Rising input production costs, unfavourable weather conditions, a saturated domestic market and stiff competition are causing difficulties for fertiliser businesses.

Lam Thao Fertilisers and Chemicals JSC (LAS) reported net revenue of VND1.53 trillion (US$65.4 million), down 17.3 per cent compared to the same period in 2018. Pre-tax profit reached VND16.5 billion, down 82.1 per cent, the lowest level the company has ever recorded.

LAS attributed the poor business results to the saturation of the domestic fertiliser market and tough competition from foreign rivals.

The decline in sales volume led to an increase in inventory, so LAS had to delay debt payments. By the end of the second quarter of 2019, short-term and long-term debt reached VND1.19 trillion, up 18.2 per cent compared to the beginning of the year and accounting for 38.3 per cent of the company’s total capital. As a result, loan interest in the first half of 2019 rose by 77.6 per cent over the same period in 2018.

At the 2019 General Meeting of Shareholders, LAS set a plan to achieve VND162 billion in pre-tax profit this year, an increase of 4 per cent year-on-year.

Binh Dien Fertiliser Joint Stock Company (BFC), specialising in producing NPK fertiliser of the Dau Trau brand, also experienced unsatisfactory business results in the first half of 2019.

BFC saw revenue drop 9.7 per cent and pre-tax profit fall 86 per cent year-on-year. With this result, BFC completed just 8.5 per cent of the annual profit plan.

Among urea fertiliser producers, revenue of PetroVietnam Ca Mau Fertiliser JSC (DCM) was somewhat better as it rose by 5.9 per cent compared to 2018, financial expenses decreased by 54 per cent. But pre-tax profit dropped by 25.6 per cent to VND325 billion.

During the first half of this year, Petrovietnam Fertiliser & Chemicals Corporation (DPM) had to halt production for routine maintenance for more than two months and returned to work in May.

This caused the urea output in the first half to decrease by 38 per cent compared to 2018. However, the company still had to pay fixed costs and interest on loans, leading to a 26-per-cent decrease in revenue and a 78-per-cent drop in net profit.

Difficult business activities have negatively affected the price of many fertiliser stocks.

From the beginning of the year until now, LAS has lost more than 30 per cent and this is also the 3rd year of continuous decline, resulting in the decline in market capitalisation of nearly 50 per cent.

Similarly, the capitalisation of BFC also fell by 40 per cent, while those of DPM decreased by 30 per cent and DCM declined by 20 per cent.

Van Dien Fused Magnesium Phosphate Fertiliser Joint-stock Company (VAF) and Ninh Binh Phosphate Fertiliser JSC (NFC) are the rare stocks that saw no decrease in stock prices. But the reason was not due to positive business results but mainly due to low liquidity of these stocks.

Falling stock prices not only affected investor sentiment and businesses but also made it difficult for the State to divest capital. For example, in the auction of 13.9 million shares, or 29 per cent of charter capital, of the Viet Nam Chemical Group (Vinachem) at the Southern Fertilizer JSC (SFG) in July 2019, no investors registered.

Still attractive

According to experts, fertiliser stocks are going through the most difficult period in recent years, but this group of stocks still has some attractive features.

Fertilisers are a basic material, essential for farming activities. Consumers care about brand, product quality, soil conditions and prices. Businesses that do well in branding and quality enhancement will have advantages in raising consumption.

Enterprises who have good financial capacity can adequately meet investment needs and maintain a high ratio of cash dividend payment.

For example, at Petrovietnam Fertiliser & Chemicals Corporation (DPM), the ratio of short-term and long-term loans accounted for only 11.5 per cent of the total assets (as of June 30, 2019).

Abundant cash reserves help reduce the dependence of DPM’s business activities on loans. In the second quarter of 2019, financial revenue was higher than financial expenses. In recent years, DPM has maintained a cash dividend ratio of 10-20 per cent per year.

Enterprises have also made efforts to reduce costs and improve production and business activities, and at the same time promote research and development of high value-added fertiliser products.

Another factor that can help fertiliser stock prices is the divestment of state capital. Vinachem is planning to sell capital in LAS, BFC and SFG from now to 2020, while the Viet Nam Oil and Gas Group (PVN) plans to lower ownership at DCM and DPM to below 51 per cent.

Southern Fertilizer JSC (SFG)’s stock price soared by nearly 50 per cent in the first half of this year when Vinachem decided to divest capital there, despite the decline in business results. This stock may only reverse when the divestment results did not meet expectations. — VNS

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