We remain confident that petroleum consumption will continue to grow strongly in Vietnam, even with increasing penetration of electric vehicles. According to the Ministry of Industry & Trade (MoIT), in 8M 2024, petroleum consumption grew 4% YoY. We project Vietnam’s petroleum consumption to grow at a 4.1% CAGR in 2023-2028F. This rate is ten times the International Energy Agency’s projected CAGR in global consumption of 0.4% in the same period. 

We expect the new decree on the petroleum sector to have a positive impact on PLX & OIL’s earnings. Due to material petroleum shortages in late 2022, the MoIT and related authorities have drafted more regulations to revise Decree 80 (released in November 2023) to ensure energy security in the future. Since our latest comments on the third draft of the new decree in our PLX Update Report (Positioned for higher market share, improved profitability, dated August 8, 2024), a fourth draft was issued on August 20. This is broadly similar to the third draft in terms of pricing mechanism, which aims to give petrol distributors flexibility to set their own prices, adjust regulated costs and profits annually based on Vietnam’s CPI, and reduce the number of intermediaries in the market. There are two key changes from the third draft. (1) The Petroleum Stabilization Fund (PSF) will be managed by the Government, rather than remaining under petrol distributors’ management. The Ministry of Finance (MoF) will oversee the PSF and ensure its transfer to the State budget. (2) The ‘premium’, a component of the base/ceiling price (details in Figure 4), will be reviewed every three months (similar to current regulations), rather than every seven days as per the third draft. The new decree is expected to be approved in late 2024 and be effective from early 2025. 

The new decree will allow petrol distributors to set their own prices and switch from a base price mechanism to a ceiling price mechanism. We expect this to improve margins for petrol distributors. We observe that petroleum distribution in Asia is subject to three main pricing mechanisms: market-determined price, base price, and ceiling price. From 2015-2023, countries with market-determined pricing or ceiling prices averaged OPMs of 3.0% and 3.9%, respectively, while PLX averaged 2.1% and PV OIL averaged 0.6% (page 11). We believe that switching to a ceiling price mechanism should help to improve the OPMs of PLX and OIL in recovering to their pre-COVID-19 levels and might potentially increase, matching with the OPMs of regional peers.

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