DPM – Q1 PBT ahead of forecast

We attended DPM’s annual general meeting (AGM) in Ba Ria – Vung Tau Province on March 29, 2024. Overall, DPM’s management emphasized the uncertainty of the urea price outlook due to ongoing global conflicts and intense domestic competition. However, with the newly inaugurated board members and CEO, management promises to try their best to maintain DPM’s leading position in the market.
Q1 preliminary results are ahead of our forecast with estimated revenue and PBT of VND3.2tn (23% our full-year forecast) and VND311bn (38% our full-year forecast), respectively. We attribute the higher-than-expected PBT to 1) lower-than-expected input gas price due to potential higher proportion from cheap gas source from the Cuu Long basin and 2) the urea segment’s higher-than-expected sales volume with Q1 volume completing 27% of our full-year forecast. We thus see a potential slight upside adjustment to our earnings forecast, pending a fuller review.
Shareholders approved a 2023 cash dividend of VND2,000/share on VND3.9tn of total charter capital, in line with our forecast.
Shareholders approved a 2024 cash dividend of VND1,500/share on expected year-end charter capital of VND5.5tn. This implies ~VND2,000/share on charter capital of VND3.9tn and is lower than our forecasted VND3,000/share, making the dividend yield 5.6% (vs our forecasted 8.4%). We note that the company usually raises cash dividends vs earlier guidance based on actual profit by the end of the year.
Shareholders approved the one-year input gas contract between DPM and GAS. The input gas cost is approximately USD9.79/MMBTU. We see insignificant change to our forecast of USD10.5/MMBTU as we assume the average Brent oil price to be USD83/bbl in 2024.
Shareholders approved the appointment of newly elected Chairman Nguyen Xuan Hoa and CEO cum board member Phan Cong Thanh.

Q1 preliminary results are ahead of our forecast. According to DPM’s management, estimated Q1 revenue and PBT are VND3.2tn (25% of full-year guidance) and VND311bn (47% of full-year guidance). These complete 23% and 38% of our respective full-year forecasts. Additionally, sales volume in the urea and NPK segments in Q1 are estimated at 239,000 tonnes (27.5% of full-year guidance) and 24,000 tonnes (16.8% of full-year guidance), respectively. These are equivalent to 27.5% and 14.8% of our respective full-year forecasts. We attribute the higher NPAT to 1) the higher proportion of inexpensive input gas source from the Cuu Long basin and 2) the urea segment’s higher-than-expected sales volume. We thus see potential upside adjustment to our valuation, pending a fuller review.

2024 guidance is broadly in line with our expectation. DPM set the targets for revenues and NPAT in 2024 at VND12.8tn (-6% YoY) and VND542bn (+2.3% YoY). These complete 92.2% and 81.8% of our respective full-year forecasts. We note that DPM usually sets their guidance conservatively and that they beat their forecast by 2x on average over the past 10 years. In details, they expect the sales volumes for urea and NPK to be 870,000 tonnes/year (-1% YoY) and 143,100 tonnes/year (+3.9% YoY) respectively. These are equivalent to 100% and 88% of our respective forecasts. We attribute the low NPK volume to the management’s conservativeness that NPK will not recover strongly in 2024 from a negative profit in 2023, which was due to (1) NPK’s selling prices having faced intense competitiveness and (2) input costs were tremendous (96.4% revenue from NPK in 2023). However, they stated that this segment has improved in quality and will generate profit soon.

2023 fund allocation approved. Shareholders approved the 2023 retained earnings allocation as follows: 1) 20% par value on total capital charter of VND3.9tn for the 2023 cash dividend, amounting to VND783bn (i.e. VND2,000/share), 2) VND115bn towards bonus funds (equivalent to three months of salary), 3) VND2.3bn to renumeration funds (equivalent to 1.5-month salary), and 4) none towards development funds. Due to a lower-than-expected NPAT in 2023 and the charter capital increase has not yet been finalized, DPM proposed to change the previously approved (in the of June 2023 AGM) cash dividend of 40% par value based on VND5.1tn of newly increased capital down to 20% of par value based on the current VND3.9tn charter capital. This is equivalent to our forecasted cash dividend of VND2,000/share.

2024 fund allocation approved. Shareholders approved the 2024 NPAT allocation as follows: 1) 15% of par value on expected total charter capital of VND5.5tn for cash dividends, amounting to VND822bn (i.e. VND1,500/share), 2) equivalent to three months of salary towards bonus funds and an additional 20% of the excess of 2024 NPAT if DPM beats its guidance, 3) equivalent to 1.5-month salary towards renumeration funds, and 4) 20% towards development funds. DPM’s management announced that it plans to increase its charter capital from VND3.9tn to VND5.5tn via transfer from retained earnings and the development fund, which was previously approved in the 2023 AGM and submitted to SSC and is awaiting approval.

2024 input gas contract with GAS approved. The gas buying contract between DPM and PV GAS estimates that the input gas cost will be USD9.79/MMBTU (including VAT) on the total volume of 22 million MMBTU. We understand that this is based on a Brent oil price assumption of USD70/bbl, therefore, we see insignificant change to our forecast of USD10.5/MMBTU as we assume the average Brent oil price of USD83/bbl in 2024. The contract is valued at VND5.1tn (assuming a 23,500VND/USD exchange rate) and valid until end-2024. The gas is specified to be mainly from Bach Ho & Rong Doi Moi and other gas fields of the Cuu Long basin. DPM’s management also explained that the infeasibility to sign longer-term contracts is due to 1) it currently exhausting gas sources and the instability of the input gas cost, and 2) higher demand from, and prioritization for, power plants.

Shareholders elected new Chairman and Board Member. Shareholders approved the dismissal of previous key persons and elected Mr. Nguyen Xuan Hoa to be DPM’s new Chariman and Mr. Phan Cong Thanh as a new Board Member cum CEO. After a challenging year with financial hardship and some key positions left vacated, DPM’s management and some large shareholders expressed their hope in the new management and for financial recovery in the near term.