PetroVietnam Gas - PV Gas A natural gas distribution monopoly

PetroVietnam Gas - PV Gas
NOT RATED
19 May 2011 A natural gas distribution monopoly
Hoa Dinh, Senior Analyst
[email protected]
+84 3 3814 5588, ext 140
The company will have its shares traded on the OTC towards the beginning
of June and is intent on listing on the HSX by the end of July. The company
intends to list all its shares on the market instantly becoming one of the top
five heavyweights in the index calculation. Considering PV Gas’ very limited
float of about 3.2%, we could expect supply factors more than fundamental
ones to impact price dynamics as investors vie for the limited amount of
investable shares. We believe this will provide support for the stock to move
above its equitisation price.
Anh Tran, Analyst
[email protected]
+84 3 3814 5588, ext 145
Oil and Gas
Key Indicators
Successful equitisation price
31,000
Outstanding shares (mil shares)
1,895
Market capitalization (VND bil)
58,745
Market capitalization (USD mn)
2,838
Valuation
ROE
ROIC
Debt/Equity
2008
2009
2010
70%
16%
21.8%
65%
17%
19.7%
45.7%
31.5%
27.7%
Ownership structure
PetroVietnam
75%
Employees
0.1%
Union
Strategic partners
Public
0.003%
Exclusive gas distribution in Vietnam with high barriers to entry
High capital requirements, expertise, technology, and ultimately strict
Government legislations and regulations deter new participants from
entering the market. This low threat of entry leads to higher profitability for
PV Gas as there are no direct rivals. As a member of the PVN Group, PV
Gas has exclusive rights to gather and distribute gas products from the oil
fields owned by PVN and its joint ventures.
PV Gas operates three main basins (Cuu Long, Nam Con Son and MalayTho Chu); two gas processing plants (Dinh Co and Nam Con Son) and an
import/export terminal (Thi Vai Terminal in Ba Ria Vung Tau). PV Gas owns
100% of the dry gas supply market and provides enough gas to produce
45% of the country’s power, 30% of its fertilizer output, 10% of the country’s
industrial users’ gas demand, and 70% of its LPG demand.
21.8%
3.2%
Strong demand for PV Gas’ natural gas products
Vietnam’s historical GDP growth exceeds most other Southeast Asian
economies while natural gas consumption per capita in Vietnam has been
well below the regional peers’ average over the last five years.
Consequently, demand for natural gas from power and industrial users has
been growing vigorously over the last several years and is expected to grow
further in the future. Vietnam’s power plants alone will need 16.3 billion cubic
meters of gas by 2015, which represents a c.75% jump relative to the current
total output of 9.3 billion m3.
Prudent decision made by PV Gas’ management
Despite holding a large amount of cash on its books, PV Gas’ management
made a decision to postpone the LNG import infrastructure project. The
current global imported LNG price is at c.USD14.5/MMBTU including
carrying costs; while the selling price of the output gas product sold to
industrial customers is at approximately USD6 per MMBTU, a 41% discount
to LNG import. Hence, the margin from imported LNG sale is not as
impressive because the imported price of LNG is much higher and more
volatile than the domestic price.
Upbeat 2010 financial results
The company has yet to announce first quarter results for 2011. For 2010,
PV Gas recorded VND42,710 billion in revenue and VND4,802 billion in net
income, up 50.7% driven by a year of strong YOY volume growth of 16.8%
and prices increases of its gas products.
See important disclosure at the end of this document
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Viet Capital Securities | 1
19 May 2011
PV Gas
NOT RATED
Company profile
PetroVietnam Gas was established in 1990 to engage in collecting, transporting, storing,
processing, and trading of gas and its products.
The company started its first gas project - collecting and utilizing gas from the Bach Ho field
which later was expanded to an approximately USD600 million project of gathering and
utilising gas from the Cuu Long basin. The first gas flow was transported ashore on April
26th, 1995 from the Bach Ho field to supply the Ba Ria Power Plant with an initial capacity of
1 million m3 per day and later increased to 3 million m3 per day in late 2007.
In December 2002, the Nam Con Son gas pipeline project valued at USD1.3 billion was
completed with a capacity of 7 billion m3 per year. This project was operated under a
Business Cooperation Contract (BCC) between PetroVietnam – 51% (transferred to PV Gas
on February 10th 2010), BP Pipelines Vietnam B.V. – 32.67% and Statoil Vietnam A.S. –
16.33% (transferred to ConocoPhillips Vietnam A.S. in 2003). The Nam Con Son gas
pipeline system together with the Cuu Long gas pipeline system have formed a strategic
gas infrastructure in the vital economic region of the Southeast, i.e. Ho Chi Minh City, Dong
Nai and Ba Ria-Vung Tau.
In May 2007, the first gas flow from the third gas pipeline project, the 2 billion m3 capacity
Malay-Tho Chu gas project in the Southwest region, was transported ashore for the Ca Mau
1&2 Power Plants. This gas system would play an important role in supporting the economic
development of the province of Ca Mau in particular and the Mekong delta in general.
In November 2009, the fourth gas pipeline project, the Block B – O Mon was inaugurated.
This project is a joint venture between PV Gas (51%), Chevron Vietnam (28.7%), Mitsui Oil
Exploration Co. Ltd (15.1%) and PTT Exploration and Production Public Co. Ltd (5.18%).
This project is expected to be completed by 2014, supplying gas to power plants in Ca Mau
and O Mon which will increase electricity output by approximately 20%.
See important disclosure at the end of this document
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Viet Capital Securities | 2
19 May 2011
PV Gas
NOT RATED
Investment Thesis
Rising demand for natural gas from power plants and other industrials is key to PV
Gas’ growth
The concerns over cleaner energy sources, reliability and costs has led to power plants’
rising demand for more natural gas. The government has encouraged power plants to utilize
cleaner energy sources such as natural gas or hydro. Hence, power plants are switching to
natural gas and reducing consumption of polluted energy sources such as coal and diesel
oil (DO). Power plants prefer to use natural gas over hydro for several reasons.
First, gas distributors can guarantee a consistent volume delivered to power plants on a
daily basis. On the other hand, hydro volume is highly dependent on fluctuations in
precipitation levels. Second, natural gas price per unit on a heat equivalent basis is
relatively cheaper than most other energy sources except coal.
Figure 1: Price of Energy Sources (USD/MMBTU)
Coal
Gas
2.05
4.12
Electricity
8.26
DO
21.92
FO
17.24
Source: Reuters Therefore, power plants are prone to use more natural gas rather than other alternative
sources. In fact, natural gas has become an important input in the power generation industry
accounting for c.45% of total inputs as of 2009.
Figure 2: Vietnam Power Generation Inputs
Oil
2%
Others
4%
Coal
18%
Gas
45%
Hydro
31%
Source: PV Gas
See important disclosure at the end of this document
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Viet Capital Securities | 3
19 Mayy 2011
P Gas
PV
s
NO
OT RAT
TED
PV Gas
G will be able to mee
et the rising demand fro
om power pllants in the future
Ove
er the period from 2006 to
o 2010, total power consu
umptions gre
ew a CAGR of
o c.70%.
Fig
gure 3: Tottal power consumption per
yea
ar
Figurre 4: Gas de
emand and supply
s
foreca
ast
(bn. m3)
20
9.4
9.5
2012F
9.3
2011F
15
15.3 16.3
12
10
5
2015F
2014F
2013F
2010
Sup
pply
De
emand
Source: Ministry of IIndustry and Tran
nsportation and P
PV Gas
Acco
ording to PV
V Gas’ foreca
ast, Vietnam’s power plan
nts alone will need 16.3 billion
b
m3 of gas
g
3
by 2015
2
comparred to the cu
urrent volume
e of 9.3 billio
on cubic m . Currently, PV Gas supplies
c.85
5-90% of their total natura
al gas outputt to the powe
er generation
n plants. To meet
m
the pow
wer
plan
nts’ estimated
d future dem
mand for natu
ural gas, PV Gas would h
have to expa
and its total gas
g
outp
put to at leasst 14.7 billion
n cubic mete
ers, up c.58%
% relative to the current total
t
gas outtput
of 9.3 billion m3.
er generation
n industry re
epresents to PV Gas a hu
uge
Thiss fast-growing demand frrom the powe
oppo
ortunity for growth
g
but po
oses challenges due to the high capital requirements to deve
elop
infra
astructure an
nd pipeline syystems.
High
her gas con
nsumption demand
d
tran
nslates into impressive growth pote
ential
Vietnam’s GDP growth is relatively sta
able and fairly higher o
on average than Malayssia,
Thailand, Singa
apore, Indone
esia and Ph
hilippines (Fiigure 5). Ass the econom
my grows, to
otal
energy consump
ption will alsso widen bec
cause industtrial sectors will require more
m
energyy to
conttinue and expand operatiions in the fu
uture.
Fig
gure 5: GDP
P growth in Vietnam
V
vs. Southeast
S
Assia Countries
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
7.3
3%
7.1%
5.9%
5.4%
Vietnam
Ind
donesia
6.3%
6
5.3%
5.0%
M
Malaysia
2001-2010 CAGR
C
4.9%
4.7%
4
4.9%
4.7%
T
Thailand
P
Philippines
Singapore
S
4.6%
2011
1-2015 CAGR
Source: Global Insigh
ht
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w
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O>
Viet Ca
apital Securitiess | 4
19 May 2011
PV Gas
NOT RATED
Despite Vietnam’s relatively higher GDP growth, national gas consumption is slightly lower
than the regional average based on the ratio of total natural gas consumption to annual real
GDP.
Figure 6: Total gas consumptions/Real GDP of emerging markets in 2009
18%
16%
16%
14%
12%
10%
8%
6%
7%
6%
7%
3%
4%
1%
2%
0%
Vietnam
Thailand
Indonesia
Malaysia
Singapore
Average
Source: Bloomberg
As gas becomes more critical to power plants and other end users, Vietnam’s total gas
consumption in the long run will most likely converge to regional mean consumption levels.
Figure 7 suggests that total natural gas consumption per capita in Vietnam is below regional
peers’ consumption per capita over the last five years. These statistics indicate that there is
still room for domestic gas consumption to grow and it is safe to assume that PV Gas is
poised take advantage of this opportunity with its monopoly in the gas industry.
Figure 7: Total gas consumption per capita (MMBTU/per capita)
80.0
68.8
70.0
56.2
60.0
60.8
54.5
47.0
50.0
42.7
37.0
40.0
70.3
30.0
38.4
33.2
17.9
18.2
19.2
20.1
21.0
10.0
6.2
4.6
5.6
5.4
5.8
-
1.8
2005
2.5
2006
2.5
2007
2.9
2008
2009
Indonesia
Malaysia
Singapore
20.0
Vietnam
Thailand
3.0
Source: World Bank & Bloomberg
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Viet Capital Securities | 5
19 May 2011
PV Gas
NOT RATED
Exclusive gas distribution in Vietnam with high-entry barriers
High capital requirements, expertise, technology, and ultimately strict Government
legislations and regulations deter new participants from entering the market. This low threat
of entry leads to higher profitability for PV Gas as there are no direct rivals. Consequently,
PV Gas occupies 100% market share in the gas distribution sector. Also, operating as a
monopolist in a high-entry barrier industry will almost guarantee PV Gas a sustainable
advantage. As a member of the PVN Group, PV Gas has exclusive rights to gather and
distribute gas products from the oil fields owned by PVN and its joint ventures. This is one of
PV Gas’ biggest advantages. However, unlike most other monopolists, PV Gas cannot
decide freely on the price of its gas products since both the input and output prices are
regulated by the State.
Moreover, PV Gas is the largest LPG distributor and the only one with up-stream
integration. This up-stream integration enables PV Gas to better control its inventory and
costs. Given these favourable conditions, we believe PV Gas will be able to sustain its
economic profitability in the long run.
PV Gas’ high cash holding provides a great advantage over other companies
Over the last five years, PV Gas’ cash holding has grown significantly from VND1,908 billion
in 2006 to VND4,277 billion at the end of 2010, representing 12% of its total assets. This
massive cash position will not only improve the company’s liquidity but also enable it to
execute new projects more easily, especially at a time when the cost of capital has become
prohibitively high due to tight monetary policies. With its large amounts of available cash, PV
Gas will be able to invest in new pipelines systems; thereby, increasing its output capacity
and operational efficiency.
Prudent decision to postpone infrastructure investment to import LNG to 2014
We think this is a prudent decision by PV Gas’ management. Margins on imported LNG are
less profitable because the imported price of LNG is much higher and more volatile than the
domestic price of dry gas. The current global imported LNG price is at c.USD14.5/MMBTU
including carrying costs; while the selling price of the output gas products is sold at
approximately USD6 per MMBTU, at 41% discount to LNG imports. Should PV Gas execute
this plan early, the net effects may drag on PV Gas’ profitability.
Increasing stakes in strong affiliates will help strengthen PV Gas’ profitability
By changing the structure of its ownership in related subsidiaries, PV Gas can focus more
on its main operations. Increasing stakes in PetroVietnam Low Pressure Gas Distribution
(HSX: PGD) is one example of its capital restructuring plan. PV Gas’ profit margin are set to
rise as more gas products reach industrials users via PGD at higher prices (the residual
portion of gas after sales to power and fertilizer plants). Increasing its stake in PGD from
48.3% as of April 2011 to 51% will also increase PV Gas’ shares of PGD’s future earnings.
These earnings will not only help diversify PV Gas’ main business, but also provide PV Gas
an opportunity to integrate downstream for better quality management and cost control
between PV Gas and PGD.
See important disclosure at the end of this document
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Viet Capital Securities | 6
19 May 2011
PV Gas
NOT RATED
The next heavyweight on the VNIndex
PV Gas’ equitisation in 2010 was reasonably successful with about 61 million shares sold to
investors at VND31,000/share, for a total consideration of VND1,900 billion.
The company expects to have its shares traded on the OTC towards the beginning of June
and is intent on listing on the HSX by the end of July.
When PV Gas is listed and contributes its entire market cap of VND58,745 billion (at VND
31,000/share) to the index calculation it will instantly be among the top five heavyweights in
the VNIndex.
Considering PV Gas’ very limited float of about 3.2%, we could expect supply factors over
fundamental ones to greatly impact price dynamics as investors vie for the limited amount of
investable shares. We believe this will provide support for the stock to move above its
successful equitisation price.
Figure 8: VN-Index’ stock shares
PV Gas
MSN BVH VIC VCB CTG VNM HAG 277 other stocks
9%
10%
41%
9%
8%
7%
3%
6%
7%
Source: Bloomberg
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Viet Capital Securities | 7
19 May 2011
PV Gas
NOT RATED
Earnings review
Upbeat 2010 financial results
The company has yet to announce first quarter results for 2011. For 2010, PV Gas recorded
VND42,710 billion in revenue and VND4,802 billion in net income, up 50.7% driven by a
year of strong YOY volume growth of 16.8% and prices increases of its gas products. Over
the year, PV Gas’ revenue structure by product segment remained almost unchanged as
the natural gas segment registered a slight increase of 1% relative to its share in 2009. We
believe natural gas products will continue to contribute the most to PV Gas’ revenue in
coming years.
Figure 9: Revenue structure
2010
2009
6%
5%
29%
29%
65%
66%
Dry gas
LPG, condensate
Transportation
Source: PV Gas
Natural gas from Nam Con Son and PM3-Ca Mau basins contributed the most to total gas
production in 2010. The Nam Con Son basin supplied 6.67bn m3, a growth of 20.8%; while
PM3-Ca Mau added 1.56bn m3, up 16.1% compared to 2009. In addition, the selling price to
industrial customers also went up 19% relative to 2009.
However, 2010 gross margin dropped from 18% in 2009 to 16.1%. The upward revaluation
of asset values from VND868bn to VND1,641bn before the equitisation process increased
depreciation and interest expenses.
Figure 11: Net income and net profit
margin
Figure 10: COGS / revenue
VND bn.
60,000
40,000
82%
76%
20,000
-
84%
85%
80%
4,000
75%
2,000
70%
2008
Revenue
Source: PV Gas
2009
COGs
VND bn.
17%
6,000
2010
COGs/Revenue
20%
11%
11%
15%
10%
5%
-
0%
2008
2009
2010
Net income
Net profit margin
Source: PV Gas
See important disclosure at the end of this document
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Viet Capital Securities | 8
19 May 2011
PV Gas
NOT RATED
Appendix 1: PV Gas’ pipeline systems
The Bach Ho pipeline system
The Bach Ho pipeline system, Vietnam’s gas industry’s first gas pipeline project came into
operation in 1995. The project was designed to bring associated gas which used to be
burned offshore from the Bach Ho field - the first field to supply the Ba Ria Power Plant.
By the end of 1998, the Dinh Co Gas Processing Plant (GPP) came into operation and
began to supply LPG, condensate and dry gas for the Vietnam market. The liquefied
product is transported through three six inch diameter pipelines to the Thi Vai terminal for
storage and distribution to industrial customers.
In 2001, the Rang Dong-Bach Ho pipeline was completed to transport associated gas
gathered at the Rang Dong field to Bach Ho. In 2008, gas gathered from Phuong Dong and
Ca Ngu Vang was added to the pipeline. In 2009, the Su Tu Den and Su Tu Vang fields
were exploited. Gas supply sourced in the Cuu Long Basin is forecasted to deplete in 2026.
The Nam Con Son pipeline system
The Nam Con Son pipeline project was formed under a Business Cooperation Contract
(BCC) signed on December 15th 2000 between PetroVietnam, BP Pipelines Vietnam B.V.
(“BPPV”) and ConocoPhillips Vietnam A.S. (“ConocoPhillips”). In which, PVN owns 51%,
BPPV 32.67% and ConocoPhillips 16.33%. This project is expected to be operational until
2035. Gas products from this basin are dry gas and condensate.
This is Vietnam’s largest pipeline system and the world’s longest pipeline. This project
provides a strategic infrastructure for Vietnam’s gas and power industries. This is also the
project with largest foreign capital at that time in Vietnam at USD1.3 billion. PV Gas was
authorized by PVN to participate in this project and book revenue and profit from this project
since 2002. PVN officially transferred this project to PV Gas on February 10th 2010.
Figure 12: Nam Con Son pipeline diagram
Bản đồ dây chuyền khí NCS
TP. HCM
PM 1
PM 4
PM 2.2
PM 2.1
PM 3
Urea
TTPP khí
Phú Mỹ
Trạm xử l ý khí NCS
Đường ống 30”,
28.8 km,
Dinh Co Terminal
25 km, 6”
Thị Vải
Long Hải
Vũng
Tàu
Đường ống 2 pha
26”, 370.2 km
Lan Đỏ
Blk 06.1
Lan Tây
PM3 Power Plant
Phu My GDC
Rồng Đôi,
Blk 11.2
Source: PV Gas
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Viet Capital Securities | 9
19 May 2011
PV Gas
NOT RATED
The PM3 – Ca Mau Pipeline System
This system is a vital component of the Ca Mau Gas – Electricity – Fertilizer Complex, and
supplies natural gas to the Ca Mau Power Plants 1 & 2 and the Ca Mau Fertilizer Plant. PV
Gas holds 100% stake of this project.
The pipeline gathers gas from Block PM3 – CAA and Block 46 – Cai Nuoc. The project
began to record revenue in 2007. This system currently supplies gas to the Ca Mau Power
Plants 1 & 2 and is expected to supply gas to the Ca Mau Fertilizer Plant from Q2/2011.
Figure 13: Overlapping region PM3 – CAA and 46 – Cai Nuoc
Vietnam
46/02
Block 46/02
North
Bunga
Pakma
46 Cai Nuoc
Northwest
Bunga Pakma
PM-302
North
Bunga Orkid
Thailand
East
Bunga Orkid
Bunga Pakma
Bunga
Kertas
PM-3 CAA
“The
Sliver”
PM-301
PM-311
PM-303
PM-312
PM-306
Peninsular
Malaysia
Bunga Orkid
PM-314
PM-305
PM-307
Bunga Law ang
West
B. Matahari
Bunga Matahari
Hoa Mai
Bunga
Semarak Api
Bunga Mawar
Block 46-Cai Nuoc
34 mmcf/d
East
Bunga Kekwa
PM-3 CAA
Legend
Oil Field
Bunga
Seri Pagi
Gas Field
Cai Rang
Bunga Kantan
Pros pect
West
Bunga Kekwa
s
Leads
Bay Hap
2005
East
Bunga Raya
West
Bunga Raya
Bunga Seroja
5
0
Bunga Bakung
10
Kilometers
Bunga Tulip
Bunga Tulip
Tested 2985 bopd
Bunga
Teluki
Bunga Melor
Bunga Daisi
“The Sliver”
597 sq. km
Source: PV Gas
O Mon Pipeline Project:
The latest large-scale project undertaken by PV Gas is the Block B - O Mon Gas pipeline.
The pipeline system will transport natural gas from Blocks B and 52/95 of the Malay – Tho
Chu basin to the power complex in southern Vietnam. PV Gas is developing the O Mon
Pipeline along with Chevron (28.7%), MOECO (15.1%), and PTTEP (5.2%), and it will retain
a 51% stake once completed. The project is expected to complete and come into operation
in 2014.
Nam Con Son 2 pipeline:
The pipeline will transport gas from Hai Thach – Moc Tinh to shore and distribute to power
plants in Phu My. Its gas output is expected to rise by 30-40% once completed. The project
is expected to come into operation in 2014.
See important disclosure at the end of this document
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Viet Capital Securities | 10
19 May 2011
PV Gas
NOT RATED
Summary of Financials
Income (bn VND)
Net Revenue
Cost of Goods Sold
2008
2009
2010
23,573
28,332
42,710
2008
2009
2010
Revenue growth %
Growth
38.8%
20.2%
50.7%
EBITDA growth %
(17,910)
(23,242)
(35,815)
-0.4%
-11.4%
36.9%
Gross Profit
5,663
5,090
6,894
EBIT growth %
0.8%
-17.4%
26.5%
Selling Expenses
(169)
(415)
(429)
NPAT growth %
-5.3%
-18.8%
50.7%
Administrative Expenses
(192)
(294)
(924)
EPS growth %
0.0%
0.0%
0.0%
Operating Profit
Foreign exchange
gain/(loss)
5,303
4,380
5,541
Gross margin
24.0%
18.0%
16.1%
(536)
(964)
(837)
Net profit margin
16.7%
11.3%
11.2%
Interest Expenses
(77)
(218)
(230)
2008
2009
2010
Current Ratio
3.17
1.78
1.82
Quick Ratio
3.03
1.46
1.66
Net non-operating income
Profit before tax
Corporate Income tax
Net Income
584
603
1,082
5,273
3,801
5,557
(1,346)
(613)
(754)
3,928
3,187
4,802
Minority Interest
Net Income to Common
-
-
-
3,928
3,187
4,802
Indicators
Liquidity Ratios
EBITDA
Depreciation &
Amortization
5,924.0
5,247.7
7,181.6
(621.4)
(867.8)
(1,640.8)
Profitability Ratios
ROE %
70%
16%
22%
Balance (bn VND)
2008
2009
2010
ROA %
24%
11%
14%
Cash & Equivalents
4,192
2,180
4,277
ROIC %
65%
17%
20%
200
2,521
2,102
2,296
3,438
6,678
236
1,012
502
Days receivables
36
44
57
92
774
712
Days inventory
5
16
5
7,016
9,926
14,272
Days payables
6
45
35
Debt / equity
45.7%
31.5%
27.7%
Debt / Cap employ
31.4%
24.0%
21.7%
ST Financial Investments
Accounts Receivable
Inventories
Other Current Assets
Current Assets
Fixed Assets (At Cost)
16,023
21,957
27,587
Accumulated Depreciation
(7,310)
(5,777)
(7,545)
LT Investments
710
1,280
1,659
Other LT assets
68
2,793
5
9,492
20,253
21,706
16,508
30,179
35,978
Long-term assets
Total assets
ST Debts
342
1,103
1,550
Accounts Payables
Other Short-Term
Liabilities
281
2,834
3,433
1,587
1,626
2,870
Current Liabilities
2,210
5,563
7,852
LT Debts
2,214
5,035
4,534
Other LT Liabilities
6,497
119
1,611
Total liabilities
10,921
10,717
13,998
Charter Capital
3,413
16,907
10,455
Capital Surplus
-
-
-
2,174
2,555
11,524
Retained Earnings
Minority Interest
Total Equity
Total Liabilities & Equity
-
-
-
5,587
19,462
21,979
16,508
30,179
35,978
Efficiency Ratios
Leverage Ratios
See important disclosure at the end of this document
www.vcsc.com.vn | VCSC<GO>
Viet Capital Securities | 11
19 May 2011
PV Gas
NOT RATED
Analyst Certification
We, Hoa Dinh and Anh Tran, hereby certify that the views expressed in this report accurately reflect my personal
views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be,
directly or indirectly, related to the specific recommendations or views expressed in this report. The equity research
analysts responsible for the preparation of this report receive compensation based upon various factors, including
the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include
revenues from, among other business units, Institutional Equities and Investment Banking.
VCSC’s Rating System and Valuation Methodology
Absolute performance, long term (fundamental) rating key: The recommendation is based on implied
absolute upside/downside for the stock from the target price, defined as (target price – current price)/current price,
and is not related to market performance. This structure applies from 1 November 2010.
Equity rating key
Definition
BUY
If the target price is 20% higher than the market price
ADD
If the target price is 10-20% higher than the market price
HOLD
If the target price is 10% below or 10% above the market price
REDUCE
If the target price is 10-20% lower than the market price
SELL
If the target price is 20% lower than the market price
NOT RATED
The company is or may be covered by the Research Department but no rating or
target price is assigned either voluntarily or to comply with applicable regulation
and/or firm policies in certain circumstances, including when VCSC is acting in an
advisory capacity in a merger or strategic transaction involving the company.
RATING SUSPENDED
The investment rating and target price for this stock have been suspended as there
is not a sufficient fundamental basis for determining an investment rating or target.
The previous investment rating and target price, if any, are no longer in effect for
this stock.
Unless otherwise specified, these performance parameters only reflect capital appreciation and are set with a 12month horizon. Future price volatility may cause temporary mismatch between upside/downside for a stock based
on market price and the formal recommendation, thus these performance parameters should be interpreted flexibly.
Small Cap Research: VCSC Research covers companies with a market capitalisation of up to USD50mn,
inclusively. Clients should note that coverage may not be consistent and that VCSC may drop coverage of small
caps at any time without notice.
Target price: In most cases, the target price will equal the analyst's assessment of the current fair value of the
stock. The target price is the level the stock should currently trade at if the market were to accept the analyst's view
of the stock, provided the necessary catalysts were in place to effect this change in perception within the
performance horizon. However, if the analyst doesn't think the market will reassess the stock over the specified
time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases,
therefore, our recommendation is an assessment of the mismatch between current market price and our
assessment of current fair value.
Valuation Methodology: To derive the target price, the analyst may use different valuation methods, including,
but not limited to, discounted free cash-flow and comparative analysis. The selection of methods depends on the
industry, the company, the nature of the stock and other circumstances. Company valuations are based on a single
or a combination of one of the following valuation methods: 1) Multiple-based models (P/E, P/cash flow, EV/sales,
EV/EBIT, EV/EBITA, EV/EBITDA), peer-group comparisons, and historical valuation approaches; 2) Discount
models (DCF, DVMA, DDM); 3) Break-up value approaches or asset-based evaluation methods; and 4)
Economic profit approaches (Residual Income, EVA). Valuation models are dependent on macroeconomic
factors, such as GDP growth, interest rates, exchange rates, raw materials, on other assumptions about the
economy, as well as risks inherent to the company under review. Furthermore, market sentiment may affect the
valuation of companies. Valuations are also based on expectations that might change rapidly and without notice,
depending on developments specific to individual industries.
Risks: Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may
adversely affect the value, price or income of any security or related instrument mentioned in this report. For
investment advice, trade execution or other enquiries, clients should contact their local sales representative.
See important disclosure at the end of this document
www.vcsc.com.vn | VCSC<GO>
Viet Capital Securities | 12
19 May 2011
PV Gas
NOT RATED
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Head of Research
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[email protected]
Research Team
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[email protected]
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Institutional Sales & Brokerage
Foreign Sales
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+84 8 3914 3588, ext 102
[email protected]
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[email protected]
Disclaimer
Copyright 2011 Viet Capital Securities Company. All rights reserved. This report has been prepared on the basis of
information believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding
the completeness and accuracy of such information. Opinions, estimates and projection expressed in this report
represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions
of VCSC and are subject to change without notice. This report is provided, for information purposes only, to
institutional investor and retail clients of VCSC, and does not constitute an offer or solicitation to buy or sell any
securities discussed herein in any jurisdiction. Investors must make their investment decisions based upon
independent advice subject to their particular financial situation and investment objectives. This report may not be
copied, reproduced, published or redistributed by any person for any purpose without the written permission of an
authorized representative of VCSC. Please cite sources when quoting.
See important disclosure at the end of this document
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Viet Capital Securities | 13