HSC Daily Market Watch with an earning’s note on PLX (Hold)

Ngày đăng September 11, 2018

Market commentary – The VN index increased with turnover still below recent averages. Market breadth narrowed while we also see that 23 stocks went to the ceiling and 14 stocks fell to the floor. Foreigners were more active net buyers to a small degree. The put through market was more active with a large deal VIC & CTG and then a smaller deal in GMD seen going through.

 

Foreigners were active buyers of VIC; VCB and VHM. And net sellers of VRE and HPG.

 

  • Bank shares were mixed with gains for STB and TCB while there were losses for ACB and CTG.

 

  • Non-banks shares were mixed to higher, led by BVH and HCM.

 

  • Consumer and retail names were mixed with gains for VNM and MWG while there were losses for MSN and KDC.

 

  • Tech stocks all lost ground.

 

  • Manufacturing names were mostly lower, led by PAC, NKG and HPG.

 

  • Resource names were mixed to higher, led by PLX and PVD.

 

Earnings note – PLX 1H earnings were above expectations. Forward growth prospects moderate although the PG Bank – HD Bank deal will lead to some one-off gains. Reiterate Hold. Petrolimex (PLX; Hold) recently reported audited 1H results with sales coming to VND 96,631 billion (+30.3% y/y) and PBT to VND 2,822 billion (+15.7% y/y). PBT was about 5% above our expectations of VND 2,685 billion (+10.0% y/y). With this PLX has reached 61.1% of its full year target for sales and 56.4% of its full year target for PBT.

 

Quick conclusion. Reiterate Hold. Our fair value price for PLX is VND 71,400 which values the company at a FY2018 forward P/E of 24.3xs for the core business. HSC forecasts that FY2018 core earnings will expand by 7.2% y/y supported by strong volume growth and better margins. PLX can also expect a significant windfall profit in the 2H once the PGBank – HDBank merger is completed. PLX is growing at a moderate pace and in line with overall demand for petrol and petroleum products. There remains a lot of potential for PLX to accelerate earnings and margins once they adopt a comprehensive retail strategy to lease out the forecourts of more of their petrol stations to third party retail. However, we still await communication of their long-term strategy for this. In the meantime, the positive catalysts in the stock are mainly related to the PG Bank – HD bank deal.

 

The petroleum segment saw a strong 1H growth – PLX’s petroleum segment reported sales of around VND 88,808 billion (+35.4% y/y) and EBIT of VND 1,994 billion (+54.5% y/y), accounting for 91.9% of PLX’s total sales and 70.2% of PLX’s total operating profit.

 

The strong top line growth seen here was driven by;

 

  • A 9.2% y/y increase in sales volume as PLX sold about 5.1 million cubic meters of petroleum.
  • A 25% increase in ASP.

 

Then margins also improved because of;

 

  • Changes in the sales mix.  
  • PLX’s better cost management

 

In 1H FY2018, RON 95 accounted for 52% of sales and E5 for 48%. While in 1H FY2017, the sales mix consisted of RON 92 (75%), RON 95 (15%), and E5 (10%). RON 92 is no long sold since 1st January 2018 following MOIT’s change in regulations.

 

MOIT’s retail price formula is as follows;

 

Petrol retail price = input cost + freight and insurance to Vietnam + weighted import tax + special consumption tax + allocation for price stabilization fund + environment tax + normalized SGA expenses + normalized profit.

 

Of which, all components including input cost, freight and insurance to Vietnam, weighted import tax, special consumption tax, allocation for price stabilization fund, environment tax, normalized SGA expenses, normalized profit are decided by MOIT and MOF. For standardized pricing across the industry.

 

For E5, normalized SGA expenses is VND 1,250 per liter, and normalized profit is VND 300 per liter. For A95 and A92, it is VND 1,050 per liter, and VND 300 per liter respectively. Thanks to higher normalized SGA expenses,

 

  • E5 carries the highest profit of about VND 430 per liter.
  • A95 carries a profit of about VND 355 per liter.     

 

Petrochemical segment showed strong top line growth but saw a decline in EBIT – Petrochemical segment posted 1H FY2018 sales of VND 2,243 billion (+27.2% y/y) and an EBIT profit of VND 142 billion (-2.8% y/y). Sales were driven by a 27% y/y hike in ASP while sale volume stayed almost the same. Meanwhile GPM declined from 23.2% in 1H FY2017 to 19.9% in 1H FY2018 as PLX was unable to transfer all the input price increases onto customers. The decline in GPM was the main reason for the drop in EBIT.

 

LPG segment reported reasonable growth in both top line and bottom line – LPG segment reported 1H FY2018 sales of VND 1,121 billion (+8.8% y/y) and EBIT of VND 98.7 billion (+14.9% y/y). Sales were mainly driven by a 5% increase in sales volume. Meanwhile EBIT growth was driven by both higher sales volumes and better cost management.

 

Transportation segment saw strong earnings growth – Transportation segment reported 1H sales of VND 2,624 billion (+26.2% y/y) and EBIT of VND 245.1 billion (+41.7% y/y). Sales growth was driven by both increases in workload and increases in chatter fees while the strong bottom line reflected increases in workload and better cost management.    

 

Net financial income sharply declined – In 1H PLX’s net financial income came to VND 258.1 billion vs. VND 31.3 billion in the 1H FY2017. Net financial income declined mainly due to forex difference. About 60% of PLX’s expenses are in USD as the company imports about 70% of its petrol volume while almost 99% of its sales are in VND. Hence the company is vulnerable to foreign exchange fluctuation.  

 

Earnings from JV and associates increased – PLX has 15 JVs and associates including Castrol BP Petco, Petrolimex Commercial Bank, Pjico (since 21st August 2017), and other companies. In 1H PLX’s profit from JV and associates came at VND 335.5 billion (+17.8% y/y) mostly thanks to the contribution from Pjico as Pjico was turned into an associate company from a subsidiary in August 2017.  

 

The PG Bank – HDB swap deal should bring a one-off financial gain for PLX of about VND 1,327 billion in the 2H – PG Bank will complete the merger with HDB at a swap ratio of 1:0.621 (i.e. 1 PG Bank share to 0.621 HDB share) in the 2H. As PLX holds a 40% stake or 120 million shares of PG Bank, we estimate that PLX will be able to book a one-off financial gain of VND 1,327 billion. This assumes HDB’s share price will be VND 40,000 per share at the time of execution.  

 

HSC forecasts FY2018 core earnings will grow by 7.2% y/y – For FY2018 we forecast that PLX will make sales of VND 193,484 billion (+25.9% y/y) and a PBT of VND 5,129 billion (+7.2% y/y) from the core business. Our key assumptions are as follow;

 

  1. We forecast average petroleum sale volume will come to 10,338 million cubic meters (+6.5% y/y).

 

  1. We then forecast weighted import tax in the petrol retail price formula is 9.5%, lower than that of 9.7% in FY2017 as we take into account volume from Nghi Son refinery which will come into operation in Q4 FY2018.

 

  1. We assume PLX’s input cost for petroleum will increase by 22.6% to US$ 76 per cubic meter. Then we forecast that PLX’s ASP will come at VND 17,251 per liter (+21.8% y/y).

 

  1. We then forecast petrol segment to post revenue of VND 178,332 billion (+29.7% y/y) and EBIT of VND 3,542 billion (+18.2% y/y).

 

  1. As for the petrochemical product business, we forecast that PLX will make sales of VND 4,321 billion (+10.0% y/y) and EBIT of VND 251 billion (+2.3% y/y).

 

  1. As for the LPG business, we forecast that PLX will show revenues of VND 2,479 billion (+15.0% y/y) and EBIT of VND 183 billion (+8.0% y/y).

 

  1. As for the transportation business, we forecast PLX will make sales of VND 4,638 billion (+5.0% y/y) and EBIT of VND 431 billion (+1.2% y/y).

 

  1. We project net financial income will come at VND (46.96) billion vs. VND 0.5 billion in FY2017. Net financial income decreased mainly due to increases in USD/VND exchange rate and USD interest rate.

 

  1. We then forecast earnings from JV and associates to come at VND 590.5 billion (+29.5% y/y) including (1) VND 512 billion (+30% y/y) from Castrol BP Petco, (2) VND 21.5 billion from PGI as PGI turned to be PLX’s associates since August 2017. Other associate companies will contribute a total of VND 56.7 billion (+20% y/y).

 

We then forecast that core NPATMI will come to VND 3,679 billion (+6.1% y/y), producing FY2018 EPS of VND 2,936, and valuing the company at a forward P/E of 23.8xs.

 

Then if we also take into account the likely one-off financial gain from the PG Bank – HDB swap deal, then we forecast PLX will report a FY2018 NPATMI of VND 4,695 billion (+35.4% y/y), producing FY2018 EPS of VND 3,646. On today’s price, PLX is trading at a FY2018 forward P/E of 19.2x. 

 

HSC forecasts FY2019 core earnings will grow by 5.1% y/y – For FY2019 we forecast that PLX will make sales of VND 213,968 billion (+10.6% y/y) and a PBT of VND 5,389 billion (+5.1% y/y) from the core business. Our key assumptions are as follow;

 

  1. We forecast average petroleum sale volume will come to 10,826 million cubic meters (+4.7% y/y).

 

  1. We then forecast weighted import tax in the petrol retail price formula is 9.0%, lower than that of 9.5% in FY2018 as we consider volume from Nghi Son refinery which comes into operation in Q4 FY2018.

 

  1. We assume PLX’s input cost for petroleum will increase by 5.0% to US$ 79.8 per cubic meter. Then we forecast that PLX’s ASP will come at VND 18,281 per liter (+6.0% y/y).

 

  1. We then forecast petrol segment to post revenue of VND 197,913 billion (+11.0% y/y) and EBIT of VND 3,747 billion (+6.1% y/y).

 

  1. As for the petrochemical product business, we forecast that PLX will make sales of VND 4,753 billion (+10.0% y/y) and EBIT of VND 270 billion (+7.6% y/y).

 

  1. As for the LPG business, we forecast that PLX will show revenues of VND 2,533 billion (+15.0% y/y) and EBIT of VND 198 billion (+8.0% y/y).

 

  1. As for the transportation business, we forecast PLX will make sales of VND 4,870 billion (+5.0% y/y) and EBIT of VND 453 billion (+5.0% y/y).

 

  1. We project net financial income will come at VND (194.16) billion vs. VND (46.96) billion in FY2018. Net financial income decreased mainly due to increases in USD/VND exchange rate and USD interest rate.

 

  1. We then forecast earnings from JV and associates to come at VND 620.4 billion (+5.1% y/y).

 

We then forecast that core NPATMI will come to VND 3,865 billion (+5.1% y/y), producing FY2019 EPS of VND 2,951, and valuing the company at a forward P/E of 23.7xs.

 

PLX’s core business still heavily reliant on wholesale and retail petrol & petroleum product sales – Petrolimex distributes and wholesales petrol and petroleum products. They operate a total of 2,500 petrol stations and then supply 2,800 more. The firm also owns subsidiaries and affiliates that operate in petro-related businesses including transportation, petrochemicals, and gas.

 

  • Petrol and petroleum product segment, including both wholesale and retail, accounts for about 88% of total sales and 60% of PLX’s overall profit.

 

  • Petrochemicals accounts for 4% of total sales and 13% of overall profit.

 

  • The LPG segment accounts for around of 2% total sales and 4% of overall profit.

 

  • Transportation accounts for about 4% of total sales and 7% of overall profit.

 

  • Others account for 2% of total sales and 4% of overall profit.

 

  • All associates and JVs contribute 12% overall profit.

 

In short and medium term, PLX’s earnings will grow in line with domestic petrol consumption. PLX currently has a share of about 48% of the domestic petrol market and has no active plan to increase the market share further. Hence sales volume and then earnings will grow in line with the market, which is forecasted by MOIT at around 5% per year. 

 

For longer term earnings prospects, everything appears to hang on PLX’s strategy of increase its value-added services provided at its petrol station network. At the moment, PLX’s petrol stations also sell non-life insurance for transportation vehicles, debit and credit cards, and car/motor care services. They also offer hosting to various businesses such as a car wash; pharmacy etc. As we can see below there is a lot of potential in this strategy;

 

  • All non-petrol earnings now account for only 2% of total revenue of the PLX network.
  • While its regional peer PTT (Thailand) is making it at around 50%.

 

HSC sees a lot of scope to reorganize this into a comprehensive retail strategy around anchor tenants and other related businesses. What we lack however is a clear communication from the company as to what that strategy might look like. And what the timeline for meaningful execution might be. And in the absence of such a strategy being communicated to investors, growth depends on;

 

  • The steady increase in petrol demand as the numbers of vehicles on the roads increases.
  • ASP of Petrol which is of course a function of global crude oil prices.

 

Investment thesis – Reiterate Hold. We have a fair value price of VND 71,400 for PLX which values the company at a FY2018 forward core P/E of 24.3xs. PLX currently trades at a forward core P/E of 23.8xs on today’s price, which is reasonable in our view. Indeed, the FY2018 outlook looks rather modest. But individual investors may find it attractive given the one-off financial gain from PG Bank – HDB swap deal. Longer-term PLX’s strategy is to expand its petrol station network and increase value-added services provided by each station so that non-petroleum earnings would account for 30-50% of the total revenue of each station compared to just 2% currently. At the moment, PLX’s petrol stations also sell non-life insurance for transportation vehicles, debit and credit cards, lubricants and car/motor care services. They also offer hosting to various businesses such as a car wash; pharmacy etc. However, we see a lot of scope to reorganize this into a comprehensive retail strategy around anchor tenants and other related businesses. And we still await a clear strategy and implementation timeline for this.

 

  • Real estate and construction stocks were mixed with gains for KDH and VIC while there were losses for HBC and DIG.

 

  • Agriproducts and aquaculture stocks were mostly lower, led by DPM and GTN.

 

  • Pharmaceutical stocks were mixed with gains for DMC and TRA while there were losses for DHG and IMP.

 

  • Utilities, transport and logistics stocks were mixed to lower, led by NCT and VSC.

 

Vietnamese stocks end the day mixed – The markets send mixed messages today with gains for the VN index while other market indices declined. VIC was the biggest gainer in terms of index points while fellow real estate plays NVL & KDH also advanced. Then resource name PLX jumped on decent final results while fellow resource stock GAS rose with oil prices. Banks such as STB (disposal related news); HDB and TCB all gained some ground.

 

On the other hand, MSN was the biggest loser in terms of index points. Banks such as VPB; CTG and MBB all lost out. HPG slid as did constructor CTD. Small movements for most blue chips with no real sector trends emerging today.

 

The four futures contracts slipped today and fell by significantly more than the VN30 cash index. Although the shape was preserved with longer dated futures trading at a premium to the short-dated contract at the close. Even so, today’s movement can only be seen as a negative market signal in terms of short term sentiment.

 

Vietnamese markets continue to trade in a fairly narrow range after the recent mini correction with investors keeping a watchful eye on regional sentiment. Uncertainty remains high given the expected announcements on global trade in coming days. September is anyway traditionally a fairly difficult month for equities as is October in terms of returns. Corporate news flows are limited except for corporate actions hence attention is very much on the macro environment and flows. 

 

We have clearly failed to test the 200-day MA and are now trying to regroup at lower levels. Today’s rather mixed performance suggests that there is more downside risk near term. With support still seen at the 50-day MA line at 951.54.

 

Asian shares & major currencies – Asian shares were mostly lower today as Wall Street lost out on Friday. As for currencies, the US$ (95.346) slipped today after recent gains when measured against its trade weighted ICE index. Then the Euro (1.1568) traded a little higher; Pound Sterling (1.2937) edged higher again; the Japanese Yen (111.06) was little changed while the Chinese Yuan lost a little ground today (6.8645).

 

Oil prices climbs as U.S. exploration activity appears to slow – Crude oil rose after previous losses with the active month WTI futures crude oil contract trading at US$ 68.43 in late Asian trade. Prices rose as the U.S. active oil rig count declined.

 

Baker Hughes, the oil services group on Friday issued the weekly data set on active oil rigs in the U.S. and showing a decline of 2 rigs to 860. Over the last few months this number has stopped expanding suggesting that the increase in U.S output seen over the last few years will slow in coming months as predicted. A lack of pipeline capacity; higher costs and a high level of debt are all contributing to this. Following a sharp expansion in shale oil activity since 2016. 

 

Oil prices will continue to trade in a range for the time being, capped by concern over growth potential in 2019 if the trade war accelerates and emerging economies slow. While on the other hand, strong indications that Iranian sanctions will bite deeply from Q4 onwards amidst further declines in Venezuelan production and unstable production out of Libya and Nigeria suggest that any downside risk is limited.

 

OPEC does have some capacity to increase production to offset this, but this is currently running at way less than 3% of total output which is very low by historical standards. And even with fears over weakening demand growth next year, nobody is suggesting that demand will actually decline as rarely happens (recently it only happened in 2008 amidst the financial crash). Therefore, on balance, we still contend that the risk for prices is very much to the upside over the next 6 months. And from a more short term perspective, convergence of the 50 and 100-day MA just below current levels also offers support.

 

In global macro and general news – China’s National Bureau of Statistics released August inflation numbers with the producer price index rising by 4.1% y/y, compared with a 4% y/y consensus estimate and a 4.6% y/y increase in July. Producer prices remain well controlled and continue to show signs of slight deceleration given the slowing domestic economy.

 

Meanwhile in August also, the consumer price index rising by 0.7% m/m and then by 2.3% y/y which was higher than the 2.1% y/y consensus growth forecast. Food prices rose 1.7% y/y in August, much faster than the 0.5% y/y increase in July. While non-food prices increased 2.5% y/y. In particular, the price of food items such as eggs rose 10.2% y/y, vegetables were up 4.3% y/y while fruit rose 5.5% y/y. Pork prices fell by far less than expected due to an outbreak of swine fever, rising fresh food prices were blamed on flooding, fuel prices surged while rents continue to rise, and these collectively were the main drivers of accelerating consumer price inflation. CPI is expected to remain elevated above 2% for the next few months although this is still comfortably below the official target of 3%. And hence won’t have any policy impact for the time being.

 

Regional equity markets remain in flux as investors await further developments on trade. President Trump on Friday made it clear that he is willing to consider imposing tariffs on a further US$ 267 billion worth of Chinese imports beyond the US$ 200 billion where the comment period has already expired. Then on Saturday with the release of August Chinese trade numbers, the issue was underscored by the fact that China’s trade surplus with the U.S. rose to a record high of US$ 31.1 billion even as overall export growth slowed to 9.8% y/y in dollar terms. Now arguably this expanding surplus can likely in great part be explained by stockpiling of Chinese goods by U.S. firms ahead of tariffs. Even so, it feeds into the Trump Administration’s current narrative.  

 

The Japanese cabinet office released revised GDP numbers for Q2 showing that the economy grew by an annualized 3.0 percent, easily beating economists’ median estimate for 2.6% y/y growth and the initial estimate of 1.9% y/y growth. For the fatest pace of growth since Q1 FY2016. The capital expenditure component of GDP grew 3.1% y/y versus the preliminary estimate for 1.3% y/y growth. Then private consumption grew by 0.7% which was unchanged on the orginal estimate.

 

 

 

 

HCMC – The VN index rose today as turnover expanded to VND 3,452.97 billion or US$ 148.45 million. The index gained 0.15% and closed at 970.34. 132 stocks up while 152 stocks down. And 7 stocks went to the ceiling while 3 stocks dropped to the floor. Foreigners accounted for 20.65% of the buying value and 16.86% of the selling value.

 

Foreign buying rose in actual terms and also in percentage terms. While foreign selling also rose further in actual terms and also in percentage terms. Foreigners turned net buyers to the tune of VND 130.79 billion worth of shares in HCMC. And we saw forty transactions in the put through market today.

 

Foreigners were active buyers of VIC; VCB; VHM; VRE and CTG. They also actively sold VIC; VHM; CTG; VRE and HPG. The put through market was more active today with one enormous; two super jumbo; six jumbo; eight large and some medium sized & smaller deals accounting for 15.34% of total turnover.

 

We saw 846,000 shares of VIC; 2,000,000 shares of CTG; 1,920,000 shares of GMD; 1,827,250 shares of TTB and 949,440 shares of VRE going through. Foreigners were more active in the put through session in the VIC & CTG deals and then eleven other smaller deals today in the market.

 

E1VFVN30 was down 0.39% today closing at VND 15,500.

 

Hanoi – The Hanoi market went down today while turnover came to VND 545.88 billion or US$ 23.47 million. The HN index was down 0.91% to close at 110.69. 66 stocks up while 94 stocks down. And 16 stocks went to the ceiling while 11 stocks dropped to the floor. Foreigners accounted for 1.04% of the buying value and 6.02% of the selling value.

 

Foreigners were net sellers to the tune of VND 27.20 billion worth of shares. And we saw eleven medium and small sized deals today during more active put through session in Hanoi accounting for 17.59% of total turnover.

 

We saw 1,800,000 shares of AMV; 1,700,000 shares of VGC and 4,318,600 shares of VIG along with some smaller transactions in the put through market today.

 

 

 

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