Fertiliser companies see earnings on an upswing but stock prices may become less attractive

A worker packages NPK fertiliser for export to Laos at the Binh Dien Fertiliser Joint Stock Company (BFC) in Quang Tri Province. BFC saw profit up 88 per cent in the first half of this year. — VNA/VNS Photo Danh Lam

Fertiliser companies reported increases in earnings results but stock prices are forecast to struggle in 2022.

Fertiliser businesses witnessed galloping growth in profits in the first half of this year. Petrovietnam Fertiliser and Chemicals Corporation (DPM) witnessed post-tax profit up 110 per cent year-on-year, PetroVietnam Ca Mau Fertiliser JSC (DCM) up 20 per cent, Binh Dien Fertiliser Joint Stock Company (BFC) up 88 per cent and The Southern Fertiliser JSC (SFG) up 362 per cent.

As for DPM, although in the second quarter its factory had to stop production due to periodic maintenance for nearly a month, six-month revenue only increased by 26 per cent, but profit doubled thanks to the sharp increase in prices. Compared to the annual plan, DPM has fulfilled 59 per cent of the revenue target, but has exceeded nearly 140 per cent of the profit plan for the whole year.

DCM in the first half of this year completed 55.4 per cent of the revenue plan and exceeded 108.2 per cent of the annual plan. At a shareholders’ meeting last month, General Director Van Tien Thanh said the first half of this year was an unprecedented period in the past 10 years as the prices of fertiliser products witnessed a sudden increase which was difficult to control.

Many other fertiliser enterprises also exceeded their profit target for the whole year in just six months, including Lam Thao Fertilisers and Chemicals JSC (LAS), with after-tax profit of VND52.7 billion (US$2.3 million), exceeding the whole year’s plan by 86 per cent.

DAP - VINACHEM JSC (DDV) achieved after-tax profit of VND54.6 billion in the first half of the year, exceeding the whole year’s profit plan by 32.5 per cent. South-East PetroVietnam Fertiliser & Chemicals JSC (PSE) also exceeded the profit plan for 2021 by 63.8 per cent in just 6 months.

According to analysts of SSI Securities Company, in 2022, fertiliser enterprises will continue to witness increasing profits. First, China faces a shortage of fertiliser supplies, which will reduce the supply of fertiliser worldwide. Second, fertiliser-importing countries suffer from unusually high transportation costs due to COVID-19, which will drive up fertiliser prices.

These two factors would cause a shortage of fertiliser supply and increasing prices in 2022, SSI said.

Domestically, fertiliser output will increase from the third quarter of 2021 because the fertiliser factories of Petrovietnam Fertiliser and Chemicals Corporation (DPM), Ninh Binh Phosphate Fertiliser Joint Stock Company (NFC), Habac Nitrogenous Fertiliser & Chemicals Joint Stock Company (DHB) will resume operations.

Although supply may be in excess, fertiliser prices in Viet Nam are still forecast to increase to offset the increase in input gas prices. With excess production in the third quarter of 2021, fertiliser companies can export and continue to enjoy huge profits, SSI said.

With the current world fertiliser price movement, SSI raised the profit growth forecast of Petrovietnam Fertiliser and Chemicals Corporation (DPM) in 2021 to 75 per cent and PetroVietnam Ca Mau Fertiliser JSC (DCM) to 62 per cent.

Stock prices

Along with the strong increase in profits, since the beginning of this year, fertiliser stocks have been on the rise with many surging by 60-120 per cent.

Lam Thao Fertilisers and Chemicals JSC (LAS) increased by nearly 109 per cent, Petrovietnam Fertiliser and Chemicals Corporation (DPM) rose by 95 per cent, PetroVietnam Ca Mau Fertiliser JSC (DCM) up 73 per cent, Binh Dien Fertiliser Joint Stock Company (BFC) up 120 per cent, and The Southern Fertiliser JSC (SFG) gained 57 per cent.

Despite the positive assessment of the world fertiliser market, SSI Securities Company said that the fertiliser stock prices will still increase in 2022 but these stocks would no longer be as attractive as in 2021.

As for DCM, SSI company said that in 2022, the input gas price will increase by 39 per cent while the selling price of urea will increase slightly by 1 per cent, the consumption of urea will increase by 3 per cent, while its NPK fertiliser manufacturing plant will begin operations from the first quarter of 2022 with an output of about 90,000 tonnes.

“DCM's gross profit margin has increased from 17.4 per cent to 19.3 per cent in 2021, but may decrease slightly to 18.1 per cent in 2022. With this assumption, SSI believes that DCM's profit in 2022 will only rise 2 per cent,” SSI said.

For DPM, SSI said in 2022, the selling prices of the company's products will increase insignificantly while the input gas price will continue to rise, the gross profit margin will decrease to 24 per cent from 26 per cent in 2021. At the same time, DPM's profit in 2022 will decrease by 15 per cent compared to 2021. — VNS