DCM Flash note – NEUTRAL

Petro Viet Nam Ca Mau Fertilizer JSC (DCM VN)

DCM announced business results in Q2/2024 with NPAT-MI of VND569 billion (+97% YoY and +64.3% QoQ), higher than our expectations. Cumulatively, NPAT-MI increased by 69.3% to VND914 billion in 1H2024, fulfilling 115.8% of DCM’s annual plan and 68.2% of our forecast.

DCM recorded revenue of VND3,863 billion in Q2/2024 (+17.4% YoY) and NPAT-MI of VND569 billion (+97% YoY). This growth did not come from the core business- urea as revenue in this segment decreased by 8% YoY. In particular, although urea selling price increased by 4.7% YoY, urea selling volume in Q2/2024 decreased more sharply by 12.2% YoY (in both domestic and export markets) due to the impact of El Nino. Input gas price in Q2/2024 is also estimated to increase by 9% YoY. Explaining DCM’s positive business performance:

• NPK fertilizer revenue increased by 76.2% YoY to VND1,114 billion thanks to 42.3% YoY increase in selling volume. This increase partly came from DCM’s merger with Korea-Vietnam Fertilizer Co., Ltd KVF (from April 1, 2024), helping to increase NPK capacity to 660,000 tons/year. However, NPK segment’s gross profit margin decreased to 13.7% from 18.2% in the same period.
• Other profits increased significantly from VND3.5 billion to VND176 billion, mainly due to the VND167 billion in profit from the acquisition of KVF.
• Depreciation expenses decreased sharply by 81.8% YoY to VND63.7 billion as DCM’s urea plant was fully depreciated from September 2023. Meanwhile, the depreciation expense of the newly purchased KVF plant from April 2024 was estimated at VND6.4 billion/quarter.

Therefore, DCM recorded 6M2024 results with revenue of VND6,607 billion (+9.6% YoY) and NPAT-MI of VND915 billion (+69.3% YoY). The increase in 6M2024 also mainly came from the above factors as urea revenue only gained slightly by 1.5% YoY.

Regarding the urea price outlook, according to the World Bank (April 2024), the world urea price is forecast to decrease by 2.2% in 2024 and decrease by 7.1% in 2025 due to recovering supply, increased capacity from new factories and reduced input costs. In addition, the risk of China removing fertilizer export restrictions + India planning to stop importing urea by the end of 2025 will also negatively impact urea prices.

Quick comment: We are reviewing DCM’s forecast and valuation in the next update report. The impact of the KVF acquisition on DCM’s business results begin to be revealed from Q2/2024 and will become clearer in the coming time. In addition, the aforementioned extraordinary profit is also a factor that has not been taken into account in our previous financial model. The pre-adjusted valuation for DCM is VND34,700/share in 2024, currently 6.4% below the market price.