outlook 2020 - vcbs.com.vn

OUTLOOK 2020

OIL & GAS

© RESEARCH DEPARTMENT ǀ JUN 2020

TABLE OF CONTENTS

2

1 GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT

“TECHNOLOGY”

2 VIET NAM OIL & GAS: HOPE!

3 STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE

© RESEARCH DEPARTMENT ǀ JUN 2020

© RESEARCH DEPARTMENT ǀ JUN- 2019 3

GLOBAL OIL & GAS: THE FATE OF THE ENERGY INDUSTRY IS IN THE HANDS OF THE GIANT “TECHNOLOGY”

VIET NAM OIL & GAS: HOPE!

STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE

© RESEARCH DEPARTMENT ǀ JUN - 2020 4

GLOBAL OIL & GAS

The fate of the Energy industry lies in the hands of technology

“SUPPLY versus DEMAND” - What is the key?

Source: VCBS, World Bank

-4.5

-5.6

-4.1

-4.3

-2.3

-1.5

-0.9

-1.2

-5.7

-6 -4 -2 0

Arab oil embargo (Oct 1973 -…

Iranian revolution (Nov 1978 -…

Iran-Iraq war (Oct 1980 - Jan 1981)

Kuwait invasion (Aug 1990 - Jan…

Iraq war (Mar - Dec 2003)

Libyan civil war (Feb - Oct 2011)

Sanctions on Iran, first (Nov…

Sanctions on Iran, second (Jul…

Saudi attacks (Sep 2019)

Conflict – Driven Oil Supply Disruptions

-15

-10

-5

0

5

10

15

20

30

40

50

60

70

80

90

Jan

-01

Mar

-01

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-01

Jul-

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Sep

-01

No

v-0

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Jan

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Mar

-01

May

-01

Jul-

01

Sep

-01

No

v-0

1

Jan

-01

Mar

-01

May

-01

Brent Oil Movement

(+/-) US's Inventories Brent Price 2018 Brent Price

2019 Brent Price 2020 F Brent Price

USD/bbl Mn bbl

-10

-8

-6

-4

-2

0

202

0

198

0

198

1

198

2

197

4

200

9

197

5

200

8

198

3

199

3

Global Oil Demand Plunges Percent

In 2019, Brent Oil price fluctuated continuously within a narrow range even though it underwent several events, one of which was considered the worst nightmare in historical

milestones of the OIL Industry. However, 2020 has deserved to be a black swan year of the OIL & GAS industry when Brent's price dropped sharply by 40% YTD from 50 USD /

barrel to 30 USD/ barrel due to (1) the oversupply continuing to loom after COVID 19 pandemic, (2) Crude Oil future prices dipping below zero as producers were forced to pay

to dispose of excess in maturity. VCBS has warned the risk of global oil industry in our latest 2019 report.

VCBS realized demand factors gradually had more effect on Brent price movement than supply factors. Let us take a look at the event of the Saudi attack which disrupted the

supply, immediately lifting oil price immediately up to USD65/barrel then sharply falling back to where it began. Moreover, COVID 19 pandemic also placed negative influences

on the global oil demand, double striking on oil price. If we drag the oil price in consideration period, we could recognize the oil industry stepped into maturity stage in its life

cycle.

© RESEARCH DEPARTMENT ǀ JUN - 2020 5 5

GLOBAL OIL & GAS


Whether Oil price has entered Recession stage

0

20

40

60

80

100

120

140

160

1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

US

D/b

bl

Brent Oil Movement

Brent Oil 2H.2020 Brent Price

Take a look at 30 years of the Brent oil industry, The oil price moved in a sideway in the first 10 years (1988 – 1998) prior to experiencing an escalation, recording all time high

of approximately USD140/barrel over the course 10 years starting from 1998. The boost in oil price was attributable to the rapid growth of Chinese economy which reached the

second place in size, following the US. However, later on until now, the Brent price volatility appeared to be more frequent. In detail, VCBS reiterate that the global oil recession

in 2015 which resulted from the U.S’s shale oil extraction changed the Oil game entirely. After this extraction technology was found by the U.S, conflict has spread among key

players including OPEC and Non – OPEC, which leaves open the possibility that oversupply may take place any time.

There is a key rationale in favor of the view that Oil Supply strongly relates to political geography which leads to the uncertainty & unpredictability. As a result, we focus more

on demand factors in our forecast. In the next slide, VCBS will introduce the recent situation of the global oil industry in terms of demand.

Source: VCBS, Bloomberg


GLOBAL OIL & GAS


Global primary energy demand plateaus around 2030, primarily driven by the penetration of the renewable energy

1850 1900 1950 2000 2050

Fossil Fuels

650

571

CAGR %

1.7 0.9

2.9 1.9

0.8

0.1

+14%

0

100

200

300

400

500

600

700

2016 2025 2035 2045

32%

23%

20%

25% 34%

22%

29%

14%

According to IEA & McKinsey information, the renewable energy which is considered a substitute for fossil fuel with low efficiency is gradually replacing the oil position as the

main source of energy. Renewables, complemented by nuclear, will almost double their share in the global energy sources from now until 2050 (from 19% to 34%), providing more

than half the electricity output by 2035.

Oil demand has grown by more than 1% pa over the last three decades, but this growth is expected to slow down significantly from 2020 onward. In detail, the deceleration will be

mostly attributable to the decrease in demand for road transport. Triggered by increasing adoption of EVs, oil demand for road transport should peak in 2025 and decline afterward.

By 2050, demand is projected at -30 million barrels per day MMb/d, which is one third below today’s demand levels.

Global primary energy demand (TJ)

Industrialization of

Western economies;

biomass was the main

source of energy

Expansion of transport

vehicles fueled by coal and

oil

The rise of EC, oil played

as key input for thermal

power plant

Rising

China

Fast uptake of

renew-able in the energy

mix

Primary energy demand per fuel

Million TJ

Share

in 2035

Share in

2050

Renewables and other fuels

Gas

Oil

Coal

Source: IEA, McKinsey


GLOBAL OIL & GAS


The collapse of largest segment: Transport

Upcoming years see the sharpest drop in oil demand from power industry. The more modern human world, the more awareness to environment protection. As thermal power

plants release a great deal of pollutant emission to the air, many countries are shifting their energy industries to renewable segment.

The decline in oil demand for road transport is modest, as electrical vehicles are more popular in OECD countries and China while ICE vehicles are decelerating in the rest of

the world. In additions, technology innovation is reducing the cost of EV production comparing to ICE one.

We expect transportation and chemical industries to have the most significant impact on oil consumption. Until 2035, chemistry should contribute the most to the growth of

global oil demand as a result of dramatic rise in plastics production, particularly in emerging countries. On the contrary, the deceleration in demand for transportation which

consume two-thirds of oil production may outweigh the positive effect of chemistry

65% 8%

6%

2%

19%

Global Oil Consumption, By Sector

Transport Industrial Residential Commercial Other

90

95

100

105

110

115

Demand in

2018

Chemicals Aviation Other

Industry

Other Road

transport

Power Demand in

2035

Oil Demand 2018 – 2035 Increase By Sector

Demand Chemicals Aviation Other Industry Other Road transport Power

Mmb/d

Source: VCBS, McKinsey, World Bank


GLOBAL OIL & GAS


Technology dramatically changes consumers’ taste

In 2030, global EV sale is expected to reach 23 million while the stock exceeds 130 million

vehicles under the New Policies Scenario (excluding two/ three-wheelers). Under the

EV30@30 Scenario, EV sale and stock nearly double in 2030, reaching 43 million and more

than 250 million respectively.

The expansion of automotive battery production capacity will largely depend on the

evolution of car electrification. This is due to the sale volume of electric cars far exceeding

other modes (except two-wheelers), and the size of their battery packs, which are much larger

for cars than for two-wheelers. There is a growing consensus that the car electrification will

be a pivotal pillar to reduce the unit cost of automotive battery packs since they can facilitate

the availability of lower-cost energy storage. EVs are also likely to be a crucial step for the

transition to a cleaner energy system.

In cost analysis: according to The International Council On Clean Transportation, the lifetime

total cost of ownership of battery electric is forecasted to be attractive as well as its lifetime

cost per mile versus diesel class.

Battery innovation and scale enables the mainstream market in years ahead.

0

0.4

0.8

1.2

1.6

2

0

400000

800000

1200000

1600000

2000000

2020 2025 2030 2020 2025 2030 2020 2025 2030

Diesel Battery Electric Hydrogen Fuel Cell

Estimated Vehicle Component Costs

(USD $)

Vehicle Fuel Maintenance Infrastructure Lifetime cost per mile

0%

10%

20%

30%

40%

0

10

20

30

40

50

2018 2025 2030 2025 2030

New Policies Scenario EV30@30 Scenario

Electric Vehicle Sales

China Europe US

India Japan Other

EV sales share (right axis) PHEV share in Evs (right axis)

Million vehicles

Source: VCBS, IEA, ICCT


GLOBAL OIL & GAS


The impact of COVID 19 on Global Brent Oil consumption

-12

-8

-4

0

4

8

12

16

20

16

20

17

20

18

20

19

Passenger Vehicle Sales

Global China

%YoY

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Mar

-10

Mar

-17

Mar

-24

Mar

-31

Apr-

07

Apr-

14

TSA traveler journeys

2020 2019Million

Mitigation measures to reduce the spread of the virus have halted a large number of travels globally with a widespread of flight cancellations, increasing stay-at-home orders,

and reducing global trade as well as demand for oil. For instances, passenger journeys through Transportation Security Administration (TSA) checkpoints in the United States

have fallen to around 4 percent of their 2019 level.

Global sale of passenger vehicles, a major barometer of oil demand growth, has continued to fall, particularly in China. Expectations for global growth for both 2019 and 2020

have been revised down substantially, including in emerging and developing economies. Since these economies tend to have a larger income elasticity of demand for

commodities than advanced economies, their slowdown has weighed disproportionately on energy demand.

Source: VCBS, World Bank


-2

-1

0

1

2

3

4

Other years Downturns Recessions

Forecasting Brent Price In Each Global Economic

Situation

Interquartile range Median 2020 (f)

%

10

GLOBAL OIL & GAS


Brent Oil forecast: Conservative

Oil price are projected to average $42/bbl in 2020

before recovering to $50/bbl in 2021, which is

substantially lower than our forecast in the

previous report.

Regarding demand, we expect a gradual weak

demand as 2nd wave of COVID 19 pandemic

continues to loom.

Concerning supply, the outlook depends heavily

on the production response. In the short-term

companies may continue producing oil, even at

very low prices, because reducing oil production is

challenging. It is very expensive to shutdown or

restart an oil well. Also, the closure of fields is

complicated. As a matter of fact, breakeven prices

for new wells are around $50/bbl on average for

U.S. shale which is substantially higher than the

current price of WTI.

-25

-20

-15

-10

-5

0

5

2018 2019 2020

World Oil Demand, by quater

China Rest of world

Percent, y/y

0

15

30

45

60

75

Cost of production Cost of new well

U.S Shale Breakeven And Cost Of Production

Range Average

US $

-10

-8

-6

-4

-2

0

2

4

April May-June 2020 2020 H2 Jan 2021-Apr 2022

Saudi Arabia Other OPEC

Russia Other non-OPEC

Headline cuts

Mb/d

Source: VCBS, IEA


GLOBAL OIL & GAS

The Fate Of The Energy Industry Is In The Hands Of The Giant “Technology”

Brent Oil Forecast: Conservative

-14

-12

-10

-8

-6

-4

-2

0

2

80

85

90

95

100

105

Global Oil Supply, Demand, and Inventories

(Million Barrels per Day)

Total Sotck Draw Total World Supply Total World Demand

MODEL

P = -13.4 S + 10.9 D + 4.75 G + 310.6

In which

P: Brent Oil Price

S: Aggregate Global Oil Supply

D Aggregate Global Oil Consumption

G US’s GDP Growth

Assumption

(1): Total global oil supply in 2020 of (S) = 99.3 million barrels per day

(2): Total global oil consumption in 2020 of (D) = 100.3 million barrels per day

(3): US’s GDP growth in 2020 of (G) = - 6.5%

Forecast

Given the Oil price of USD42/barrel, VCBS issues a “CONSERVATIVE”

recommendation for the next 2H.2020.

Source: VCBS, IEA




STOCK PICK: OPPORTUNITIES HIDE IN LOW BASE


VIETNAM OIL & GAS

Upstream: Hope!

Block B – Time Line

PROJECT BLOCK B – O MON

Location Block B, 48/95 & 52/97 – Ma Lay – Tho Chu Basin

Investor Phu Quoc POC PVN (42.9%), PVEP (26.82%), Moeco (22.54%) và PTTEP

Reservation 176 billion m3 gas

Capacity 7 billion m3 gas per year

Well – head price ≈ USD10.33/MMBTU

Capex USD7 billion

- Looking forward to

approve FDI .

2020

- Signing PSC contract of Block B,

48/95 & 52/97 (Production Sharing

Contract)

1996 - PVN acquired Chevron’s

stake in Block B

2015 - Prime Minister approved

well – head price

2017 - Prime Minister approved

FDP report

2018 - First Gas

2024

TECHNICAL BLOCK B – O MON

Rigs Barge Drilling

EPCI 1 x CPP, 4 x WHPs, 1 FSO, Internal Pipeline

Downstream GPP Ca Mau, Ca Mau 1 & 2 Thermal power plant - POW

O Mon 1 Thermal power plant – EVN Genco 2

O Mon 2 Thermal power plant – Marubeni

O Mon 3, 4 Thermal power plant – EVN

Source: VCBS


VIETNAM OIL & GAS

Upstream: Hope!

The interruption between Upstream & Downstream

BLOCK B – O MON PROJECT

CPP -> KP 209 (209

km)

PM3 Pipeline

An Minh LFP -> O

Mon GDC

KP 209 -> Ca Mau

LFP

Block B CPP

PM3 - CCA

Ca Mau Gas –

Power – Fertilizer

O Mon Power Plants

Upstream Down Stream

Block B – O Mon project has been delayed for a long time mainly

due to the conflict between downstream & upstream players.

Regarding upstream side: Upstream player has their wellhead price

approved at a high level of USD10.33/MMBTU plus an inflation

rate of 2.5% annually which is higher than the natural input price of

existing thermal power plants. On the other hand, the regional LNG

price is lower than Block B wellhead recently, which raises

concerns over the feasibility project.

Regarding downstream side, the pre-FS report is the main problem

which needs to be solved by MOIT. Given the high gas price of

input plus the electricity retail price being under the control of the

government, O Mon I, II, III, IV thermal power plants are facing

difficulty in expanding their gross margin.

In 1Q.2020, Phu Quoc POC did a bidding invitation for EPC of

Block B – O Mon Pipeline. However, VCBS observed that most

downstream projects are facing some difficulties in launching, such

as Capital arrangement, Natural gas purchasing agreement, pre-FS

report, etc. However, as domestic supply of natural gas is under

serious deficit, government should make their effort to launch these

projects soon to revive the local oil & gas market Source: VCBS, PVN


VIETNAM OIL & GAS

Upstream: Hope!

Blue Whale – Time Line

PROJECT BLUE WHALE

Location Block 118 – Song Hong Basin

Investor Exxon Mobil (64%), PVEP (15%) & PVN (21%)

Reservation 150 billion m3 gas

Capacity 9.7 billion m3 gas per year, 2.8 million tons condensate per year

Well – head price …

Capex USD10 billion

- Looking forward to

approve FDP & FDI

2021

- Signing PSC contract of Blue

Whale (Production Sharing

Contract).

2009 - Signing HOAs (Project

Framework Heads Of

Agreement).

2017 - Completed FEED (Front

End Engineering Design)

2019 Negotiating GGU

(Government Guarantee)

& Dragging PSC’s term

2020 - First Gas

2024

TECHNICAL BLUE WHALE

Rigs Semisub

EPCI 1 x GTP (onshore), 2 x WHPs, Internal Pipeline

Downstream GTP Chu Lai + Mien Trung I & II Thermal power plant -

PVN

Dung Quat I & III Thermal power plant– EVN

Dung Quat II Thermal power plant – Sembcorp

Source: VCBS


VIETNAM OIL & GAS

Upstream: Hope!

Many Backlog Problems

BLUE WHALE PROJECT

Guarantee Government Undertaking

Blue Whale project has already stepped out of the FEEDs process,

entering the FDP state.

VCBS realized three key - issues which Blue whale has incurred

recently:

(1) MOIT is considering PSC extending term, adding more than 2 years

proposed by ExxonMobil.

(2) MOIT has not approved yet GGU of this project

(3) Deadlock in negotiating natural gas purchase price & electricity

selling price between PVN & ENV

In fact, Blue Whale’s EPC’s segments are offered globally bidding.

The domestic upstream players are not capable of winning from

foreign competitors. Instead, the domestic companies are likely to

act as subcontractors in this project.

Thermal Power Plant

Blue Whale WHP

GTP Plant

Ca Voi Xanh

Offshore Pipeline

Onshore Pipeline

Source: VCBS, PVN


VIETNAM OIL & GAS

Midstream: Obsolete Technology

Ample additional capacity results in oversupply

0

1

2

3

4

5

6

7

8

2018 2025 2030 2035 2040

South East Asia Refining Capacity

Indonesia Singapore Thailand

Malaysia Viet Nam Other

Net crude oil imports Net oil product imports

Mn Tons/y

-0.5

0

0.5

1

1.5

2

2.5

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Change In Refining Distillation Capacity

Middle East Asia North America

FSU Africa Europe

Latin America Additional Capacity required

MMbbl/day

In response to rising consumption for oil products, there are activities to expand refining capacity in Southeast Asia. Malaysia’s RAPID refinery (300 kb/d) should have started

operation from late 2019. A number of expansion projects at existing refineries are underway, notably in Indonesia, Philippines, Vietnam, and Thailand. Refinery running in

Southeast Asia will increase by two-thirds to almost 7 mb/d between 2018 and 2040. While Singapore is the largest refining central in SEA, other emerging markets such as

Indonesia, Malaysia, and Viet Nam are accelerating. These three nations are expected to contribute 70% of the region’s refining activity growth in the period to 2040.

As you can see in the graph below, the period from 2018 to 2022 saw a rapid growth of refining capacity in Asia & the Middle East especially in the Chinese market. According

to this estimation, VCBS sees a low level of crack spread in the Asia refining market maintaining from 2020 to 2025 until its market requires additional capacity => It has a

large impact on refinery company performance especially in case of 2020 Brent Oil price dropping sharply to below USD35/barrel.

Source: VCBS, IEA


VIETNAM OIL & GAS

Midstream: Obsolete Technology

Entangled in Capital Arrangement

Nghi Sơn Refinery

Plant

Capacity: 8.4 million

tons/y

Capex: USD9 billion

Input: Heavy Brent Oil

(High API & Sulfur)

Output: Euro III (DO),

Euro II (others)

Dung Quat Refinery

Plant

Capacity: 6 million

tons/y

Capex: USD3 billion

Input: Light Crude Oil

(Low API & Sulfur)

Output: Euro III

(A95), Euro II (others)

Middle

Low High

80%

Although IEA ranked Vietnam among the top highest

growth of refining capacity, Dung Quat expanding

project has been stuck recently due to the problem in

capital arrangement. This project has not been

approved to receive governmental guarantee and

undertaking (GGU) in accordance with current

Vietnamese investment law.

Nghi Son & Dung Quat refinery plants at full

capacity are capable of responding to approximately

80% of aggregate domestic consumption of

petroleum products currently. Given the annual

average growth rate of gasoline & petroleum

products by 5%, Vietnam is not under pressure to

raise the existing capacity.

Although Vietnam has taken part in international

environmental conventions, the quality of local

petroleum products is below the global standards.

Local refineries are capable of meeting Euro III

standards in some specific products meanwhile the

current global standard has reached Euro V.

Ecology Concept

International

convention on

the environment

To handle

Vietnam input

Euro IV & V

C B

A


VIETNAM OIL & GAS

Downstream: Heavily influenced by COVID 19

Inventory Provisions increase rapidly

Petroleum wholesale enterprises

Industrial Clients

DODOs

COCOs

49%

21%

7%

5%

3% 15%

Vietnam Petroleum Market Share

Petrolimex PV Oil SaiGon Petro Mipecorp Thalexim Khác

0

0.5

1

1.5

2

2.5

Gasoline consumption per capita

Philippines VietNam Hongkong China Indonesia

Malaysia Japan Thailand Brunei

Mm tons/year

-30

-20

-10

0

10

20

-2,000

-1,000

0

1,000

2,000

Q1.2020 Q2.2020

Downstream’s Inventories

PLX OIL BSR Brent Price

Bn VND US $

Vietnam's aggregate petroleum consumption per capita is lower than other developing countries in South East Asia such as

Malaysia, Thailand, Indonesia… but it doesn’t mean the growth of petroleum consumption will grow rapidly to obtain the same

level as others. VCBS believe the domestic growth of petroleum product will maintain of 5% - 6% pa unless “Black Swan” event

take place, affecting GDP growth.

In 2020, COVID 19 pandemic makes Brent Oil price drop deeply under USD 20/barrel, exposing the weakness in the current

petroleum market structure. According to 83/2014/NĐ-CP, all petroleum wholesale enterprises must reserve their inventory for

30 days meanwhile petroleum retail price is adjusted every 15 days. Given the sudden slump of Brent Oil in 1Q.2020, most of

the wholesalers recorded a large amount of inventories provision.

Source: VCBS


VIETNAM OIL & GAS


LNG is coming soon!

Hai Phong 1-3 MTPA

(2030 - 2035

Thai Binh FSRU 0.2-0.5

MTPA (2026 – 2030)

Khanh Hoa 3 MTPA

(2030 – 2035)

Son My 1 – 3 MTPA

(2023 – 2025)

Long Son 1 – 4 MTPA

(2020 – 2025)

Tien Giang 4 – 6 MTPA

(2022 – 2025)

Thi Vai 1 – 3 MTPA

(2020 – 2022) Ca Mau 1 MTPA (2022 –

2025)

LNG source 1

LNG source 2

LNG source 3

LNG source 4

Aggregator

Power (EVN)

Power (PVN)

Power (IPP)

Industry

EVN and/or PVN with

foreign portfolio players

LNG

SPA GSPA

0

5

10

15

2018 2019 2020 2021 2022 2023 2024 2025 2030 2035

Supply - Demand of Natural Gas at South of Viet

Nam

Natural Gas Supply Natural GaS Consumption

Facing the risk of gas shortages apparent growing, Vietnamese government is planning to import natural gas via the existing pipelines

(PM3- CCA; Nam Con Son 2) from Malaysia & Indonesia. However, this plan is only worth in case the exploited region &

overlapping region are identical (Malay Tho Chu is currently launched simultaneously by PVN & Petronas). If PVN builds an

additional pipeline as required, PVN needs to pose some consideration over its feasibility.

Given the favorable movement of LNG price, Vietnamese government leans on doing an LNG project to capture the LNG usage trend

in the world. Many new emerging LNG markets using FSRUs has grown rapidly since the first deployment in 2005. Regarding

Vietnam, the Public-Private model are showing that the power projects are owned by foreign companies under the BOT scheme and

the LNG infrastructure will be owned by EVN or PVN (in partnership with international companies). The cost of LNG Infrastructure

will be passed through to the tariff and the Government guarantees PVN or EVN’s obligation to construct, operate, and maintain the

LNG infrastructure.

Formerly, LNG is mainly serving to the urgent needs of the thermal power plants. In the latter, the Vietnam government will expand

the range of LNG applications to other industries.

Source: VCBS, Fitch


VIETNAM OIL & GAS


Stable growth ahead

Myanmar

Philippines India

Vietnam

China

Indonesia Thailand

South Korea Brunei

Taiwan

Malaysia

Japan

0

10

20

30

40

50

60

0 10000 20000 30000 40000 50000 60000 70000 80000

Kg

per

per

son

Cummulative Residential / Commerical Demand

Per Capita Residential / Commercial LPG Demand In

Asia, 2017 Estimate

0

10

20

30

40

50

60

70

80

0 2000 4000 6000 8000 10000 12000 14000 16000 1800020

18

Res/

Co

m L

PG

Co

nsu

mp

tio

n (

Kg

per

Ca

pit

a)

GDP Per Capita (2018 USD $)

LPG Market Development Versus GDP Per Capita In

Selected Countries

0

5

10

15

20

25

30

Mil

lio

n m

etri

c to

ns

per

yea

r

LPG Demand In Southeast Asia By End User

Residential/Commercial Industrial

Engine Fuel/Others Chemical

Production

Regarding Vietnam market, we forecast residential LPG sector to have stable growth rate of 8 – 10% pa but there is a differentiation in each regions. In detail, rural area could

perform better meanwhile urban area tends to decelerate.

Regarding chemical LPG segment, petrochemical process activity which are attracting a huge amount of FDI inflow from Thailand, Korea, etc uses LPG as its major material.

For instance, Long Son Petrochemical exploited since 2018 and predicted to put into operation from 2023 with total capacity of 2.7 million tons material per year. Therefore, we

believe this industry should play a key role in driving growth of the overall of LPG market.

However, most of domestic LPG companies are retailers operating in residential and industrial segments which have no business with chemistry customers. As a result,

domestic group may not capture the fast growth rate as the whole industry.

Source: VCBS, IHS Markit


VIETNAM OIL & GAS


No highlights in investment

36%

15% 14%

8%

27%

Market share for LPG civil in the South

PVGas South Saigon Petro Total Petrolimex Others

30%

17% 12%

9%

32%

Market share for LPG civil in the North

PVGas North Petrolimex Total Family Gas Others

VCBS realize the LPG market structure has not changed much since 2015 although there is a fierce competition in the industry.

Particularly, it can be explained by the consumer loyalty. Consumer choice is intimately related to safety level, especially in terms of

fire protection. For instance, if clients have been using LPG from a brand for a long time, they are less likely to change for another,

despite the alternative brands having lower price.

Given the slump of Brent Oil price in 1Q.2020, the global CP price also formerly recording a low of USD230 – 240/tons in March

then bouncing to USD330 – 340/tons, most of the LPG retailers should have made a provision for its inventories devaluation in

1Q.2020. The social distancing in respond to COVID 19 lead to a dumping of LPG’s consumption.

In 2H.2020, VCBS expect a recovery in LPG demand. However, 2020 growth is likely to record at 6%, as 2% lower as the previous

year.

Threat of New Entrants

Customers Bargaining

Power

Threat of SubstitutionsSuppliers Bargaining

Power

Competitive Rivalries

Five Forces Model

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

1-Jan 1-Apr 1-Jul 1-Oct 1-Jan 1-Apr

Brent Oil & LPG Movements

Brent Oil Propane Butane

US $ US $

Source: VCBS


VIETNAM OIL & GAS

General outlook

Outlook Matrix

BRENT OIL PRICE 30-35USD 45-50 USD 60-65 USD OUTLOOK

UP

ST

RE

AM

PVS

PVS outlook heavily depends on such big projects as Block B, Nam Du – U Minh whose break-even oil prices are USD 50 – 55 per bbl. We are

posing concern about PVS outlook under current situation.

PVB NCS2 (phase 2) has been launched, revenue of which should be recorded in this Q2.2020. Therefore, most of PVB income ahead after 2020 are

generated from Block B project.

PVD PVD’s workload and day-rate are crucially depending on regional markets whose projects are very sensitive to global oil market when making

decision on deployment.

PXS PXS’s performance are independent from oil price as its earning is generated from Long Son project which are being launched.

MID

-

ST

RE

AM

GAS Its performance is highly correlated with oil price movement.

BSR

In theory, oil price should not have any impacts on BSR’s performance. However, a sudden sharp decline in oil price may incur inventories

provision expense to BSR.

DO

WN

-

ST

RE

AM

PGS

CNG

PGD

PLX PLX and OIL keep their inventories on hand for up to 30 days, but adjusting their output price in 15 days (following government guidance). As

a result, a sudden drop of oil price in short period may negatively affect their performance. OIL

While:

: POSITIVE (5% - 15%)

: NEUTRAL (-5% - 5%)

: NEGATIVE (< -5%)

Source: VCBS

© RESEARCH DEPARTMENT ǀ JUN- 2020 24



STOCK PICK: OPPORTUNITIES IN LOW BASE


STOCK PICK

Upstream: Petro Vietnam Drilling Joint Stock Company - PVD

General overview

Business Activities

PVD is operating in drilling and related services belong to Oil & Gas Upstream

segment. PVD’s sales mainly come from drilling service which accounts for 40%

of total revenues.

Currently, well – related drilling service is playing a key role PVD’ revenue

structure since Rig’s day rate has dropped a sharply.

Shareholder Structure

PVD has high liquidity thanks to diversified shareholder structure. In 2019, PVD

has stock dividend payment with a rate of 10 : 1, raising its total listed share to

421,544,970 shares.

Business Result

In 1Q.2020, PVD recorded VND1,675bn (+84% yoy) of revenue and VND16bn ()

of NPAT. PVD’s business result received boosts from (1) Utilization rate increased

to 99.8%, compared to 99.6% in the same period last year; (2) There was a slightly

increasing day rate by 9.5% yoy (1Q.2020: USD60,200/day; 1Q.2019:

USD55,000/day).

46.50%

13.30%

7.10%

15.30%

11.30%

6.50%

36.80%

14.40% 4.40%

16.50%

22.60%

5.40%

Revenue Structure

Drilling

Well - Related

ServiceWorkshop

Human Source

Trading

Inside 2018

Outside 2019

50%

1%

27%

21%

1%


Petrovietnam

Local Inst

Local Ind

Foreign Inst

Foreign Ind

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2017 2018 2019E 2020F

Bil

lion

VN

D

PVD’s Business Results

Revenue

NPAT

Gross margin

Source: VCBS


STOCK PICK


Workload is strongly affected by COVID 19

Notes

: Already secured : Canceled : Rig move : Idle

Drilling Plan

Rigs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

PVD’s JU rigs

PVD I PCSB Hibiscus

PVD II PCSB PCSB

PVD III Repsol Repsol

PVD VI Sapura Rosneft

PVD V

PVD’s Hired rigs

Hakuryu 11 Sao Vang

IDUN Viet Nam Viet Nam market

SAGA Viet Nam

In late 2019, the day rate & utilization rate have boomed thanks to the rising consumption of drilling rigs in the Malaysian market. To obtain 2019 output volume target, Petronas

increased its drilling capacity in a spot by hiring more rigs oversea that pushed the regional day rate & utilization rate above USD90,000 & 75%, respectively. Then, they dropped

immediately to USD75,000 & 70% in early 2020 as our expectation. The regional day rates only rise sharply in short term due to the temporary shortage of rigs at Malaysian &

Indonesian markets meanwhile the bulk of rigs are being either under stand-by status or under construction in Singapore.

In early 2020, COVID 19 pandemic made Brent Oil drop to USD20/barrel, which resulted in a simultaneous shutdown of Oil & Gas projects in Malaysia. VCBS forecast PVD’s

utilization rate to decrease to 75% in 2H.2020, lower than our previous prediction rate of 95%. PVD’s performance in 2H.2020 may be strongly affected if Brent Price couldn’t

recover to USD50/barrel.

60.9%

7.2%

0.5% 5.6%

11.4%

4.8%

9.6%

42.90%

15.30%

0.90%

10.30%

18.00%

9.10% 3.50%

Drilling Well technical

Oil spill control Workshop

Manpower Trading & Procument

Others

6.3%

28.1%

20.8%

8.7%

12.6%

15.3%

-8.2%

31.2% 31.5%

2.9%

14.6% 15.3%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1Q.2020 1Q.2019

Source: VCBS

Revenue & Profit Structure


STOCK PICK


Whether or not the rebound of oil prices Brent price

11

6

5

2

2

24

10

9

6

4

2

0 5 10 15 20 25 30

Malaysia

VietNam

Indonesia

Thailand

Philipines

Brunei

Singapore

Activities of Jack - up rigs in SEA 2019

Drilling & enroute Stacked & yard Under construction & on order

8

6

3

1

2

18

14

8

9

6

2

0 5 10 15 20

Malaysia

VietNam

Indonesia

Thailand

Philipines

Brunei

Singapore

Activities of Jack - up rigs in SEA 2020

Drilling & enroute Stacked & yard Under construction & on order

0%

10%

20%

30%

40%

50%

60%

70%

80%

0102030405060708090

100

US

D $

Average day rates & Total contracted

utilization in Southeast Asia

Jack - up Day Rate Utilization Rate

0%10%20%30%40%50%60%70%80%90%100%

0

10

20

30

40

50

60

70

US

D $

PVD's day rates & Marketed utilization

Jack - up Day Rate Utilization Rate

VCBS believe the downtrend of Brent Oil will be reflect slightly on day

rate & utilization rate in 2Q.2020. VCBS believed PVD’s performance

to be good in 1H.2020 whereas the Brent Oil slumps, thanks to the

current drilling contracts, whose day rates have already been identified

in previous report. However, PVD’s performance could change

dramatically in 2H.2020 as workload in Malaysia is expected to drop.

The number of drilling rigs rises in the Malaysian market by 7 compared

to the previous period. VCBS reiterate the Malaysian deployment policy

of Oil & Gas projects: if the Brent oil price remains above break-even

point of each specific project for 1 year, they will restart it immediately.

As a result, Brent price below USD50/barrel may force Petronas to

pause its projects whose break-even point is high. Currently, Petronas

has already cut off their drilling capacity in a spot.

VCBS believes PVD’s performance to be good only in 2Q.2020 thanks

to the current drilling contracts, then droping rapidly in the next 2

quarters due to the capacity cut of exploited oil & gas in almost area.

We revised our Sea regional day rate forecast to move within the range

of USD50,000 - USD55,000 under the assumption that global Brent Oil

maintains its price below 40USD/barrel in the rest of 2020.

Source: VCBS


STOCK PICK


Risky In Short Term

BASE CASE 7,500

GOOD CASE 12,500

FORECASTING

VALUATION

7,500

TARGET PRICE

-25% DOWNSIDE

ASSUMPTION Base case Good case

Day rates (USD/day) 55,500 60,200

Utilization rates (%) 70% 95%

BUSINESS RESULT

Sales (VND bn) 4,675 5,297

NPAT - Mi (VND bn) -54 163.8

ĐỊNH GIÁ

P/B - 0.4

Cash per share 7,500 -

Target Price 7,500 12,500

Upside Down 25% Up 15%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20

PVD Relative VN Index


STOCK PICK

Midstream: Binh Son Refinery & Petrochemical JSC - BSR

General overview

Business Activities

Binh Son Refining and Oil Co.Ltd (BSR) which was established in 2008 has been

running Dung Quat refinery (DQR) - the only refinery in Vietnam at the moment. It

began operations in 2009, having a capacity of 6.5 million tons per year and

serving 30% demand of the domestic market.


After IPO, BSR has fail to select a strategic partner. Therefore, state is owning a

dominated proportion of ownership. BSR is preparing documents to list on the

HNX exchange.

Business Result

In 1Q.2020, BSR recorded VND17,991 billion (-22% YoY) in revenue and VND-

2347 in NPAT. A slump in BSR’s business result results from (1) impact of COVID

19 pandemic on petroleum products consumption; (2) an estimated VND580 billion

of BSR’s inventories provision being recorded in 1Q.2020 because global Brent oil

suddenly dumped. As a result, BSR’s generated negative profit in 1Q2020.

Revenue Structure

Diesel DO

Mogas 95

Mogas 92

Jet A1

LPG

Polypropylene

FO

Others

2018: Inside

2019: Outside

92.13%

0.23% 7.64%


Stated Ownership

Foreign Investors

Others

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0

20000

40000

60000

80000

100000

120000

140000

2018 2019 2020E 2021F

Bil

lion

VN

D

Business Result

Sales

Gros margin

Net margin

Source: VCBS


STOCK PICK


Low efficient ratio

-25

-20

-15

-10

-5

0

5

10

15

20

25

01/17 04/17 07/17 10/17 01/18 04/18 07/18 10/18 01/19 04/19 07/19 10/19 01/20 04/20US

D $

Inventory Gain/Loss

Inventory Gain/Loss

VCBS sees a close relationship between Asia inventory gain/loss indicator and BSR’s performance, rather than regional crack spread 3 – 2 – 1 is Asia inventory gain/loss. Given

the sharp drop of Brent price in 1Q.2020, this indicator showed huge losses in value reflecting in BSR’s inventories provision. According to data in 2Q.2020, the recovery of

Brent oil prices could lead to a retroactive inventory.

The downfall in BSR’s performance has prolonged continuously since its IPO taking place in 2018. Unfavorable situation of Asia refining the market leading to a slump of crack

– spread plays as the main culprit. As our prediction in refinery market outlook, both down trend of oil price in near term and redundant refining capacity till 2025 may prevent

crack – spread from increasing steadily in the future. There is a chance that the recovery of Brent oil price and the global gas demand after COVID 19 is likely to result in a

temporary uptrend in the crack – spread.

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

04/2018 07/2018 10/2018 01/2019 04/2019 07/2019 10/2019 01/2020 04/2020

P/B & ROE

P/B Unit: Time ROE Unit: %Source: VCBS, Bloomberg


STOCK PICK


Opportunity in low base

WORST CASE 6,500

BASE CASE 8,500

FORECAST

Valuation

8,500/CP

TARGET PRICE

+20% UPSIDE

ASSUMPTION Worst case Base case

Brent Price(USD/barre;) 30 45

BUSINESS RESULT

Sales (VND bn) 42,937 64,406

NPAT - Mi (VND bn) 1,659 2,488

ĐỊNH GIÁ

P/B - 0.8

Cash per share 6,500 -

Target Price 6,500 8,500

Upside Down 15% Up 20%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jun-19 Dec-19 Jun-20

BSR Relative VN Index


STOCK PICK

Downstream: Vietnam National Petroleum Group - PLX

General overview

Business Activities

Petrolimex main business scope is to import, export and deal in petroleum, refining

and petrochemical products, and some other fields such as bank and insurance.

Taken the country as a whole and the actual flow of sale in domestic market,

Petrolimex market share is estimated as about 50 percent.


Ownership structure is condense as CMSC is the dominant shareholder with 83%

of ownership in PLX. A major shareholder acting as strategic partner, holding 9% is

JX Nippon Oil.

Business Result

In 1Q.2020, PLX recorded VND38,500 billion (-8% YoY) in revenue and VND-

1,893 in NPAT. A slump in PLX’s performance resulted from (1) impact of COVID

19 pandemic on petroleum product consumption, especially on Jet A1 revenue; (2)

an estimated VND1,600 billion of PLX’s inventories provision being recorded in

1Q.2020 (because of recent drop in Global Brent oil) versus VND500 billion

reversal in 1Q.2019. As a result, PLX’s showed a negative profit.

Revenue Structure

Gasoline

Refining

productsLPG

Insurance

Transportation

2018: Inside

2019: Outside

83%

9%

8%


CMSC

JX Nippon Oil

Others

0%

2%

4%

6%

8%

10%

12%

0

50000

100000

150000

200000

250000

2018 2019 2020E 2021F

Bil

lion

VN

D

Business Result

Sales

Gros margin

Net margin

Source: VCBS


STOCK PICK


PLX Is Trading With Low Ke

Expected sharp recovery in consumption of petroleum products after COVID 19: PLX has been maintaining a growth rate of sales of 8% in aggregate from 2014 to 2019. As a result of Covid 19 impact,

VCBS expected a slight slip by 5% in 2020 sale and a sharp bounce of 10% in 2021.

The effectiveness of inventories management on PLX’s profit in this period. PLX is seeping in the mature stage of its business cycle life. VCBS did not expect PLX’s volume to boom in the near future.

VCBS highly considers the effectiveness of inventories management of PLX in case of Brent oil price sharp fluctuation leaving its profit to be volatile.

Valuation: Given the ROE of PLX being around 15 – 18% & P/B being above 3 times in regular, VCBS estimated that market is expected a Ke of PLX by ≈ 12%. VCBS used the conservative assumptions

in our valuation: (1) Brent price continue to stay at USD35/barrel, no reversal of inventories provision to be recorded in the last 2H.2020; (2) 2021 cash dividend of VND1,500/share, from 2021:

dividend amount of VND2,500/share & g = 8% = average PLX’s sale volume growth. (3) VCBS continue to set PLX’s cost of equity (Ke) ≈ 12% & P/B ≈ 3 in our valuation.

0.00x

0.50x

1.00x

1.50x

2.00x

2.50x

3.00x

3.50x

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2015 2016 2017 2018 2019

Profitability Ratio

Đòn bẩy ROE ROIC

0.12

0.13

0.14

0.15

0.16

0.17

0.18

0.19

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

P/B & ROE

P/B

Unit: Lần

ROE %

Unit: %

Source: VCBS


STOCK PICK


COVID 19 is a “Black Swan”

Unit: VND bn 2019 2020E 2021F

Net Revenue 189,641 124,277 135,927

+/- yoy (%) -1.2% -34.5% 9.4%

Net Income 4,772 1,587 4,475

+/- % 17.9% -66.7% 182%

EPS (VND thousand/share) 3,287 1,096 3,097

P/B Method 54,050

DDM Method 53,150

FORECAST

Valuation

53,600/CP

TARGET PRICE

+21% UPSIDE

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

May-17 Nov-17 May-18 Nov-18 May-19 Nov-19

PLX Relative VN Index


Terms and Contact Information

Term Of Use

This report and / or any statements or information contained in this report are not solicitation of an

offer to buy or sell any financial or securities products analyzed in this report nor are the products.

investment advice or investment advice of VCBS or its affiliates / members. Therefore, this report

should only be considered a reference source. VCBS does not assume any responsibility for

unexpected results when you use the information on securities trading.

All information contained in the analysis report has been collected and evaluated with the utmost

care possible. However, due to subjective and objective reasons from information sources, VCBS

makes no warranty as to the authenticity of the information mentioned in the analysis report nor is

it obliged to update the information. Information in the report after the time this report is released.

This report is copyright VCBS. Any act of copying part or all of the report and / or publishing

without the permission of VCBS in writing is strictly prohibited.

Contact Information

All information related to the above report, please

contact us:

Tran Minh Hoang

Head or Research

[email protected]

Le Duc Quang, CFA

Equity Manager

[email protected]

Ngo Duy Tai

Senior Equity Analyst

[email protected]

mailto:[email protected]















outlook 2020 - vcbs.com.vn

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