Vietnam Daily Market Watch with a note on PLX (Hold) – HSC

Ngày đăng December 17, 2018

Market commentary – Today picked up where Friday left off, with both bourses spending all day lower than Friday’s close. Declines accelerated again, with the VN Index almost two percent lower than Friday’s close at the bell, while the HN Index finished down by a little over one and a half percent. Turnover exceeded recent highs by around ten percent, and foreign trading activity rose to more normalized levels. Market breadth narrowed sharply, with only 13 stocks going to the ceiling and 19 stocks falling to the floor. The put through market remained active, with put through transactions on the Southern bourse again accounting for around forty percent of total trades. Hanoi fell to more normal but still sound levels. Massive deals in STB and TCB stood out, while large deals were also seen in VJC; NVL; VPB and EIB on HOSE. On the HNX a large deal in CVN was also seen going through.

 

Foreigners were active buyers and sellers of VNM; VPB and VRE, being net buyers of VNM and VRE and net sellers of VPB. Foreigners were also active buyers of GEX and BID, while actively selling CTG and VCB.

 

  • Bank shares slumped heavily again today, led by TCB; VPB and VCB.

     

 

  • Non-banks shares with the exception of PVI were also all in retreat, and losses at brokers, led by VCI and VND, far exceeding those at insurers.

     

 

  • Consumer and retail names also had a tough day at the office, despite gains by PNJ and MCH. MSN; MWG and QNS led the pack down, while KDC and SAB marked time.

     

 

  • Tech stocks were again both in retreat, with FPT just edging out YEG in the race down.

     

 

  • Manufacturing names, with the exception of RAL, which managed solid gains, also fell, being led by stop low EVE as well as PAC and steel stocks.

     

 

  • Resource names were also lower, led by PLX.

     

     

Corporate action – PLX to sell 12 million treasury shares. Forward growth prospects moderate although the PG Bank – HD Bank deal will lead to some one-off gains. Reiterate Hold. 

 

PLX will sell 12 million treasury shares in Q4 FY2018 or Q1 FY2019 – PLX currently has 135 million treasury shares (10.43% OS). The Company plans to sell about 12 million shares in Q4 FY2018 or Q1 FY2019, at market price via put through trades or order matching. PLX has planned to sell a maximum of 60 million treasury shares but, as market appetite was weak, they will only be able to sell around 12 million.

 

Quick conclusion. Reiterate Hold. Our fair value price for PLX is VND 64,600 which values the Company at a FY2018 forward PE of 22.0x for its 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. We also forecast that FY2019 PBT will grow by 5.1% y/y. PLX is growing at a moderate pace and in line with overall demand for petrol and petroleum products, and there remains significant 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 retailers. However, we are still awaiting guidance on their long term strategy. In the meantime, the positive catalysts for the stock are mainly related to the PG Bank – HD bank deal.

 

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 its core operations. Our key assumptions are as follows;

 

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

 

  1. We forecast that the weighted import tax in the petrol retail price formula will be 9.5%, lower than the 9.7% in FY2017, taking into account volumes from the Nghi Son refinery, which will come into operation in Q4 FY2018.

 

  1. We assume PLX’ petroleum input cost will increase by 22.6% to US$ 76.00 per cubic meter, and forecast that PLX’ ASP will come to VND 17,251 per liter (+21.8% y/y).

 

  1. We forecast the petrol segment will post revenues 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 negative net financial income of VND 46.96 billion versus a gain of VND 0.5 billion in FY2017. Net financial income will decrease mainly due to increases in the USD/VND exchange rate and USD interest rates.

 

  1. We then forecast earnings from JVs and affiliates to come to 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 became a PLX affiliates from August 2017, with other affiliate companies contributing a total of VND 56.7 billion (+20% y/y).

 

Thus we forecast that core NPATMI will come to VND 3,679 billion (+6.1% y/y), producing a FY2018 EPS of VND 2,936, and valuing the company at a forward P/E of 19.7x.

 

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 its core operations. Our key assumptions are as follows;

 

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

 

  1. We forecast that the weighted import tax in the petrol retail price formula will be 9.0%, lower than the 9.5% in FY2018, taking into account volumes from the Nghi Son refinery, which comes into operation in Q4 FY2018.

 

  1. We assume PLX’ petroleum input cost will increase by 5.0% to US$ 79.80 per cubic meter, and forecast that PLX’ ASP will come to VND 18,281 per liter (+6.0% y/y).

 

  1. We forecast petrol segment will post revenues 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 negative net financial income of VND 194.16 billion versus the VND 46.96 billion loss in FY2018. Net financial income will decrease mainly due to increases in the USD/VND exchange rate and USD interest rates.

 

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

 

Thus we forecast that core NPATMI will come to VND 3,865 billion (+5.1% y/y), producing a FY2019 EPS of VND 3,048, and valuing the company at a forward P/E of 19.0x.

 

Then if we also take into account the likely one-off financial gain from the PG Bank – HDB swap deal, we forecast PLX will report a FY2019 NPATMI of VND 4,360 billion (+18.5% y/y), producing an FY2018 EPS of VND 3,479. At today’s share price, PLX is trading at a FY2019 forward P/E of 16.6x.

 

The PG Bank – HDB swap deal should bring a one-off financial gain for PLX of about VND 660 billion in FY2019 – PG Bank will complete its merger with HDB at a swap ratio of 1:0.62 (i.e. 1 PG Bank share to 0.621 HDB share) in 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 an HDB share price of VND 31,000 per share at the time of execution. 

 

PLX’s core businesses are still heavily reliant on wholesale and retail sales of petrol and petroleum products – 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.

 

  • The petrol and petroleum products segment, including both wholesale and retail, accounts for about 88% of total sales and 60% of PLX’ overall profit.

 

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

 

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

 

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

 

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

 

  • Net income from affiliates and JVs contributes 12% of overall profit.

 

In the short- and medium-term, PLX’ 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 its market share further. Hence sales volumes and earnings will grow in line with the market, which is forecast by MOIT to grow at around 5% per year.

 

In respect of longer term earning prospects, everything appears to hang on PLX’ strategy to increase value-added services provided at its petrol station network. At the moment, PLX’ petrol stations also sell non-life insurance for transportation vehicles, debit and credit cards, and automotive care services. They also offer hosting for various businesses, such as car washes, pharmacies etc. As can be seen from the fact that all non-petrol earnings now account for only 2% of total revenues at PLX’ station network, while at regional peer PTT (Thailand) this figure is around 50%, there is significant potential in this strategy.

 

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. In the absence of such a strategy being communicated to investors, growth depends on:

 

  • steady increases in petrol demand as the number of vehicles on the roads increases, and

 

  • trends in the 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 64,600 for PLX which values the Company at a FY2018 forward core PE of 22.0x. PLX currently trades at a forward core PE of 19.7x at today’s share price, which is reasonable in our view. The FY2018 and FY2019 earnings outlook looks rather modest, however, individual investors may find it attractive given the one-off financial gain from the PG Bank – HDB swap deal. In the longer term, we laud PLX’ strategy is to expand its petrol station network and increase value-added services provided at each station, such that non-petroleum earnings would account for 30%-50% of the total revenue for each station compared to just 2% currently. However, as noted above, we still don’t have clear guidance on this.

 

  • Real estate and construction stocks, with the exception of SJS, which rose over six percent, fell in lock step, led by DXG; HBC and TDH.

     

 

  • Agriproducts and aquaculture stocks were also in the naughty corner, with VHC; HNG and DPM leading the pack down.

     

 

  • Pharmaceutical stocks were mixed, with DHG and IMP advancing as DMC and TRA retreated.

     

 

  • Utilities, transport and logistics stocks rounded out a bleak day of trading, with only NCT and VSH managing to mark time, while HVN and GMD led the race to the bottom.

        

       

Vietnamese stocks continue to fall – Loss on both the VN Index and HN Index accelerated again today, with late afternoon trading mirroring Friday’s pattern of profit taking seeing sharp declines in a run up to the closing bell, with closing prices today also marking intraday lows. Despite today’s losses, both bourses are not yet oversold, with both the one month and six month outlooks calling for further weakness. The VN Index is not far off short-term support at 928pt, and may fall to 910-915pt if it breaks this mark in coming days. 100pt remains psychological support for the HN Index, however, we are sufficiently clear of that mark.

 

There were no contributors of any note today in Ho Chi Minh, while VHM; VCB and GAS all provided negative contributions exceeding one percent. In Hanoi, PHP was struggling to do the heavy lifting today, however, this was more than offset by negative contribution by ACB again, joined today by PVS. Today’s rout was agnostic, with no sector faring well, and stocks advancing being outnumbered by those in decline by more than two and a half to one.

 

The four futures contracts managed to narrow their discounts to the VN30 cash index, with discounts now ranging from 4.4 to 7.4 index points. Although, given recent volatility there may not be too much that should be drawn from this result, with the maturity date upon us, this remains, however, hardly a ringing endorsement of future prospects. Turnover rose to solid levels, and foreign investor participation also rose to more normalized levels, however, they again turned net sellers.

 

Asian shares & major currencies – Asian shares today rose, despite heavy losses on Wall Street and across US bourses last Friday. As for currencies, the US$ (97.39) had edged down from the 52-week high of US$ 97.71 set last Friday US time, when measured against its trade weighted ICE index, but remained firmly over the US$ 97 mark. The Euro (1.1314) was buying fewer greenbacks compared to our last writing, while the Pound Sterling (1.2590) had also lost ground. The US currency was, however, buying marginally fewer Japanese Yen (113.42), but had firmed against the Chinese Yuan (6.8974).

 

Oil prices decrease – Crude oil traded have again drifted lower from this time on Friday, with the active month WTI futures crude oil contracts trading down to US$ 51.27 per barrel, and Brent crude also down, albeit to a lesser extent, at US$ 60.28. While hedge funds remain bearish, it appears that oil majors have cut costs, increased profits and are in a better position to withstand a period of lower prices, with some even suggesting they can breakeven with Brent crude at US$ 50 per barrel.

 

However, 2019 looks set to be as volatile as 2018, despite the International Energy Agency calling a floor on oil prices from the OPEC+ deal. On the bullish side of the equation, production issues in Iran, due to sanction, as well as Libya, Nigeria and Venezuela, due to technical issues are set to curb supply. Some are touting lack of supply growth, due to lower expenditure from around 2014, however, this may be more of a post-2020 issue. On the other side of the equation, North American shale output may continue is mercurial growth, an economic downturn impacting on import majors such as China, and possible noncompliance (or tardiness) on the OPEC+ deal may continue the supply glut. 

 

In global macro and general news – Figures released over the weekend show that European wages grew 2.4% y/y in Q3 2018, compared with 2.1% y/y growth in the previous quarter. The result was ahead of market estimates calling for 2.0% y/y growth. Final figures show inflation in Europe in November fell from a rise of 2.2% y/y in October to being up 1.9% y/y which was slightly better than market estimates calling for a 2.0% y/y rise. Meanwhile, balance of trade figures showed the budget surplus widened from EUR 13.1 billion in September to EUR 14.0 billion in October, which was also ahead of market estimates calling for a surplus of EUR 12.8 billion.

 

A slew of data from the US showed that retail sales in November rose 4.2% y/y, decelerating from the 4.8% y/y rise in October but in line with market consensus. Industrial production grew 3.9% y/y in November, following a downwardly revised 3.8% rise a month earlier and ahead of market estimates calling for a 3.2% rise. Meanwhile early estimates show the IHS Markit US Composite PMI dropping to 53.6pt in December from 54.7pt in November, which would be the weakest expansion in private sector since May 2017. The Baker Hughes oil rig count also fell by four to 873 despite market pundits calling for a rise to 899.

 

Data released in China that track the average price of new homes across 70 Chinese cities rose by 9.3% y/y in November, accelerating from the 8.6% rise recorded in October. This marks the 43rd straight month of price increases and also the strongest annual gain since July 2017. Meanwhile, in the UK, Brexit talks remain fraught, with the current PM, Theresa May accusing her predecessor, Tony Blair, of trying to undermine EU talks after he suggested a second referendum may be the way forward if other options remain stuck.

 

 

 

HCMC – The VN index fell today as turnover expanded to VND 5,122.72 billion or US$ 220.14 million. The index lost 1.93% and closed at 933.65. 66 stocks up while 231 stocks down. And 4 stocks went to the ceiling while 6 stocks dropped to the floor. Foreigners accounted for 11.83% of the buying value and 12.38% 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 sellers to the tune of VND 27.92 billion worth of shares in HCMC. And we saw forty four transactions in the put through market today.

 

Foreigners were active buyers of VNM; VPB; GEX; VRE and BID. They also actively sold VNM; VPB; VRE; CTG and VCB. The put through market was more active today with five enormous; one super jumbo; seven jumbo; six large and some medium sized & smaller deals accounting for 40.73% of total turnover.

 

We saw 53,075,248 shares of STB; 19,690,000 shares of TCB; 1,650,000 shares of VJC; 1,999,218 shares of NVL and 4,384,002 shares of VPB going through. Foreigners were more active in the put through session in the VPB & VNM deals and then fifteen other smaller deals today in the market.

 

E1VFVN30 was down 3.52% today closing at VND 14,800.

 

Hanoi – The Hanoi market went down today while turnover came to VND 540.10 billion or US$ 23.21 million. The HN index was down 1.54% to close at 105.01. 57 stocks up while 87 stocks down. And 9 stocks went to the ceiling while 13 stocks dropped to the floor. Foreigners accounted for 3.29% of the buying value and 3.15% of the selling value.

 

Foreigners were net buyers to the tune of VND 0.76 billion worth of shares. And we saw fifteen medium and small sized deals today during less active put through session in Hanoi accounting for 14.38% of total turnover.

 

We saw 4,427,500 shares of CVN; 470,000 shares of TNG and 1,060,275 shares of SHB along with some smaller transactions in the put through market today.

 

 

 

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