A lot of information was forthrightly shared by the Board of Directors of PetroVietnam Fertilizer and Chemicals Corporation – a joint stock company (HOSE: DPM) at the investor meeting in the afternoon of June 21 in HCMC. Particularly, business result in the first 6 months of 2018 was estimated to reach a revenue of VND4,915 billion dongs and pre-tax profit of VND430 billion dongs, accomplishing 97% of yearly targets.

If VATis applied for fertilizers , each year, there will be a cost saving of VND350-400 billion dongs.

Explaining the reasons for the decrease in business performance in 2016 and 2017 over the previous years, Mr. Doan Van Nhuom, President & CEO of PVFCCo, said that gas price for Phu My Fertilizer production was set at 46% of average FO fuel price in Singaporean market plus tariff. Particularly, in 2014, gas cost that DPM had to pay was VND3,001 billion dongs; this was reduced to VND1,848 billion dongs in 2015 and further decreased to VND1,657 billion dongs in 2016, but increased to VND2,082 billion dongs in 2017.

Meanwhile, the Ministry of Finance requires that Phu My Fertilizer price must be declared and based upon a specified price formula, which is based on international and domestic market prices, thus resulting in a fluctuation of price over the years. Particularly in 2016, selling price of products fell sharply, resulting in a decrease in DPM"s revenue. In 2017, gas price increased by VND 425 billion dongs and production was also lower than that in 2016 because the plant was shutdown for more than 1 month for maintenance. Thus, despite the increase in selling price, DPM"s revenue was only slightly increased by VND 238 billion dongs.

Oil, gas, and fertilizer prices not necessarily increased/decreased at the same time, but there was a lag and even opposite trend. While gas price was directly affected and governed by oil price, fertilizer price did not immediately increase subject to an increase in oil price, but this depended on market situation and crop, etc.

“In addition, since 2015, VAT deduction is not applied to fertilizer products, resulting in a cost increase of VND371 billion dongs in 2017. If VATis applied for fertilizers , there will be a cost saving of VND350-400 billion dongs” – Mr. Le Cu Tan added.

Chairman Le Cu Tan: With VAT deduction, each year, there will be a cost saving of VND350-400 billion dongs.

 

Estimated profit of VND430 billion dongs in 6 months, nearly reaching the target for 2018

Generally, DPM"s indicators in the first 6 months of the year grew more positively thanks to the operation of NH3-NPK chemical technology complex and positive increase in the demand for fertilizers.

Mr. Nhuom said that Phu My Fertilizer Plant is operating at the maximum capacity in order to timely meet fertilizer demands for winter-spring crop and summer-autumn crop/rainy season in key regions of the country. Meanwhile, NPK chemical technology plant basically completed the test run and is about to be put into commercial operation in Q3 of 2018.

Accordingly, in the first half of the year, production of Phu My Fertilizer Plant is expected to reach 421 thousand tons reaching 53% of its annual plan. The consumption of Phu My Urea is estimated to be 443 thousand tons, or 54% of the plan. Sales of other fertilizers are estimated to reach 195 thousand tons, reaching up to 86% of the annual plan. Especially, though still in the commissioning, NPK Phu My products have met commercial standards to produce about 22,000 tons with positive initial acceptance among farmers.

Sales of chemicals also reached a satisfactory performance according to the plan with a sharp increase in NH3 sales, reaching 24.3 thousand tons, up by 286% over the same period and reached 44% of the plan. In addition, in the first 6 months of the year, DPM sold more than 27,000 tons of other chemical products, including UFC85, CO2, and petrochemicals.

Regarding financial targets, in the first 6 months of 2018, it is estimated that DPM reaches a revenue of VND4,915 billion and pre-tax profit of VND430 billion dongs, reaching 97% of the annual plan.

According to a representative of DPM, in the first half of the year, gas prices increased 25% over the plan, but profit exceeded the plan thanks to the increase in prices of fertilizers and chemicals. Specifically, price of Phu My urea increased by 8% while prices of other fertilizers increased by 23%, price of NH3 increased by 10%, and price of UFC85 increased by 41% over the plan.

DPM also cut down its management and sale costs. In the first 6 months, these costs were reduced by 8% over the plan and by more than 20% YoY. In addition, NPK project is still in test run phase and depreciation hasn"t been considered yet according to the initial plan.

In the coming time, DPM is expected to continue pushing its products to the market, with fertilizer consumption in the last 6 months of the year reaching about 570 thousand tons, of which Phu My Fertilizer accounted for about 400 thousand tons and NPK Phu My accounted for 75 thousand tons. Production of chemical products targets to reach 60 thousand tons.

Total revenue in the second half of the year is estimated to be lower than that in the first half of the year as NPK project starts to be depreciated after the official acceptance and commercial operation. Also, the largest fertilizer consuming crop in the year, autumn/rainy season has almost been over.

However, DPM"s board of management said that the situation in if the second half of the year is still as optimistic as that in the beginning of the year (fertilizer price increases), and DPM will adjust the plan accordingly.

Regarding new product development, Chairman Mr. Le Cu Tan revealed that DPM is also conducting research on some microbial fermentation products. Organic fertilizer products that can solve raw material problem must apply for State support before being deployed, as this is a product with high production costs and raw materials are is located far away from the market. So, it is difficult to compete with cheaper imported products.

Based on the plans to bring new NPK and NH3 products to the market to boost sales and profits, together with brand advantages, the management of DPM expects DPM"s stock price to improve in 2018.

How is the situation of gas purchase price from PVN after 2019?

At the meeting, Mr. Dinh Van Son - Member of the Members" Council of PetroVietnam Oil and Gas Group (PVN) said that the Group is de-investing from DPM and also submitted a plan to reduce its shareholding ratio to below 51% to the Government (currently approved at down to 51%). The detailed de-investment plan was approved on June 13, which is expected to be completed in this year. At the same time, PVN is developing a plan for administrative matters in the production of fertilizers. In which, the shareholding representatives will have to consider reducing costs to increase profit, pay higher dividends to shareholders, and create the incentives to increase stock price.

Mr. Dinh Van Son: PVN has set up a gas price plan to ensure the overall balance with the suppliers and manufacturers, of course subject to the approval of the ministries and competent authorities.

 

After 2019, the method to calculate gas price shall be changed, Mr. Son added: “In the past, gas from South East was cheaper, so gas price was low, but gas price has been rising and it is being used for both household consumption including both electricity and fertilizer production. But PVN strikes to ensure the supply for consumer households, and has set up a gas price plan to ensure the overall balance with the suppliers and manufacturers, of course subject to the approval of the ministries and competent authorities”.

For the investment in PVTex, this factory has just resumed its operations recent time. Currently, PVN is holding 75% of capital in PVTex and taking efforts to promote the operation of the factory. There have been initial positive signs in promoting the consumption of fiber products, especially with a preliminary purchase agreement signed between Vietnamese and Singapore partners. After 3 years of producing fiber products, it has received a profit of VND250 million dongs, and from now to the end of the year, 3-6 more units will be started operation.

Regarding the deposit in OceanBank, PVN is still confident as this Bank is under the administration of the State Bank, therefore, it leads to a delayed money withdrawal instead of loss.

Thanh Nu - Vietstock

22/06/2018
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