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The Vietnam Stock Market Report 04-11-2013

DXP1 The Vietnam Stock Market Report 04 11 2013

DXP

Vietnam Stock Market daily: DXP targets FY2013 net sales of VND220 billion, down 16% y/y and then pretax profit of VND75 billion, sharply down 27% y/y.

Petrovietnam Southern Gas (PGS), the LPG & CNG distributor, shareholders approved FY2013 targets calling for VND6.2 trillion (-3.7% y/y) in sales and VND209 billion (-18% y/y) in PBT.

The markets rebounded today although turnover fell back from yesterday’s rather high levels. Market breadth widened a bit with 29 shares going to the ceiling while 36 shares fell to the floor. Foreigners were less active and net sellers for a consecutive second day (and for a third day on the HoSE). The put through market was fairly active with very large transactions seen in VIC & GAS. In terms of the active stocks we saw gains in CSM; GAS; BVH; DRC & DQC while CII; PET and of course SJS fell off.

The market rebounded today at the close; having fluctuated throughout the day. In many ways it was a reverse of yes¬terday’s movement with everything hanging on a flurry of ATC orders which this time pushed the VN index higher. The market seems to be able to regain the 500 level with ease however it’s clear that for the time being there is quite some resistance build up between 510 and 520.

We note that on the HoSE, medium cap laggards such as DQC have been making much of the running recently. And this makes us wonder how much longer the HN index will be left out in the cold. The disparity in performance is now glaring and we feel it’s only a matter of time before HN index larger caps stage a bit of a catch up rally. We also note that top 50 market capitalisation HoSE stocks such as PNJ (Hold) & HVG have fallen behind the rest YTD in performance terms. And they look attractive on a medium term view. Meanwhile the leading stocks in the rally YTD look toppy to us and indeed many of them have been consolidating for some time already. Hence we think that buying laggards including those listed on the HN index is the best way to play the market for now.

Our logistics team notes that Doan Xa Port JSC (DXP) held its AGM last week. The highlight was the fact that the com¬pany has decided to increase FY2012 cash dividend from VND3,000 to VND7,000/share or an increase of 133% implying FY2012 dividend yield of 12.4%. Which is of course what has caused the stock to soar in recent weeks. The company had an interim FY2012 dividend payment of VND2,000 last December and we expect the balance of VND5,000 will be paid in June this year at the latest. DXP then plans to pay FY2013 cash dividend of VND3,000, down 57% y/y giving us a FY2013 dividend yield drop back to 5.3%.

DXP targets FY2013 net sales of VND220 billion, down 16% y/y and then pretax profit of VND75 billion, sharply down 27% y/y. As we have mentioned in previous notes this is due to the dropping out of extraordinary sales in the cold storage service segment from last year. As you may recall FY2012 segment sales here came to VND75 billion up 114% y/y fol¬lowing the closure of the main crossing into China by the Chinese government for some commercial traffic for 6 months last year (2Q and 3Q last year).

DXP Port is already running at full capacity, hence room for forward sales growth is limited. And they appear to have no plans for expansion at this point. We observe proposed capex for FY2013 at only VND22 billion, down 38% y/y this will go to replace cargo handling equipment only which is unlikely to boost sales. As if to underline this they set the FY2013 target for handled throughput volume at 4.38 million tons flat y/y.

Of course full capacity operations for a port is not always a fixed number. There are several ways they might increase capacity if they so wished of course without going out and building a whole new port or expanding the existing port area itself. For example they might (1) upgrade equipment to speed up turnaround times and thereby boost productivity (2) hire more people or (3) increase operating hours by running longer hours or even have a second shift. In DXP’s case we don’t for the time being see much possibility of any of that. The signs are all there; throughput has remained flat for several years already even though nationally trade flows have surged; shareholders are dominated by state owned companies while capex is low.

Based on this we forecast sales from port operations will come to VND190 billion, up merely 5% y/y. Meanwhile we fore¬cast sales from cold storage service will drop by 47% y/y to VND40 billion in FY2013 assuming that frozen food traffic on the China-Vietnam border crossings runs smoothly throughout FY2013. Overall, we expect sales of VND230 billion, down 8% y/y albeit still 5% higher than the company’s target.

We assume COGS will decrease by just 2% y/y giving us a lower gross profit margin of 42% compared to 45.5% last year. This is on a lower contribution from the cold storage service segment which usually earns a very healthy GPM of about 50%. We then forecast that net financial income will change little. Finally we forecast pretax profit will be VND88 billion, down 15% y/y albeit 17% above the company’s target. The company is notable for low-balling numbers and given our conservative assumptions we put the differences between the two numbers down to just that. Then FY2013 EPS will be generated at VND8,391, down 16% y/y. Applying today’s price, DXP is trading at forward P/E of 6.7 xs and a forward P/B of 1.8 xs. .

After talking to the company for some guidance, we estimate that for first 3 months of the year, DXP achieved sales of about VND48 billion, down 3% y/y meanwhile pretax profit came at about VND15 billion, down 5% y/y. Comparing with our full year forecast, 1Q earnings fulfilled 21% of sales and 17% for pretax profit respectively.

Valuations look more than reasonable in our opinion and we note the shares has far outperformed the admittedly lagging HN Index (69.7% versus 5.6% YTD). Given that the higher payout ratio is for one year only and that we have little hope for stronger underlying earnings growth for the time being. Hence we would be tempted to take some profits over the next few weeks unless of course investors want to hang around for that nice dividend check. They have not determined the ex-date for the final cash dividend payment yet, but we estimate not later than June this year (hence call it mid May through to late June).

In its AGM yesterday, Petrovietnam Southern Gas (PGS), the LPG & CNG distributor, shareholders approved FY2013 targets calling for VND6.2 trillion (-3.7% y/y) in sales and VND209 billion (-18% y/y) in PBT driven by volume sales of 265 tons of LPG (+0.8% y/y) and 126 million cubic meters of compressed natural gas (CNG) (+7.1% y/y). The targets are quite conservative in our view. The shareholders also approved a FY2013 cash dividend at VND1,200 per share, imply¬ing a dividend yield of 6.6% at today’s price. The cash dividend will be paid soon in the 1-H 2013. Regarding Q1 results guidance, PGS estimated that Q1 PBT came in around VND50 billion, or similar to Q1/2012.

We believe FY2013 will continue to be a tough year for PGS. Margins in the CNG segment which accounts for only a third of revenue yet makes two third of profit are likely to decline a little bit this year as output price increases won’t match expected input price increases. According to GAS’s pricing schedule, the natural gas price for CNG increased by 10% to US$9/MMBTU in Q1/2013 and will increase another 10% in Q3/2013.

Therefore, in our earning model we estimate that average price for natural gas will increase by 12.5% to US$9.45/MMB¬TU in 2013 and that would increase PGS’s CNG unit COGS price by 10% to US$11.7 MMBTU. Moreover we forecast that CNG output price will increase only 5% in 2013 as we believe that both LPG and Do, the two benchmarks for CNG output prices, will not increase much over their already high levels in 2012.

Hence for our earning model, we forecast that PGS will make revenues of VND6.5 trillion (+1% y/y), PBT of VND270 billion (+5.9% y/y), and NPATMI of VND160 billion (+5.8% y/y). We then estimate FY2013 EPS of VND4,210, valuing the company at a forward PE of 4.3x, which is fair in our view given the high risks in the LPG business and expressing their lack of any pricing power for both CNG input and output prices.

Fiachra Mac Cana
Ho Chi Minh Securities
HCMS <GO>

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