GAS Update – HOLD

PetroVietnam Gas Joint Stock Corporation (GAS)

2021 Business results and Expected growth in 2022

GAS recorded business results in 2021 with revenue of VND78,992 billion (+23.2% YoY) and EAT of parent company shareholders VND8,672 billion (+10.4% YoY). Although natural gas sales volume decreased by 18% due to lower demand from gas thermal power plants as social distancing were applied, the average price of Brent oil in 2021 increased by 69% to USD70.6/barrel and strongly support natural gas’ selling price as well as revenue of GAS. However, gross profit margin remained at 17.7% due to: (1) the depletion of cheap gas source, (2) increase in depreciation expense from Nam Con Son 2 + Sao Vang Dai Nguyet pipeline and (3) sharing difficulties with customers in the context of the epidemic.

Regard 2022 and onward outlooks, there are some pros and cons to consider:

1. Natural gas’s selling volume is expected to increase 18% in 2022 thanks to the increase in economic activity and easing mobility restriction.
2. Average Brent oil price will remain at high range around USD93/barrel in 2022 and supported gas’ selling price positively as Russia-Ukraine war is still going on besides sanction on Russia oil & gas export by some countries.
3. Thi Vai LNG storage (phase 1) is expected to operate from Q3/2022: supplying 1.4 billion m3 of gas/year. However, as it will just come into operation, this LNG terminal is expected to support GAS’s profit from 2023.
4. The gradually decreasing source of low-cost gas along with the participation of renewable energy sources will reduce the competitiveness of gas-fired power plants in the Competitive electricity generation market.
5. The construction of LNG gas thermal power plants can face difficulties in negotiating the Power Purchase Agreement (PPA) with EVN, which then affecting the progress of LNG projects.

Regarding the business plan for 2022, GAS sets a target of VND80,000 billion in revenue (+1.3% YoY) and VND7,039 billion in EAT (-20% YoY). This target is relatively conservative as oil prices continued to increase sharply in the first 2 months of the year. Overall, we forecast average Brent oil price at USD93/barrel as well as GAS’ 2022 business results with revenue of VND94,256 billion (+19% YoY) and NPAT from parent company VND10,091 billion (+16.3% n/n). Along with the volatile of oil prices as well as ongoing Covid epidemic situation in Vietnam, we maintain our HOLD recommendation with a target price of VND 110,000 for 2022.