- We raise our target price by 2% but downgrade our rating from BUY to OUTPERFORM following a 7% increase in GAS’s share price in the past three months. We reiterate our optimistic view as we believe GAS will be the first beneficiary from Vietnam’s structural transition to LNG. 

- We trim our 2021F earnings forecast by 4% due to both weaker-than-expected gas demand and gas prices for industrial parks in H1 2021. However, we increase our 2023-2024F earnings by 7% on average as we assume an additional gas supply from the White Lion phase 2A gas field. We maintain our earnings forecasts for 2022F and 2025-2030F.

- We expect 2021F EPS growth of 13.0% YoY to be supported by increased profits from the gas trading/LPG segments thanks to robust FO/LPG prices. We forecast 2022F EPS growth of 17.0% YoY due to a 9.3% YoY sales volume recovery and higher gas prices for industrial clients. 

- We forecast an EPS CAGR of 15.1% in 2020-2030F, which is driven by higher profits from the transportation segment (driven by LNG) and outweighs declining profits from the gas trading segment when cheap gas fields run out of reserves. We project profit from the transportation segment to double and contribute ~70% to GAS’s net profit by 2025F vs ~40% in 2020. 

- GAS has a strong financial capacity with USD1.4bn of cash on hand and net gearing of -55.5%.

- GAS’s valuation looks attractive at a 2022F P/E of 16.9x, which is 9.9% lower compared to the five-year average TTM P/E of its regional peers.

- Upside risk: Faster-than-expected progress of the Thi Vai LNG terminal – phase 1 project.

- Downside risk: Lower-than-expected sales volume for power plants in 2022.  

We increase our oil price forecast but cut our gas sales volume forecast for 2021-22F. Following our revised oil price forecasts as published in our July 27, 2021 Energy Sector Update, we raise our assumed gas price for power plants by 20.8%/6.2% in 2021/22F. However, we cut 2021/22F gas volume by 5.6%/3.2% following weak volume in H1 2021 and a risk of disruption to demand in H2 2021 from COVID-19. Our forecast implies 2022F sales volume growth of 9.3% YoY. 

We trim 2021F gas price for industrial parks by 5.8%. The gas price for industrial parks is negotiated twice a year and typically linked to FO/LPG prices. However, the average gas price for industrial parks in H1 2021 was only USD8.9/MMBTU (+2.4% YoY) despite stronger FO and LPG prices, which we believe was due to GAS extending support to its industrial clients. Given the current COVID-19 situation, we expect gas prices to industrial parks will remain low in H2 2021 and thus cut our forecast by 5.8% while keeping 2022-2025F gas prices to industrial clients unchanged. 

White Lion phase 2A gas field to support 2023-24F earnings. This field produced its first gas in mid-June and we project an annual output of 0.5 billion cubic meters (5% of GAS’s total volume in 2021-24F). We expect new supply from this field to help GAS meet more demand in 2023-24F. We increase our projected volume by 3.5% and earnings by 7.2% on average for 2023-24F.