Company Quarterly Earnings Update – DPM VN – 2018 H1

Summary of the H1 2018 results of Phu My Fertilizer (DPM VN) 

Highlights
  • H1/2018 net revenue increased by 9.9% yoy to VND 4,783bn mostly thanks to the higher urea selling price, while sales volume was nearly unchanged.
  • DPM’s gross margin declined to 19.4% from 27.6% in H1/2017, mainly due to rising input gas price. Selling and administration (SG&A) expenses as percentage of sales declined significantly to 10.6% from 16.2%. The EBITDA margin was nearly unchanged compared to the same period of last year at 13.2%. All in all, net profit fell by 13.0% yoy to VND 395bn. The company’s H1/2018 result was slightly better than our expectation, above all thanks to the sharp reduction of S&GA expenses.
  • The company has a strong balance sheet as cash and cash equivalents accounted for 24% of total assets at the end of H1/2018.

Outlook
  • The current global oversupply of nitrogen products such as urea should have run its course by 2020, bringing supply and demand into equilibrium. This trend is likely to support urea prices.
  • Urea selling prices in Vietnam will continue their uptrend thanks to the increasing production costs of other regional urea producers.
  • DPM’s 2018’s net profit is expected to be nearly flat, while the 2019 net profit should grow 44.0% yoy thanks to the contribution from the new NH3 and NPK plants.

Recommendation

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Featured image credit: Petrovietnam Fertilizer and Chemicals Company