Buy DDV with a target price of VND 24,400/share
BIDV Securities Joint Stock Company (BSC) believes that the expected completion of depreciation of the DAP Dinh Vu plant from Q2/2025 will help Dinh Vu Ure Joint Stock Company (UPCoM: DDV) save VND 60-70 billion per year.
In addition, BSC expects the VAT Law to be passed and take effect from 2025, helping DDV record VND 16 billion in a cautious scenario. Specifically, at the discussion session on the afternoon of June 24, 2024, at the 7th session of the National Assembly, the deputies basically agreed to subject fertilizers to VAT.
However, there were two discussions on whether to apply a VAT rate of 0% or 5% for fertilizers, and the deputies proposed that the Ministry of Finance should provide a more detailed assessment report on the impact of the 5% VAT application on fertilizers on farmers and domestic fertilizer prices.
On the other hand, the Ministry of Finance will study and officially submit the draft to the 8th session of the National Assembly (expected to be held in October 2024). In the base-case scenario, BSC expects a rate of 5% and DDV to bear the full output VAT. In the event that a rate of 0% is proposed, this will be a more positive scenario than BSC‘s expectations and the most positive scenario at present, corresponding to DDV not having to pay the output VAT (VAT 0%).
BSC expects the Value Added Tax Law to be passed in 2024 and take effect officially from 2025, helping DDV enhance its competitiveness against imported fertilizers thanks to the following reasons: imported fertilizers will be subject to a 5% VAT, the same as domestic fertilizers; selling prices will depend on market supply and demand; DDV will be refunded input VAT, thus reducing production costs and enhancing competitiveness; enterprises will benefit from the input VAT, which is larger than the output VAT (5% of revenue).
BSC projects DDV‘s net revenue and post-tax profit in 2024 to reach VND 3,475 billion (+8%) and VND 144 billion (+105%), respectively, with an expected EPS of VND 984 in 2024, based on the following assumptions: (1) DAP output reaches 267,000 tons (+6.5%); (2) average selling price of DAP reaches VND 13.1 million/ton (+3%), mainly due to a low base in Q2 and Q3/2023; (3) ratio of selling and management expenses remains flat compared to the same period, at a slightly reduced rate of 0.7% of net revenue, equivalent to VND 231 billion in selling and management expenses.
For 2025, BSC projects DDV‘s net revenue and post-tax profit to reach VND 3,529 billion (+2%) and VND 236 billion (+64%), respectively, with an expected EPS of VND 1,617 in 2025, based on the following assumptions: (1) DAP output reaches 272,000 tons (+2.0%); (2) average selling price of DAP is VND 13.0 million/ton (-1%); (3) gross profit margin improves by 3.7 percentage points to 14.4%, mainly due to a reduction of VND 57 billion in depreciation of the DAP plant and the enactment of the VAT Law subjecting fertilizers to VAT.
Based on the above projections, BSC recommends buying DDV with a target price of VND 24,400/share
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DPM: Target price of VND 40,175/share
Vietnam Joint Stock Commercial Bank Securities Company (VCBS) stated that, according to the draft Law on Value Added Tax (VAT) being consulted, the Ministry of Finance proposes to apply a tax rate of 5% for fertilizers instead of the current exemption. If the draft is approved, it will positively affect the profits of fertilizer companies, including Ca Mau Petroleum Fertilizer Joint Stock Company (HOSE: DCM) and Petroleum Fertilizer and Chemicals Corporation – Joint Stock Company (HOSE: DPM).
In 2025, the fertilizer market will continue to witness strong competition between domestic fertilizer producers and importers. Therefore, subjecting fertilizers to a 5% VAT will save production costs for domestic fertilizer producers and traders, creating room for them to reduce selling prices and enhance competitiveness with imported products.
In the long run, the main gas fields are currently in a natural decline, while domestic gas demand will increase in areas such as power generation, chemicals, and industry. As a result, the supply of low-cost domestic gas for urea production will also decrease.
According to VCBS, DPM‘s average gas price input in 2024 is expected to increase by 3% year-on-year due to a higher ratio of gas from high-priced fields in the Cuu Long and Nam Con Son basins and a 2% year-on-year increase in fuel oil prices. Transportation fees (before VAT) for the period of 2024-2028 are estimated at 4.5 USD/mmBTU due to the low proportion of low-cost gas sources.
According to Fertecon’s forecast, the global urea production capacity in 2024 is estimated at 237,232 million tons, continuing the upward trend compared to 2023. Southeast Asia maintains a stable supply of 17,151 million tons, South Asia increases to 40,163 million tons, Southeast Asia increases to 77,098 million tons, and Africa increases to 17,025 million tons. The outlook for increased production in major urea-exporting countries such as Russia, China, and Egypt has not improved.
In addition, fertilizer consumption in 2024 is expected to increase slightly, with domestic consumption expected to increase in the fourth quarter of 2024 and the first quarter of 2025 during the winter-spring crop. Agromonitor forecasts domestic urea consumption to reach 2.05-2.11 million tons, up about 13% compared to the period of 2022-2023. Vietnam’s urea exports in 2024 are expected to increase slightly or stabilize compared to 2023. Supply in the Asian region is expected to increase due to additional production capacity from new urea plants, especially in India and Bangladesh. This will increase competition in the markets where Vietnam exports. However, the Cambodian market still holds export potential. Vietnam’s urea exports in 2024 are expected to reach 550,000-570,000 tons.
Based on the FCFF and FCFE discount methods with a weight of 50/50, VCBS sets a target price for DPM of VND 40,175/share.
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Buy HT1 with a target price of VND 14,500/share
KB Vietnam Securities Co., Ltd. (KBSV) reported that 2023 witnessed a decline in business performance across the cement industry, affected by both domestic and export channels. For the first time in the past 10 years, domestic consumption volume fell below 60 million tons/year, a decrease of about 9.4% compared to 2022.
However, KBSV believes that the focus will be on the Southern region. According to the Vietnam Cement Association (VNCA), the production capacity of Southern enterprises only meets 40-60% of the annual demand, which is the opposite of the Northern region due to the concentration of clay and limestone mines in the North and North Central regions. With the highest market share (34.7%) and good coverage (5 factories) in the South, Ha Tien Cement Joint Stock Company (HOSE: HT1) has a significant competitive advantage in ensuring output compared to other competitors in the region, especially compared to the North.
HT1 is shifting a part of its output to the construction infrastructure and industrial segments, and this is expected to be partially offset by the acceleration of public investment projects from now until 2025 (the last year of the medium-term public investment plan) in the South. According to the Board of Directors, the company has participated in supplying 50-100% of the cement volume for most of the key infrastructure projects in the South (including the Long Thanh Airport). The second half of the year will be a period of accelerating construction progress, so KBSV projects HT1‘s cement consumption volume in Q3 and Q4/2024 to reach 3.1 million tons (+19% compared to the same period), bringing the total cement consumption volume in 2024 to about 5.6 million tons (+8.4%).
The new low-cost cement product, Power Cement, was launched in 2023, completely independent of the VICEM Ha Tien brand, to directly compete with low-cost cement products that have been eroding the company’s market share. At the same time, this new product line is also expected to boost sales in the context of factories having to cut selling prices to stimulate demand. The consumption volume of Power Cement is expected to reach about 600,000 tons in 2024.
KBSV believes that HT1‘s profit hit bottom in 2023 and will start to recover more clearly in the last two quarters of 2024 due to three factors: coal prices remain at a low base; utilization of substitute raw materials and waste heat from flue gas to optimize production costs; and reduced interest expenses. Although consumption volume is not expected to improve significantly, KBSV assesses that focusing on cost optimization will help HT1 far exceed its after-tax profit plan in 2024 (VND 23.2 billion), reaching about VND 107.9 billion (+509% over the same period) with a possible gross profit margin of 9.4% (up 0.83 percentage points).
On the other hand, the BOT Phu Huu project is expected to start operating from Q3/2024 with an exploitation period of 24 years according to the contract, after the People’s Committee of Ho Chi Minh City approved the maximum toll fee. At the 2024 Annual General Meeting of Shareholders, Vicem Ha Tien announced that it had carried out bidding and started construction of the Electronic Toll Collection System from March 20, 2024, and expected to complete it in May 2024. If it starts operating in the last two quarters of 2024, KBSV expects the project to contribute about VND 24 billion to HT1‘s profit in 2024.
Based on the above arguments, KBSV recommends buying HT1 with a target price of VND 14,500/share
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“DPM’s Profits Vanish Into Thin Air, Accounting for Over 90% in 2023”
“DPM, the industry leader, achieved a remarkable feat by generating a profit post-tax of over 90% in 2023, marking its lowest net earnings since 2019.”
