DPM Update – NEUTRAL

PetroVietnam Fertilizer and Chemicals Corp (DPM VN)

For the 1H2024, DPM reported a NPAT of VND503 billion (+37% YoY), fulfilling 92.8% of the company’s annual target—traditionally set at a very conservative level—and 65% of our forecast. Specifically, Q2/2024 contributed VND235 billion in NPAT, (+123.8% YoY and -12% QoQ). This performance exceeded our expectations. We have revised up our forecast for DPM’s 2024 NPAT by 25% from our previous estimate, reaching VND 778 billion (+47% YoY). For 2025, we forecast the company to achieve NPAT of VND676 billion (-13% YoY) due to the prospect of lower urea prices. Using the discounted cash flow method, we derive a target price for DPM at VND35,100/share by the end of 2025, equivalent to a total return of 2.3%. Rating Neutral.

In Q2/2024, DPM recorded revenue of VND3,947 billion (+6.5% YoY) and NPAT of VND235 billion (+123.8% YoY). Despite a 4.7% YoY decrease in urea sales volume for the Q2, this strong growth can be attributed to several factors:

• The average urea selling price in Q2 2024 increased by an estimated 6.5% YoY, in contrast to the period in 2023 when global fertilizer prices were at their lowest.

• The selling volume of NPK fertilizers rose by 14.5% YoY.

• The gross profit margin of domestically produced products improved to 15.6%, up from 13% in the previous period. 

In general, in 6M2024, DPM recorded revenue of VND7,255 billion (+4% YoY) and NPAT of VND494 billion (+37%). Selling urea volume in 6M2024 increased by 4% y/y (Q1: +15% y/y, Q2: -4.7% y/y). However, the increase in urea volume was primarily driven by a 47% YoY increase in urea exports, totalling 94,000 tons. Additionally, the average urea selling price in 6M2024 is estimated to increase by 4% YoY (Q1: 2% YoY, Q2: +6.5% YoY).

Regarding the draft amendment to the Value-Added Tax (VAT) Law proposes to subject fertilizers to VAT at a rate of 5% (which, if applied, would benefit fertilizer businesses), the majority of National Assembly delegates recently advocated maintaining the current regulations. 

Regarding the future outlook for urea prices, the World Bank (April 2024) projects a 2.2% decrease in global urea prices in 2024, followed by a 7.1% decline in 2025. This forecast is driven by a recovery in supply, increased capacity from new production facilities, and a reduction in input costs. Additionally, potential risks include China lifting its restrictions on fertilizer exports and India’s plan to halt urea imports by the end of 2025, both of which could negatively impact urea prices.