants into this business. PA s FY16 historical sales volume m Total sales volume 200, , ,000 % growth 147.5% 21.2% Source: PA, SSI Research PA s FY16 revenue was VND 5,732bn (+3.2% YoY) while PBT was VND 368bn (+76%). FY16 revenue grew slower than PBT because Jet A1 price declined in line with crude oil price. While sales volume increased, PA kept cost low by economies of scale and controlling better logistic routes, which can be a direct benefit from being PLX s subsidiary. Besides, stable interest rate and foreign exchange rate also helped boost PBT. Petrolimex Petrochemical Corporation (PLC: HNX) is the leading company in asphalts with roughly 30% market share, and 2 nd in lubricants with roughly 12% market share. PLC sells 50-60% lubricant volume throughout PLX s 2400 PoS, and this is the key competitive advantage for PLC compared to its rivals. In 2016, PLC posted VND 4,800bn net sales (- 30.6% YoY) due to 63% decrease in asphalt revenue and 14% YoY decrease in lubricant sales while chemicals revenue was up 31% YoY. Weaker infrastructure disbursement in 2016: After high demand for asphalts in 2015 (~990k tons) upon completion of big national roads, airports and bridges, Vietnam s total asphalt consumption fell to only 660k tons (-33% YoY) in As a result, PLC s asphalts selling volume was only ~190k tons (-35% YoY). In 2016, lubricant selling volume decreased by 10% to 35k tons due to (1) lower demand of lubricant for agricultural and mining machines on severe weather condition (El Nino and ocean environmental incident) and (2) reduced automotive lubricant volume due to rising competition, mostly from BP-Castrol, Nippon and foreign brands. Chemicals posted 31% growth in revenue mostly due to higher volume. PLC s net profit totaled VND 204bn (-37.8% YoY) due to a sharp decline in sales and squeezed gross margin (from 18.4% in 2015 to 16.75% in 2016). While gross margin of lubricant improved by 300 bps thanks to decreased input price (base oil), gross margin of asphalt deteriorated to only 15.1% (vs.18.7% in 2015) on lower contribution of high margin products (polymer asphalts). Gross margin of chemicals remained at 6.7% in PLC paid dividend in 2014, 2015, 2016 of 30%, 30%, 20% on par, respectively. BP Castrol Petco LLC is a venture between BP Group and Petrolimex, in which Petrolimex owns 35% stake. BP Castrol Petco is currently the leading firm in producing lubricants with 22% domestic market share. Total capacity is roughly 50,000 tons per year. This venture is also a major contributor to PLX s results by roughly VND bn per year. Page 6

7 BP Castro s net profit in VND bn BP Castrol s net profit 1,008 1,389 1,250 Contribution to PLX Petrolimex Gas Corporation (PGC: HSX) currently accounts for 10% market share by volume in Vietnam. Overall, selling volume reached 144k tons (+6% YoY). Although net sales declined by 7.4% YoY to VND 2,379 bn in 2016 due to lower average selling price of LPG, net profit increased by 11.8% YoY thanks to encouragingly improved gross margin. More specifically, gross margin posted 25.2% in 2016 (vs in 2015), the highest level ever seen in the company s history due to (1) margin expansion due to higher mobilization of low input LPG source; (2) rising contribution of retail LPG volume (which carries higher margin than industrial LPG). Moreover, lower CIT rate, from 22.9% in 2015 to 20% in 2016 was also the reason for net profit growth. Petrolimex Insurance Corporation (PGI) is the fifth largest non-life insurance firm in Vietnam. PGI offers a wide range of non-life insurance services including automobile (motorbike & car) insurance, property & casualty insurance, hull and P&I insurance, cargo insurance, health and PA insurance and public liability insurance. Different from other nonlife insurers, thanks to the support of Petrolimex, PJICO has a strong presence in automobile insurance which represented 44% of its gross written premiums in 2016 (compared with 30% of Vietnam s non-life insurance in 2015 and 33% in 6M16). PGI ranked No. 3 in automobile insurance in 2015, behind Bao Viet and Post and Telecommunication Insurance Corporation (PTI: HOSE). In 2016, gross written premiums and PBT totaled VND 2,484bn (+11.3% YoY) and VND 130bn (+13.3% YoY). Insurance business: Continued to grow at a slower pace than the whole industry (13.2% YoY) when 2 out of 3 key segments including motor vehicle insurance and health and personal accident insurance increased slower than the industry, at 9.9% YoY and 5.2% YoY compared with 24% YoY and 31% YoY in 1H16 (We do not have the industry data for the whole year). In 2013, PJICO changed its strategy in order to focus on sustainable performance and profitability. The Company did not increase sales at all expense and selected clients in automobile insurance and health and personal accident insurance segments. Hull and P&I insurance witnessed encouraging growth of 39% YoY vs. 24% YoY in 2015 and 13% YoY in Starting in 2015, PGI became one of four insurers selected to develop insurance services for fishing vessels. Loss ratio for gross written premiums decreased from 45.9% in 2015 to 41.6% in 2016 which is mainly attributable to lower loss ratio of Property & Casualty insurance and Hull and P&I Insurance. Additional, thanks to lower commissions, gross profit from insurance segment slightly improved from 16.2% to 16.5%. Financial business: Financial income increased by 8.1% YoY to VND 103 bn which we think are mainly thanks to increasing premiums and higher average bank deposit rate in Petrolimex Singapore (PLS) was founded in PLS experimented hedging operation through futures contracts and suffered losses in As of now, PLX has ceased hedging activity and Petrolimex Singapore handles importing petroleum products for PLX & associates from Singapore to earn small margin (10-20 cent per barrel). The firm s total sales volume was roughly 2.6 million ton,m 3 and PBT was historically high, roughly VND 80bn in Page 7

8 Van Phong Terminal (VPT) was initially intended to be an additional warehouse to PLX s distribution network. The investment cost was roughly VND 811 bn on Dec 31 st Van Phong Terminal has 29 tanks in total with capacity of 505,000 m 3 and 4 sea port terminals that allow entrance for 150,000 DWT ships. The firm currently provides import/export services, storage, and distribution of petroleum products for domestic and regional markets. As for historical performance, before 2015, Van Phong Terminal suffered losses due to not achieving break-even capacity. Since then, Van Phong has sustained positive PBT results, specially a PBT of roughly VND 100 bn in 2016 thanks to higher capacity utilization. VPT will also play a key role in Nam Van Phong Refinery project, which PLX is developing. Page 8

9 1. ANALYST CERTIFICATION The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately reflect his/her/our own personal views about the securities and/or the issuers and (2) no part of the research analyst(s) compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this research report. 2. RATING Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock s expected return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected to deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below or equal to -9%, while a HOLD rating implies returns between -9% and 18%. Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months because of a stock catalyst or event. Short-term rating may be different from 12-month rating. Industry Rating: We provide the analyst industry rating as follows: Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the relevant broad market Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant broad market Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the relevant broad market. *The market required rate of return is calculated based on 5-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents. 3. DISCLAIMER The information, statements, forecasts and projections contained herein, including any expression of opinion, are based upon sources believed to be reliable but their accuracy completeness or correctness are not guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were based upon the best information then known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time, and no unpublished price sensitive information would be included in the report. Expressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. SSI and other companies in the SSI and/or their officers, directors and employees may have positions and may affect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for these companies. This document is for private circulation only and is not for publication in the press or elsewhere. SSI accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or its content. The use of any information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user. Page 9

10 4. CONTACT INFORMATION Institutional Research & Investment Advisory Huy Nguyen Trang Pham Analyst, Energy Senior Analyst, Energy Tel: (844) ext. 680 Tel: (844) ext Phuong Hoang Hung Pham Giang Nguyen, ACCA Deputy Managing Director, Associate Director Associate Director Head of Institutional Research & Investment Advisory SAIGON SECURITIES INC. Member of the Ho Chi Minh Stock Exchange, Regulated by the State Securities Commission HO CHI MINH CITY 72 Nguyen Hue Street, District 1 Ho Chi Minh City Tel: (848) Fax: (848) info@ssi.com.vn HANOI 1C Ngo Quyen Street, Ha Noi City Tel: (844) Fax: (844) info@ssi.com.vn Page 10