20140312-Maybank_KERPL-PetroVietnam_GAS_JSC_Long-term_value_creation__BUY_29页_1mb

Summary of PetroVietnam GAS JSC (GAS VN)

Core Content

PetroVietnam GAS JSC (GAS VN) is a key player in Vietnam's energy sector, primarily engaged in the distribution of dry gas and LPG. The company holds a monopoly in dry gas distribution and dominates the LPG market with a 70% share. It is the sole supplier of natural gas to 10 gas-fired power plants, which account for 35% of the country's electricity output, and two urea producers in southern Vietnam that supply 67% of the nation's fertilizer.

Main Points

• Share Price and Target Price: The current share price is VND 85,500, with a target price of VND 103,000, representing a 20% increase.
• Market Capitalization and Trading Volume: Market capitalization is USD 7,681 million, with an average daily trading volume of USD 1.7 million.
• Investment Rating: Maybank has initiated coverage with a BUY rating, citing strong cash flows and a solid business model.
• Valuation: The company trades at a 2014 PER of 12.8x, which is relatively cheap compared to its peers' average of 18.9x. The EV/EBITDA ratio is also favorable at 8.1x.

Key Growth Drivers

• Natural Gas Expansion: Vietnam's energy expansion plan is expected to significantly increase natural gas demand, particularly from electricity plants and industrial users.
• LPG Market Growth: The LPG market is growing rapidly, with a 12% CAGR. The company's market share is 70%, and it is the only LPG supplier with a developed warehouse system.
• Infrastructure Projects: The development of LNG import infrastructure is underway, with a first phase of 1 mtpa expected to start in 2016.

Projects Overview

Key Financial Highlights (FY11A - FY15E)

Business Strategy and Infrastructure

• Pipeline Systems: PV GAS operates three pipeline systems (Bach Ho, Nam Con Son, PM3-Ca Mau), with a combined capacity of 11 bcm/year.
• Gas Processing Plants: It owns the Dinh Co GPP, which processes 350,000 tons of LPG annually, contributing to 40% of domestic demand.
• LPG Storage: It has a 60,000 ton capacity Thi Vai warehouse, which is one of the largest in the region.

SWOT Analysis

Strengths

• Monopoly in dry gas supply
• Largest LPG supplier in Vietnam
• Strong profitability from industrial users
• Robust pipeline and warehouse infrastructure

Weaknesses

• Limited price-setting power
• Heavy reliance on PetroVietnam

Opportunities

• Expansion of new gas fields and pipeline projects
• Growing demand for natural gas from electricity and industrial sectors
• Development of LNG import infrastructure

Threats

• Declining output from Cuu Long Basin
• Potential obstruction from Vietnam's territorial disputes with China

LPG Segment Overview

• The LPG market is expected to grow due to increasing household usage, with a 7% CAGR.
• The company's LPG selling price is benchmarked to the Saudi Aramco CP price.
• It has a developed warehouse system that allows it to import and store LPG on a large scale.

Industry Outlook

• Vietnam has proven gas reserves of about 700 bcm, sufficient for 40 years of supply.
• Dry gas demand is expected to increase from 9.8 bcm in 2013 to 19 bcm by 2020.
• LPG demand is expected to continue growing, especially in the household sector.
• LNG imports are being developed to address the growing supply gap, with a projected capacity of 10 mtpa by 2030.

Conclusion

PetroVietnam GAS JSC (GAS VN) is well-positioned for long-term growth due to its monopoly in dry gas distribution, significant market share in LPG, and strategic expansion projects. Despite current challenges such as the Block B-Omon pipeline deadlock, the company is expected to benefit from the growing energy demand in Vietnam, especially in the electricity and fertilizer sectors. The company's valuation is attractive, and its strong financial performance and infrastructure support make it a compelling investment opportunity.