Company Quarterly Earnings Update – DPM VN – 2021 9M

Summary of the 2021 9M results of Phu My Fertilizer (DPM VN)

9M/2021 results: highlights

  • DPM’s net revenue increased by 32% y/y to reach VND7,700bn thanks to an increase of 7% y/y in urea’s selling price and an increase of 69.1% y/y in the in-house NPK sales volume, indicating a utilization rate of 65.6% compared to 38.8% in 9M/2020.
  • DPM’s gross margin improved to 31.3% from 23.0% in 9M/2020 thanks to the improved gross margin of all products: (i) Urea’s gross margin increased from 32.3% to 37.5% as urea’s selling price outpaced the increase in input gas costs (ii) NPK’s gross margin increased from 4.8% to 7.7% as the utilization rate greatened, (iii) NH3’s gross margin rose from 34.8% to 47.8% thanks to favorable selling prices. We note that DPM booked one-off income of a VND246bn in Q2 (an income of VND91bn from an insurance claim and a deduction of VND155bn in expenses as required by the State Auditor). Overall, net profit jumped to VND1,473bn (+150% y/y).

Outlook

  • Global urea prices have soared to over $700/ton in October from around $450-500/ton at the end of September. We believe domestic urea prices will follow the international trends to increase further in Q4 (due to rising input costs, global supply shortages, and rising demand), but will gradually cool by the end of Q1/2022 when demand decreases (as Winter-Spring season passes) and pressure on input feedstock (natural gas and coal) will ease as winter concludes. Besides this, we are also concerned that rising urea prices may pose challenges to fertilizer producers as: (i) Farmers may apply less fertilizer to their crops or even reduce the area under cultivation, (ii) The government may intervene to calm domestic fertilizer prices to protect farmers (as China did in October 2021).
  • For 2021: The company’s gross margin is expected to expand in the last quarter as the surge in domestic urea prices will outpace the increase in input gas prices. Compared to our previous forecast, we revise FY2021’s net revenue up by 6.0% and the bottom line up by 25.5% primarily due to the recent rally in urea prices.
  • For 2022: Considering the current global energy crisis, we adjust our assumptions of normalization for 2022 in the last report, to consider the rise in both input and output prices. As a result, we revise FY2022’s net revenue up by 11% to VND11,036bn (-7.2% y/y), and net profit up by 52.4% y/y to VND1,465bn (-44.5% y/y). Without the one-off impact, 2022’s net profit would instead decrease by 41.3% y/y.

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