Company Quarterly Earnings Update – DPM VN – 2020

Summary of the 2020 results of Phu My Fertilizer (DPM VN)

2020 results: highlights

  • In 2020, total revenue slightly increased by 1.0% to VND7,761bn. Urea sales (65% total sales) grew by 4.7% y/y with selling prices and volume moved in opposite directions. DPM’s urea price decline by 12.7% y/y whilst sales volume jumped 19.6% y/y. The in-house NPK sales (10% total sales) expanded by 18.6% y/y thanks to higher utilization. Sales from other products (25% total sales), mostly from trading imported fertilizer, dropped by 22.5% y/y.
  • Gross margin expanded by 4.1 percentage points to 22.3%, thanks to (i) higher urea sales volume and (ii) low input gas price. Net financial income also increased following a higher cash position. The company booked a part of an insurance claim for operation interruption of VND87bn in Q4/2020. All in all, net profit jumped to VND693bn, equivalent to an 83.5% y/y growth.
  • By the end of 2020, DPM’s cash and cash equivalent amounted to VND4,214bn, accounting for 37.3% of its total assets. Total loans reduced from VND1,240 to VND1,049bn, resulting in low financial leverage, with D/E of 0.16x and D/A of 0.11x.

Outlook

  • Global urea prices have increased faster pace than natural gas prices (+24.8% vs +7.7% YTD), mostly due to the imbalance between supply and demand. However, we expect that this uptrend of selling prices is just short-term, and we think prices will normalize from Q2/2021 onwards.
  • For 2021, we expect DPM’s net revenue to increase 14.0% y/y, mainly thanks to a higher selling price of 25.8% y/y, although urea volume is expected to decline by 6.9% y/y due to periodic maintenance. We project the company to sell 110k tons of in-house NPK products (+16.4% y/y), increasing the plant’s utilization to 44.0% from 37.7% last year. For the profitability, despite higher input gas price, we think the urea business’ margin should remain somewhat stable, supported by an increase in selling price. Net profit is forecasted to increase by 19.7% y/y to VND829 billion.
  • For 2022, we forecast net profit to decline by 19.2% y/y to VND670 billion due to lower selling price though input price is expected to remain unchanged and as there will be no extraordinary income from the insurance claim.

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