Vietnam National Petroleum Group

Ticker: PLX Bloomberg: PLX VN

Oil and Gas Industry

Q2/2019 Update Report

June 18, 2019

In Q1 2019, though revenue decreased by 8%, PLX's profit increased by

Recommendation NEUTRAL 20%YoY, mainly thanks to the reversal of provision for devaluation of over
VND500 billion inventories. Excluding this reversal, PLX's gross profit margin is
Target price (VND) 68,500
7.8%, much higher than 7.1%YoY.
Market price (6/18/2019) 61,000 In Q2 2019, BVSC forecasts gross profit margin will increase to 8.2%, as in April
2019, PLX's retail price has increased in line with Brent oil price. This could
Expected Return 12.3%
ensure that PLX's gross margin in April will remain as low as in Q1 2019 (7.8%).
In addition, in the remaining 2 months of Q2, Brent oil price fell sharply (15.7%)
STOCK INFORMATION while retail gasoline price has not been adjusted down with the corresponding
HOSE margin. PLX's strongest price adjustment (5.1% reduction) was applied at the
Exchange
end of Q2 (June 17, 2019), while the previous price adjustments were less than
52-week price range 50,740-70,250
the decrease in Brent oil prices.
Capitalization 72,825
Outstanding shares 1,293,878,081 In the second half of 2019, we believe that Brent oil price will be favorable for
10-day average volume 867,807 PLX, OPEC's output back to equilibrium supports our forecast that oil prices in
% foreign ownership 11.57% the remaining 2 quarters of 2019 will more stable. The profit in the second half
Beta of 2019 is forecast to be better than the same period last year and the gross
profit margin for 2019 is estimated at 7.6%. For 2019, we forecast that PLX will
achieve VND202,502 billion in revenue and VND4,676 billion in net profit, up
5.5% and 15.4%YoY, respectively.

We rate NEUTRAL on PLX based on the valuation results of P/E, P/S, FCFE
and FCFF methods at VND68,500/share.

Valuation Target price Ratio Average

P/S 74,200 25% 18,550
P/E 59,900 25% 14,975
FCFE 73,700 25% 18,425
Analyst FCFF 66,200 25% 16,550
Nguyen Nguyen Reasonable price 68,500
(84 4) 3928 8080 ext. 213
nguyenbinhnguyen@baoviet.com.vn
 June 18, 2019
PLX Q2/2019 Update Report

Q1 2019 PLX spent about VND2,500 billion from

price stabilization fund
In Q1 2019, PLX spent almost VND2,500 billion from price stabilization fund as
the global petrol price has increased following crude oil price’s increase but
domestic petrol price did not increase with the corresponding margin due to
government’s policy of keeping gasoline prices from a "shock" increase during
Tet holiday together with electricity prices. In Q1 2019, Brent oil price increased
by almost 20% compared to the beginning of the year but PLX's retail price of
gasoline only increased by 5%.

PRICE STABILIZATION FUND – FIRST 5 MONTHS OF 2019

VND/liter 01/01 16/01 31/01 15/02 02/03 18/03 02/04 17/04 02/05 17/05 01/06
Reserves
Petrol of different types 500 300 300 300 300 300 300 300 300 300 300
E5 0 0 0 0 0 0 0 0 0 100 100
Kerosene 700 300 300 300 300 300 300 300 300 300 300
Diesel 800 300 300 300 300 300 300 300 300 300 300
Mazut of different types 500 300 300 300 300 300 300 300 300 300 300

Usage
Petrol of different types 0 645 825 1,171 1,250 2,061 1,304 743 283 0 0
E5 550 1,462 1,673 1,932 2,000 2,801 2,042 1,456 925 457 398
Kerosene 0 295 652 1,078 1,078 1,065 0 0 0 0 0
Diesel 0 430 1,003 1,354 1,354 1,343 0 0 0 0 0
Mazut of different types 0 583 1,196 1,699 1,400 1,640 362 0 0 0 0

Difference (VND/liter) 1,950 -2,215 -4,149 -6,034 -5,882 -7,710 -2,508 -999 -8 843 902
Price stabilization fund
1,930 89 -240 -400 -405 -316
outstanding balance (billion VND)

Sources: Petrolimex, BVSC Research

Thanks to the price stabilization fund, although the retail price of petroleum has
not kept up with the input price, PLX's gross margin in Q1 2019 still reached 7.8%.
In Q1 2019, PLX also reversed the provision for devaluation of over VND500
billion inventories. Gross profit margin of 7.8% also eliminated the effect of this
reversal.

Gross profit margin in Q2 is expected to improve from Q1

due to a faster increase in retail price than in input price
Since early Q2 2019, PLX's retail price has started to increase sharply. According
to our estimates, the retail price increase is equal to the increase in Brent oil price
 June 18, 2019
PLX Q2/2019 Update Report

at the end of April 2019. In April 2019, PLX's retail price increased by 20% while
new Brent oil price increased by about 6%. The price stabilization fund has also
improved since early May 2019, the difference in revenue and expenditure has
returned to the equilibrium level in early May 2019 and then increased sharply in
May & June 2019.

After that, observably Brent oil prices fell by 15.7% while the new retail price of
A95 gasoline dropped by 9.3% from the peak of VND22,190/liter until the end of
Q2 2019. Thus, there are two reasons for us to be confident that PLX's gross
profit margin in Q2 will be better than Q1 2019:

❑ First, in April 2019, PLX's retail price increased in line with Brent oil price. This
will ensure that PLX's gross margin in April could remain low as in Q1 2019
(7.8%).
❑ In the remaining 2 months of Q2, Brent oil price fell sharply (15.7%) and PLX's
strongest price adjustment (5.1% reduction) was applied at the end of Q2
(June 17, 2019), while the previous price adjustments were less than the
decrease in Brent oil prices.

We estimate that gross profit margin in Q2 2019 is about 8.2%.

Brent price and PLX's retail price Since 1/1/2019, PLX's retail price
includes VND1,000/liter of
23000 envrironmental taxation (up from 90
Domestic gasoline prices as of VND3,000 to VND4,000/liter
the end of April 2019 have
22000 caught up with the increase in
Brent oil prices 80
21000

20000
70

19000

60
18000
In the remainder of Q2
17000 (May and June 2019),
PLX's retail price is 50
16000 adjusted at a lower pace
than Brent oil price.
15000 40
Jan-17

Mar-17

Jun-17
Jul-17

Jan-18

Mar-18

Jun-18
Jul-18

Jan-19

Mar-19

Jun-19
Feb-17

Nov-17
Dec-17

Feb-18

Nov-18
Dec-18

Feb-19
Apr-17

Aug-17
Sep-17

Aug-18
Sep-18
May-17

Oct-17

Apr-18
May-18

Oct-18

Apr-19
May-19

Petrol 95 PLX's actual price (VND/liter) - Right column Petrol 95 PLX's price with 2018 environmental taxation

Brent oil price (USD/barrel) - Left column

Notably, VND is losing about 0.9% against USD. Meanwhile, due to business
characteristics, PLX trades largely in USD, according to our calculations,
exchange rate losses can increase to VND160 billion.
The second half of 2019 forecasted that Brent oil price
would be more favorable for PLX
 June 18, 2019
PLX Q2/2019 Update Report

Oil prices are forecast to be more stable in he second half of 2019. In

1H2019, oil price increased strongly as OPEC and Russia agreed to cut 1.2
million barrels a day within 6 months from 01/01/2019. OPEC is also considering
to extend the agreement until year end but we doubt that it would happen:
1. Russia is not really interested in continuing to cut output.
2. OPEC can hardly cut production again as the output of some member
countries has reached the minimum level. Specifically:

Saudi Arabia's production Iran's production Venezuela's production

(million barrels/day) (million barrels/day) (million barrels/day)

11,1 3,9 2,5

10,8
3,5
2,0
10,5 US sanctions caused Iran's
3,1 output to drop ~ 1.5 million
10,2 barrels to 2.3 million
barrels/day, of which 1,5
9,9 2,7 domestic demand was ~ 2 The difference between
million barrels and export oil production and domestic
9,6 output was close to ~ 0.2. 1,0 demand is narrowed to
Saudi Arabia's oil production has 2,3 only ~250,000 barrels/day
million barrels/day.
9,3 fallen by 1.2 million barrels/day to 9.9
million barrels/day, the lowest level in 0,5
1,9
9,0 four years. 5 year average domestic demand 5 year average domestic demand
8,7 1,5 0,0
Jul-17
Jan-15
Jun-15
Nov-15

Dec-17
Apr-16

Oct-18
Sep-16
Feb-17

Mar-19
May-18

Jul-18

Jul-17
Jan-16

Jun-16

Nov-16

Sep-17

Dec-18

Jan-15
Jun-15
Nov-15

Sep-16
Apr-17

Feb-18

Apr-16

Feb-17

Dec-17

Oct-18
Mar-19
May-19

May-18
OPEC output’s return to equilibrium supports our anticipation that oil prices in
2H2019 will be more stable. PLX's petroleum business are quite stable disregard
for input price thanks to the profit from selling gasoline based on the profit margin.
However, the business environment in which input prices are stable or increasing
will be more beneficial for PLX than if they fall too sharply. Retail prices of
petroleum products are determined based on the base price without exceeding
2% of the announced price. Thus, the retail price will fluctuate following the input
price. Profit of petroleum businesses will be in the norm profit of VND300/liter and
the capability of saving costs as the norm cost in the state base price is fixed.
However, as PLX's average inventory days are 20-24 days, the sharp decline in
oil prices in a long time will drop gross profit margin of not only PLX but other
peers due to the provision for devaluation of inventories. Adversely, stable oil
prices will be a favorable condition for PLX to maximize the advantage of leading
enterprises with over 50% market share and efficient distribution system (60% of
production is distributed via COCO channel with the highest gross profit margin.)
We forecast that the profit in 2H2019 will be better than the same period last year
and the gross profit margin of 2019 is estimated at 7.6%.

Environmental taxes raise gasoline prices by about

2.5% but PLX does not benefit from this increase
 June 18, 2019
PLX Q2/2019 Update Report

Since January 1, 2019, the environmental protection taxation on petroleum

products in Vietnam has increased in accordance with Resolution
579/2018/UBTVQH14. According to our calculations, retail prices of gasoline
products will only be marginally higher, about 2.5% compared to the same period
last year and PLX will not benefit from this tax increase.

VND/liter Previous tax New tax*

Petroleum (excluding Ethanol) 3,000 4,000
DO 1,500 2,000
FO 300 1.000
Mazut 900 2.000

(*) applied from 01/01/2019

The output of exported petrol and oil is forecast to

grow slower than 2018
In 2018, domestic petroleum export volume reached about 9.1 million m 3/ton, an
increase of almost 4% from the same period in 2017. With the forecast of
Vietnam's economic growth in 2019 of 6.6% - 6.7%, we believe that Petrolimex's
domestic petroleum production growth this year will be lower than 2018, at about
3%. The biggest contribution is still RON 95, Ron 92 and E5 have not achieved
growth as expected as consumers remain skeptical about the quality of bio-petrol.

Forecast of petroleum production for domestic sale

Sources: Petrolimex, BVSC Research

10.000.000 9%
9.000.000 8%
8.000.000 7%
7.000.000
6%
6.000.000
5%
5.000.000
4%
4.000.000
3%
3.000.000
2.000.000 2%
1.000.000 1%
0 0%
2014 2015 2016 2017 2018 2019F

KO Mazut DO

Ron 92 E5 Ron 95 Production growth

 June 18, 2019
PLX Q2/2019 Update Report

2019 business forecast

We forecast that PLX will achieve VND202,502 billion in revenue and VND4,676
billion in net profit in 2019, up 6% and 15%YoY respectively. This result has not
included benefits from the merger of PG Bank and HD Bank.

Target 2019 2018 Forecast Base

Revenue 202,502 191,932 Revenue is forecast to increase 6% thanks to:

1. Production growth for domestic sales of 3%

2. Growth in petroleum products price of 2.5%

COGS 187,111 178,041

Gross profit 15,390 13,891 In Q1 2019, excluding the reversal of provision for devaluation of inventories
in cost of goods sold, PLX's gross profit margin will be 7.8%. In Q2 2019, as
analyzed above, gross profit margin is forecast at 8.2%. With the forecast that
Brent oil price will not fluctuate strongly around $60-70/barrel for the remainder
of 2019, BVSC believes that profit in 2H2019 will be better over the same period
last year. On a prudent basis, we believe that gross profit margin for the whole
year may reach 7.6%, higher than 7.2% in 2018.

Financial income 891 994

Financial expense 1,223 1,508 In 2018, PLX recorded an exchange rate difference loss of almost VND600
billion due to the strong fluctuation of USD/VND in 06-09/2018 (VND dropped
2.3% against USD). In 1H2019, VND devalued 0.8%, forecasting a yearly
depreciation of about 1.6% against the USD, therefore the exchange rate
difference loss in 2019 is forecast to decrease.

In which: Interest 807 865

expense

Lợi nhuận từ công 670 635

ty liên doanh liên kết

Selling expense 9,130 8,560 Selling expense is forecast at 4.6% of gross profit, the average of previous two
years.

G&A expense 926 575 G&A expense is forecast at 0.4% of gross profit, the average of previous two
years.

Net profit from 5,672 4,877

business activities

Other income 264 250

Other expenses 90 85
 June 18, 2019
PLX Q2/2019 Update Report

Profit after tax 4,676 4,048

Profit of 4,272 3,650

shareholders -
parent company

EPS 3,302 2,766

Recommendation
Valuation by comparison method: We selected the leading enterprises in the
petroleum business in regional countries with economic conditions equivalent to
Vietnam, but not owning petrochemical refinery to compare with PLX. The
valuation result by P/E method is VND59,900/share, P/S is VND74,200/share.

Valuation by discounted cash flow method: FCFE fair price is

VND73,700/share, FCFF of VND 66,200/share, assuming that Brent oil price will
maintain around $60-70/barrels in 2019 and USD/VND slippage rate 1.6%.
Growth in demand for diesel and fuel products is about 4.5%/year. The cost of
equity (Re) and the average cost of capital (WACC) are assumed at 11.4% and
9.5% respectively.

Valuation Target price Ratio Average

P/S 74,200 25% 18,550
P/E 59,900 25% 14,975
FCFE 73,700 25% 18,425
FCFF 66,200 25% 16,550
Reasonable price 68,500

In summary, we estimate the fair value for PLX stock is VND68,500/share. We

rate NEUTRAL on PLX stocks.

Ticker Company name Country Market cap P/E P/S

9937 TT Equity NATIONAL PETROLEUM CO LTD Taiwan 419 17.47 0.58

ESSO TB Equity ESSO THAILAND PCL Thailand 1,038 14.08 0.16
PETD MK Equity PETRONAS DAGANGAN BHD Malaysia 6,108 27.76 0.85
SHLPH PM Equity PILIPINAS SHELL PETROLEUM Philippines 1,295 13.26 0.31
Average 18.14 0.47
 June 18, 2019
PLX Q2/2019 Update Report

Financial forecast

Business Results
Billion VND 2016 2017 2018 2019E
Revenue 123,098 153,697 191,932 202,501
Cost of goods sold 108,967 141,401 178,041 187,111
Gross profit 14,131 12,297 13,891 15,390
Financial Income 935 791 994 891
Financial expenses -875 -791 1,508 1,020
Profit after tax 5,166 3,912 4,048 4,676
Profit of shareholders - parent
4,665 3,468 3,650 4,272
company

Balance Sheet
Billion VND 2016 2017 2018 2019E

Cash & Cash equivalent 11,394 14,223 10,220 12,389

Short-term receivables 6,961 7,462 7,458 7,869
Inventories 8,615 12,868 10,295 10,862
Fixed assets 13,753 13,326 13,088 12,950
Total assets 54,238 61,769 56,171 60,011
Short-term liability 27,699 35,758 31,576 34,531
Long-term liability 3,336 2,627 1,611 1,500
Shareholders’ Equity 23,204 23,384 22,984 23,981
Total liability and shareholders’ equity 54,238 61,769 56,171 60,011

Financial indicators
Target 2016 2017 2018 2019E
Annual Growth
Revenue growth (%) -16.2% 24.9% 24.9% 5.5%
After-tax profit growth (%) 69.0% -24.3% 3.5% 15.4%
Profitability
Gross profit margin (%) 11.5% 8.0% 7.2% 7.7%
Net profit margin (%) 4.2% 2.5% 2.1% 2.4%
ROA (%) 9.5% 6.3% 7.2% 8.0%
ROE (%) 22.3% 16.7% 17.6% 20.0%
Capital Structure
Total debt/Total assets (%) 57.2% 62.1% 59.1% 60.0%
Total debt/Total equity (%) 1.3 1.6 1.4 1.5
Earnings per share
EPS (VND/share) 4,254 3,013 2,766 3,302
BVPS (VND/share) 17,932 18,071 17,762 18,532
 June 18, 2019
PLX Q2/2019 Update Report

DISCLAIMER
I, analyst Nguyen Nguyen, confirm that I am totally honest and have no personal motivation in making this report. All information in this
report has been verified carefully and is deemed to be the most reliable; however, I shall take no responsibilities with regard to the
accuracy and completeness of the information provided herein. Viewpoints, comments and assessments in this report are of our personal
opinions with no purpose of advising the readers to buy, sell or hold any securities. This report is only for the purpose of providing
information; readers should only use this analysis report as a source of reference. Bao Viet Securities Joint-stock Company (BVSC)
and I shall take no responsibilities to investors as well as subjects mentioned in this report for losses incurring during investments or
incorrect information about the enterprise.

This report is an asset of Bao Viet Securities Joint-stock Company. Therefore, no part of this report may be (i) copied or duplicated in any
form by any mean or (ii) redistributed without the prior consent of Bao Viet Securities Joint-stock Company.

CONTACT

Research and Investment Advisory Department - Bao Viet Securities Joint-stock Company

Equity Research Macro & Market Research

Luong Luu Phuong Le Dung Pham

Deputy Head of Research Deputy Head of Research Deputy Head of Research
luuvanluong@baoviet.com.vn ledangphuong@baoviet.com.vn Pham.tiendung@baoviet.com.vn

Ha Nguyen Ngoc Nguyen Yen Tran

Banking. Insurance Real Estate Economist
nguyenthuha@baoviet.com.vn nguyenchihongngoc@baoviet.com.vn tranhaiyen@baoviet.com.vn

Nguyen Nguyen Phu Truong Bach Tran

Natural Rubber Automobiles & Parts Technical analyst
nguyenbinhnguyen@baoviet.com.vn truongsyphu@baoviet.com.vn tranxuanbach@baoviet.com.vn

Hang Ha
Clothing & Accessories
hathithuhang@baoviet.com.vn

Hao Thai
Water Infrastructure
ngokim.thanh@baoviet.com.vn

Hoa Le
Building materials
lethanhhoa@baoviet.com.vn
 June 18, 2019
PLX Q2/2019 Update Report

BaoViet Securities Joint Stock Company

Hanoi Headquarter: Ho Chi Minh Branch:

▪ No 72 Tran Hung Dao, Hoan Kiem, Hanoi ▪ 8 Floor, No 233 Dong Khoi, Dist, 1, HCM city

▪ Tel: (84 4) 3 928 8080 ▪ Tel: (84 8) 3 914 6888