September 19, 2016
Disclaimer: the opinions expressed herein are that of Rongviet Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.
CNG divestment improves PGS’s financial capability
Extraordinary profit in Q1/2016 came from CNG divestment.
In Q12016, PGS achieved a record profit after tax with VND 184.6 billion (+452% yoy) thanks to the completion in CNG Vietnam divestment with total value of approximately USD 310 billion. However, revenue and profit after tax of parent company (excluding financial profit) in Q1/2016 significantly deteriorated with -12.7% yoy and -50.3% yoy, equivalent to VND 842 billion and VND 21 billion. The decline in core business activities resulted from low crude oil prices in Q12016 with the bottom of 10 years. Therefore, average selling price of gas dropped by 7.6% in 2016, negatively affected revenue and gross profit.
CNG segment will be the leading growth factor for PGS
In 2016, we expect that growth in CNG segment will come from new customer, Samsung CE to start operation with expected input of 6 – 7 million m3 CNG. In addition, PGS also succeed in negotiation for an additional discount level to match with lower oil price. This will support PGS to maintain a stable profit under the worst case scenario of global crude price.
Moreover, LPG segment continues low growth rates due to fixed market share and fierce competition. Forecasted output is relatively equivalent to PGS’s annual plan with 241,185 tons. With extra ordination gain from CNG divestment, PGS improved its financial capability to enhance profitability and business efficiency through M&A deals with other LPG companies. We believe this is the most suitable strategy for PGS in order to expanse business activities.
Revenue and profit after tax in 2016 of PGS (excluding the divestment factor) are forecasted to achieve VND 4.618 billion (+16.0%) and VND 100 billion (-12.6% yoy).
Attractive dividend yield
According to the Company, dividend for 2016 will reach 30%, equivalent to dividend yield of 15%. PGS has gone through the process to make the advance payment with 15% for 2016 and 6% for 2015 in Q22016. The remaining 15% is expected to be an attractive factor and could be paid out at the end of this year.
Recommendation and Valuation.
LPG prospects has demonstrated no significant improvement while CNG segment has only one additional major customer (Samsung CE). Consequently, we believe that growth prospects of PGS’s business results will maintain at low level. The appropriate price for PGS stock is forecasted at VND 20,600/share* based on FCFE and P/E valuation method. RongViet Research recommends to ACCUMULATE in INTERMEDIATE.
*FCFE and P/E valuation method excluded the extraordinary profit from CNG divestment. This gain (equivalent to ~5,000VND/share) and the elimination of dividend payment (equivalent to ~2,100VND/share) were taken into the forecasted stock price.
Average CP Aramco in Q1 has dropped to USD324/ton (-21.8% compared with Q42015). However, retail domestic selling price has lower decrease with only -7.6%.
In term of 2016 plan, PGS provided different scenario for global crude oil price at USD 60, 50, 40 and 30/barrel. After excluding the financial factor, PGS’s plan is relatively appropriate without much volatility. With current average crude oil price has been ~USD40/barrel this year and the perspective that oil price will be under the long-term recovery trend, RongViet Research will use USD45/barrel (Brent) as the base case scenario for the valuation of stock price and forecasted business results.
Financial profit after tax in 2016 is expected to be VND 248 billion. Dividend this year will contain 15% from this profit and retained earnings could be used for (1) loan restructuring and (2) core business investment. We believe that PGS could expand LPG activities through M&A deal or focus on LNG segment in the future.
The opinions expressed in this research report reflect only the analyst’s personal views of the subject securities or matters; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or opinions expressed in the report.
The information herein is compiled by or arrived at Rong Viet Securites from sources believed to be reliable. We, however, do not guarantee its accuracy or completeness. Opinions, estimations and projections expressed in this report are deemed valid up to the date of publication of this report and can be subject to change without notice.
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