The VN-Index fell 1.9% on Monday, mirroring losses in the US market on Friday, for a fourth down day in five.
• VIC (-2.9%) was the top contributor to the day’s sharp pullback, followed by its subsidiaries VHM (-2.3%) and VRE (-4.7%).
• VCB (-2.9%) led banks lower, along with BID (-1.7%), VPB (-3.8%), TCB (-1.9%) and MBB (-3.3%)
DPM: longer-than-expected maintenance could hurt production volume.
DPM has just announced its maintenance schedule for 2019, which lasts 80 days from February 19, 2019 to May 10, 2019. This is longer than its periodic maintenance of 22-26 days every two years. Per DPM, this is due to DPM combining its periodic maintenance for its urea plant and unexpected technical issues related to upgrading the Heat Exchange Reformer (HTER) of the NH3 expansion plant.
DPM estimates urea production volume of 671,000 tons compared to previous guidance of 810,000 tons for 2019. In addition, DPM is revising NPK production volume according to this maintenance schedule. This implies downside risk to our current forecasts of 810,000 tons of urea and 200,000 tons of NPK fertilizer.
Fortunately, per DPM, it has business interruption insurance to cover the loss of income due to the unforeseen stoppage of the plant. The insurer should conduct the examination after the maintenance finishes, then decide whether this is insured under the insurance policy and calculate the compensation fee. We will investigate further and keep track on this issue. If this does not qualify for compensation, we foresee a 30% downside risk to our current 2019 earnings forecast and 10%-15% to our current target price.
We currently have a MARKET PERFORM rating with a target price of VND23,900/share (projected total return of 28.3% inclusive of a 7.6% dividend yield). DPM is trading at a 2019 P/E of 10.6x and P/B of 0.9x based on our forecast.
VCB: Offloads Vietnam Airlines shares acquired during 2018 rights issue
Vietcombank (“VCB”) has successfully sold 2.3 million shares in Vietnam Airlines it acquired during the 2018 rights issue. VCB has not disclosed the price it sold the stake at but using the closing price of Vietnam Airlines on UPCoM today, this will imply a profit of circa USD3.0mn. We did not model for the monetization of any Vietnam Airlines shares in our 2019 forecast of VCB and hence this represents upside to our numbers.