vietnam fertilizer sector

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Fertilizer Sector: Perserverance amid Oversupply

We initiate coverage on Vietnam’s Fertilizer sector, our analysis report consists of six key segments: (1)

Fertilizer production in Vietnam, (2) Recent trends in international fertilizer market; (3) Domestic supply and

demand; (4) Pricing Dynamics; (5) Sector Outlook and finally (6) Companies in focus.

As a predominately agricultural driven country with 70% of the population working in agricultural

related sectors, Vietnam’s appetite and need for fertilizer is irrefutable. Although the current difficult

economic situation influences all economic sectors, fertilizer sector is one of the sectors less affected and

unperturbed by the economic downturn. Thanks to the constant demand, fertilizer companies have realized

profit amidst economic slowdown.

The domestic fertilizer supply is highly concentrated as most of big companies belong to two SOE

giants: Vinachem (Vietnam National Chemical Group) and PVN (PetroVietnam Group).

Oversupply and downtrend risks in international prices have resulted in a squeeze in profit growth

for the sector (urea, phosphate fertilizer and NPK). Growth in the long term might arrive from the

investments in high-quality fertilizer. However, the investments in depth sometimes require huge

investments, therefore, in our opinion, not able to boost the sector growth in the short term.

Need more policy to limit poor quality fertilizer: The oversupply situation in the fertilizer market is

highlighted by the existence of poor quality fertilizer as well as smuggled fertilizer. The fertilizer industry is

currently regulated by two decrees: 113/2003/ND-CP and 191/2007ND – CP. However, in these two

decrees, fertilizer sector is not a business under condition, therefore, although many small establishments

do not have to meet specific requirements, they continue to produce and trade fertilizer, which has led to a

“real” higher supply as compared to the official figures. According to the Vietnamese Ministry of Agriculture

and Rural Development, a new decree will soon be release which will require that fertilizer sector

become a business under conditions: fertilizer production companies must meet 14 criteria such as

production capacity, production condition,etc. Therefore, it is expected to somewhat reduce the oversupply

conundrum once the degree is implemented.

Companies in focus include two key listed players in the market, namely PetroVietnam fertilizers and

chemical JSC (DPM –HOSE) – HOLD recommendation, 1Y target price of VND 37,000/share and Lam

Thao fertilizer and chemical JSC (LAS – HNX) – HOLD recommendation, 1Y target price of VND

30,000/share. In addition, we also present a brief description of 3 key players in OTC market, namely Van

Dien fused magnesium phosphate fertilizer, Southern fertilizer JSC and Binh Dien fertilizer JSC.

RESEARCH & INVESTMENT ADVISORY

Thuy Nguyen Analyst

[email protected]

VIETNAM FERTILIZER SECTOR SECTOR REPORT

20.12.2012

RESEARCH AND INVESTMENT ADVISORY


TABLE OF CONTENT

SUMMARY .................................................................................................................................................................................. 2

FERTILIZER PRODUCTION IN VIETNAM ................................................................................................................................. 3

Nitrogen ............................................................................................................................................................................. 3

Ammonium sulphate (SA) ........................................................................................................................................... 4

DAP ............................................................................................................................................................................... 4

Urea ............................................................................................................................................................................... 5

Phosphate ......................................................................................................................................................................... 7

Superphosphate ........................................................................................................................................................... 8

Fused magnesium phosphate ..................................................................................................................................... 8

Potash ............................................................................................................................................................................... 9

Complex fertilizer – NPK .................................................................................................................................................. 9

INTERNATIONAL FERTILIZER MARKET: LATEST TREND .................................................................................................. 10

Oversupply situation persists ....................................................................................................................................... 10

China remains a big player in the fertilizer market ...................................................................................................... 12

DOMESTIC DEMAND & SUPPLY ............................................................................................................................................ 13

Domestic demand ........................................................................................................................................................... 13

Domestic supply ............................................................................................................................................................. 15

PRICING DYNAMICS ................................................................................................................................................................ 19

International benchmark and interaction between domestic supply and demand: Urea example ......................... 19

Other factors ................................................................................................................................................................... 19

SECTOR OUTLOOK ................................................................................................................................................................. 20

COMPANY IN FOCUS .............................................................................................................................................................. 21

PetroVietnam fertilizers and chemical JSC .................................................................................................................. 21

Lam Thao fertilizer and chemical JSC .......................................................................................................................... 25

Van Dien fused magnesium phosphate fertilizer JSC ................................................................................................. 27

Southern fertilizer JSC ................................................................................................................................................... 29

Binh Dien fertilizer JSC .................................................................................................................................................. 29

LIST OF TABLES AND FIGURES ............................................................................................................................................ 31

RATING ..................................................................................................................................................................................... 32

DISCLAIMER ............................................................................................................................................................................ 32

CONTACT INFORMATION ....................................................................................................................................................... 32



FERTILIZER PRODUCTION IN VIETNAM

In overall, fertilizer products can be divided into two groups: inorganic

fertilizer which is made of inorganic chemicals or minerals and organic

fertilizer which is compose of plant or animal decay. Most of commercial

fertilizers in Vietnam are inorganic, which will be the focus of this report.

Inorganic fertilizer product is distinguished based on the nutrients it

provides. There are 13 mineral nutrients which are divided into 3 groups

as follows:

Macro-nutrients containing nitrogen (N), phosphorus (P) and

potassium (K)

Secondary nutrients containing calcium (Ca), magnesium (Mg) and

sulphur (S)

Micro-nutrients containing boron (B), copper (Cu), iron (Fe), chloride

(Cl), manganese (Mn), molybdenum (Mo) and zinc (Zn)

Accordingly, fertilizers are divided into 4 main groups: nitrogen,

phosphate, potash and NPK complex

Nitrogen

While referring to nitrogen, we would like to present an overview, and then

highlight 3 main types of fertilizers which are popular in Vietnam

(Ammonium sulphate, Urea & DAP) and finally focus on the urea

production, an important fertilizer in Vietnam.

Nitrogen fertilizer overview

“Nitrogen (N), the main constituent of proteins, is essential for growth and

development in plants. Supply of nitrogen determines a plant’s growth,

vigour, colour and yield” (Yara Fertilizer Industry Handbook, February

2012)

Based on different forms of nitrogen, nitrogen fertilizers are divided into

four groups as follows:



Table 1: Different types of nitrogen fertilizers

Form of nitrogen Name of fertilizer % of Nitrogen Reaction

Nitrate

Sodium nitrate 16 Alkaline

Calcium nitrate 15 Alkaline

Potassium nitrate 13 Alkaline

Ammonium

Ammonium sulphate (SA) 25.5 Acidic

Ammonium chloride 25 Acidic

Monoammonium phosphate (MAP) 11 Acidic

Diammonium phosphate (DAP) 18 Acidic

Ammonium solution 20-25 Acidic

Ammonium & Nitrate

Ammonium nitrate 33 Acidic

Ammonium sulphate nitrate 25-26 Acidic

Calcium ammonium nitrate 25-26 Neutral

Amide Urea 46 Acidic

Calcium cynamide 20.5 Saline

Source: Dr.K.T. Chandy, Fertilizers an introduction, Agricultural & Environmental Education.

Nitrogen fertilizer in Vietnam

We will highlight 3 main types of fertilizers which are popular in Vietnam:

Ammonium sulphate (25.5% N), Urea (46% N) & DAP (18% N)

Ammonium sulphate (SA)

Currently, Vietnam does not have any company producing ammonium

sulphate; therefore, SA in Vietnam is completely imported.

DAP

The first plant to produce DAP in Vietnam is Vinachem DAP Dinh Vu (Hai

Phong). With designed capacity of 330,000 tons/year, DAP Dinh Vu can

satisfy 50% of domestic demand. Vinachem (Vietnam National Chemical

Group) is currently implementing the second investment project of DAP in

Lao Cai (origin of the apatite source) with same designed capacity. Nam

Viet Corporation, (ANV:HOSE) hold 39% of the Vinachem DAP 2 JSC

(charter capital of VND 100 bn) and this project has been started

construction from Nov 2011 and expected to be operating from 2014, with

annual revenue of VND 3.5 trillion. The Ministry of Industry and Trade has

proposed to build a third plant, also in Lao Cai, but the Ministry of

Agriculture and Rural Development showed disagreement as they fear the

supply would easily surpass the demand.

Urea is produced in-house by four main companies: PetroVietnam

Fertilizer and Chemical JSC (DPM), Ca Mau Fertilizer (DCM), Ha Bac



Fertilizer and Ninh Binh Fertilizer. Prior to 2012, there were only two

domestic plants producing urea: DPM (designed capacity of 800,000

tons/year) and Ha Bac fertilizer plant (designed capacity of 190,000

tons/year). Therefore, before 2012, Vietnam depended on imported urea

(which mostly arrived from China). However, starting in 2013, Vietnam will

experience an oversupply with the operation commencement of two new

plants: Ca Mau fertilizer plants (designed capacity 800,000 tons/year) and

Ninh Binh fertilizer plant (designed capacity 560,000 tons/year), which will

result in a sharp decrease in imported urea. (See graph 9 page 17 for

more details)

Urea

1. Urea produced by natural gas

Graph 1: Process of urea production by natural gas

Source: http://www.mhi.co.jp/en/products/expand/km-

cdr_application_03.html

In Vietnam, there are currently 2 plants producing urea by natural gas

as the main input: Phu My fertilizer plants and Ca Mau fertilizer plant.

Natural gas is supplied by PV Gas, and the gas price is approved by

the Prime Minister (PV Gas sells approximately 84% of its dry gas

capacity to electricity generators, 9% to fertilizers manufacturers and

the rest to industrial users). According to DPM, each ton of urea

requires 27 MMBTU of natural gas.

In 2012, the input gas price was determined at $ 6.43/MMBTU (+40%

YoY) and will increase 2%/year. Input gas price for DPM arrived from

Cuu Long basin and Nam Con Son basin while input gas price for DCM

arrived from Malay Tho Chu basin.

Graph 2: Vietnam’s gas value chain

Source: PV Gas

http://www.mhi.co.jp/en/products/expand/km-cdr_application_03.html

http://www.mhi.co.jp/en/products/expand/km-cdr_application_03.html



2. Urea produced by coal

Two plants in Vietnam that produce urea by coal are Ha Bac fertilizer

plant and Ninh Binh fertilizer plant.

Graph 3: Process of urea production by coal

Source: http://www.perdaman.com.au/our-operations/collie-urea-manufacturing/process-overview.aspx

Coal price is determined by the Vietnam national coal – mineral industries

holding corporation (Vinacomin), approved by the Ministry of Finance.

Urea produced by natural gas in Vietnam benefits from lower COGS

than urea produced by coal

In Vietnam, the price of natural gas sold to fertilizer plants is subsidized by

the government (approximately 40% lower as compared to the price of

natural gas sold to industrial users), therefore, fertilizer company that uses

natural gas can benefit from a low COGS. In our estimates, the input cost

of a fertilizer plant that uses coal is ~50% higher as compared to the input

cost of a fertilizer plant that uses natural gas (SSI estimates, based on the

price of the lump coal 5B of $185/ton)

http://www.perdaman.com.au/our-operations/collie-urea-manufacturing/process-overview.aspx



Phosphate

While referring to phosphate fertilizer, we would like to present an

overview then focus on two subgroups of phosphate fertilizer in

Vietnam, which are superphosphate and fused magnesium

phosphate (FMP)

Phosphate fertilizer overview

“Phosphorus (P) is vital for adequate root development and helps the

plant resist drought. Phosphorus is also important for plant growth and

development, such as the ripening of seed and fruit”. (Yara Fertilizer

Industry Handbook, February 2012).

Phosphate fertilizers can be distinguished by the nature of phosphate as

follow:

Table 2: Different types of phosphate fertilizers

Nature of phosphate Fertilizer % of P Reaction

Water soluble

Single super phosphate 16 Neutral

Double super phosphate 32 Acidic

Triple super phosphate 42 Acidic

Monoammonium phosphate 48 Acidic

Diammonium phosphate 46-54 Acidic

Citrate or citric acid soluble

Basic slage 14-18 Alkaline

Dicalcium phosphate 34 Alkaline

Rhemania phosphate 25 Alkaline

Fused magnesium phosphate 16-18 Alkaline

Insoluble phosphatic fertilizer

Bone meal raw 20-25 Alkaline

Bone meal Steamed 22 Alkaline

Rock phosphate 20-40 Alkaline

Source: Dr.K.T. Chandy, Fertilizers an introduction, Agricultural & Environmental Education; SSI estimates

Phosphate fertilizer in Vietnam

In this section, we will focus on two subgroups of phosphate fertilizer,

which are superphosphate (14-16% P2O5) & fused magnesium

phosphate (FMP – 16% P2O5). Currently in Vietnam, there are 2 main

companies which produce superphosphate (Lam Thao Fertilizers &

Chemicals JSC, Southern Fertilizer JSC) and 3 companies which produce

melting phosphate (Van Dien Fused Magnesium Phosphate fertilizer,

Ninh Binh Phosphate Fertilizer and Lam Thao Fertilizers & Chemicals

JSC)



Superphosphate

Graph 4: Superphosphate production process

Source: Prospectus of Lam Thao Fertilizer and Chemical JSC

The largest cost component is Apatite and Sulphur. Apatite is a natural

resource which can be found in the Lao Cai province and the selling price

is negotiated by Vinachem. In addition, a recent ban on exporting apatite

is an advantage for domestic fertilizer companies. Secondly, sulphur,

which is imported and is heavily dependent on the fluctuation of

international prices. Historically, there is high correlation between sulphur

price and international oil price.

Table 3: Details of core input price in the superphosphate production

Core input Note: Unit

Apatite Ca3(PO4)2 Purchase price mil VND per ton Apatite 0.85

Production ratio Apatite volume per ton Super phosphate 0.72

Sulfur Purchase price Per ton Sulfur 5.25

Production ratio Sulfur volume per ton Super phosphate 0.1

Total core input cost Mil VND per ton superphosphate 1.14

Source: Lam Thao Fertilizer and Chemical JSC data, SSI estimates

Fused magnesium phosphate

Fused magnesium phosphate (FMP) is suitable for industrial plants. The

production of FMP is less intricate than the production of superphosphate

(The main input of FMP production is apatite and coal; its production does

not require sulphur like the production of superphosphate); therefore its

average selling price (ASP) is lower than the ASP of superphosphate.

Apatite Heated

Granulation

Chemorection Mixed

Formulated

Curation

H2SO4

Superphosphate



Potash

Table 4: Different types of potash fertilizers

Fertilizer %K2O

Potassium sulphate 50%

Muriate of potash 60%

Source: Dr.K.T. Chandy, Fertilizers an introduction,

Agricultural & Environmental Education

“Potassium (K) is central to the translocation of photosynthesis within

plants, and for high – yielding crops. Potassium helps improve crop

resistance to lodging, disease and drought”. (Yara Fertilizer Industry

Handbook, February 2012).

Vietnam does not have any plant that produces potash, therefore, all

potash are imported.

Complex fertilizer – NPK

Farmers can apply complex fertilizers such as NPK instead of single

fertilizer, and then meet the requirement by adding nutrition as a whole.

NPK fertilizer combines nitrogen (N), phosphorus (P) and potassium (K).

Ingredients is the highest cost component, while N can be purchase

domestically, P can be produced in house (for the companies producing

phosphate fertilizers as mentioned above) or bought domestically, K has

to be imported because Vietnam lacks the production capacity of K.

The number in NPK fertilizer (eg NPK 5-10-13) is the percentage

composition of each element. The average selling price as well as the

cost of goods sold of each type of NPK varies according to this

percentage and other nutrients added. For example, the NPK price of

Lam Thao fertilizer and Chemical JSC is only ~ VND 4,500/kg while NPK

price of Binh Dien fertilizer JSC is much higher, at ~ VND 14,600/kg.



INTERNATIONAL FERTILIZER MARKET: LATEST TREND

The international demand and supply is described by two main

characters: firstly, the oversupply situation persists as the increase rate of

total N, P, K supply is higher than the increase rate of total demand;

secondly, China remains a big player in the fertilizer market; therefore a

fluctuation in Chinese fertilizer market can influence balance of supply

and demand of the entire fertilizer market.

Oversupply situation persists

As mentioned above, there is a high correlation between the fertilizer

sector and the agricultural sector, Therefore, the N, P, K international

demand is increasing due to the constant growth of the agricultural sector.

Graph 5: Utilization and production of cereal in the world

Source: FAO - CBS

However, the increase rate of total N, P, K supply is higher than the

increase rate of total demand, which will result in to a continuous surplus

in the future (The potential balance – the gap between total supply and

total demand- is increasing since 2012 onwards). This oversupply is

explained by the increase in capacity of current plants as well as the

emergence of new plants. For example, from 2011 to 2016, 60 new urea

units would commence operation, massive phosphoric acid capacity in

China, Morocco and Brazil, etc. (Source: IFA, June 2012)

Table 5: World Nitrogen; Phosphoric; Potash Supply/Demand Balance (million metric tons)

2012 2013 2014 2015 2016

Nitrogen

Total supply 140.8 146.4 149.7 158.4 162.2

Total demand 137.3 139.6 141.9 143.8 145.6

Fertilizer demand 109.5 110.8 112.1 113.2 114.4

Non fertilizer demand 24.4 25.3 26.3 27 27.6

Distribution losses 2.3 2.4 2.4 2.5 2.5



Table 5: World Nitrogen; Phosphoric; Potash Supply/Demand Balance (million metric tons)

2012 2013 2014 2015 2016

Unspecified demand 1.1 1.1 1.1 1.1 1.1

Potential balance 3.5 6.8 7.8 14.6 16.6

Phosphoric

Total supply 44.3 45.9 47.4 48.8 49.8

Total demand 42.5 43.8 44.7 45.5 46.2

Fertilizer demand 36.7 37.6 38.3 39 39.7

Non fertilizer demand 5 5.3 5.5 5.6 5.6

Distribution losses 0.8 0.9 0.9 0.9 0.9


Potash

Total supply 40.2 43.5 45.7 48.6 52.8

Total demand 32 33.8 34.8 35.7 36.6

Fertilizer demand 28.4 30 31 31.7 32.6

Non fertilizer demand 2.7 2.8 2.8 2.9 3

Distribution losses 0.9 1 1 1 1.1


Source: Prud'homme, IFA, June 2012

Urea, a sub - group of nitrogen fertilizer would also experience a

continuous oversupply.

Table 6: World Urea Supply/Demand Balance (million metric tons

urea)

Year 2012 2013 2014 2015 2016

Total supply 165.9 173.7 180.3 189.7 195

Total demand 162.3 165.9 170 173.8 176.1

Fertilizer demand 143.3 146.2 149.4 152.7 154.4

Non fertilizer demand 19 19.7 20.7 21.1 21.7


Source: Prud'homme, IFA, June 2012



China remains a big player in the fertilizer

market

China is the world’s largest manufacturer and consumer of fertilizer (See

table 7 below for more details). In 2005, Chinese fertilizer accounted for

33% of total world output and 35% of total world consumption (Source:

China National Agricultural Means of Production circulation Association).

Therefore, a fluctuation in Chinese fertilizer market can influence balance

of supply and demand of the entire fertilizer market.

Table 7: Concentration of world fertilizer production capacity, 2008-

09

Fertilizer Top 5 countries (% of world in parentheses)

Top 5 Capacity (000MT)

Top 5 share (% of world)

Urea

China (33.1), India (13.1), Indonesia (5.4), Russia (4.2) and United States (4.1)

95802 59.9

DAP/MAP

China (23.3), United States (21.2), India (11.4), Russia (6.0) and Morocco (4.0)

22896 65.9

Phosphoric acid

United States (20.9), China (19.3), Morocco (9.6), Russia (6.2) and India (5.3)

28274 61.3

Potash

Canada (37.6), Russia (13.2), Belarus (9.9), Germany (8.2) and China (7.7)

39687 76.7

NPK

China (29.3), India (8.2), Russia (6.0), France (4.0) and Turkey (3.0

47186 50.4

Source: IFDC (International Fertilizer Development Center) 2009



DOMESTIC DEMAND & SUPPLY

As a predominately agricultural driven country with 70% of the population

working in agricultural related sectors, Vietnam’s appetite and need for

fertilizer is irrefutable. There are many external factors affecting

agricultural activities as well as the fertilizer sector such as weather,

percentage of total cultivation area, rice demand, ect.

The domestic fertilizer supply is highly concentrated as most of big

companies belong to two SOE giants: Vinachem (Vietnam National

Chemical Group) and PVN (PetroVietnam Group). In addition, while

referring to the domestic supply, it should also be noted that even though

the market confronts with a domestic oversupply of urea, phosphate and

NPK, Vietnam still has to import other types of fertilizer (SA, DAP). We

focus on the supply of three main types of fertilizer in Vietnam: urea,

phosphate and NPK.

Domestic demand

Table 8: Vietnam’s Area, Yield, and Production for

Rough Rice

Year 2010/2011 2011/2012 2012/2013

Harvested Area (tha)

Winter 1,776 1,775 1,765

Winter - Spring 3,095 3,095 3,095

Summer - Autumn

2,740 2,730 2,740

Total 7,607 7,600 7,600

Yield (mt/ha)

Winter 4.67 4.67 4.70

Winter - Spring 6.29 6.35 6.35

Summer - Autumn

5.27 5.27 5.30

AVERAGE 5.54 5.57 5.59

Production (tmt)

Winter 8,294 8,289 8,296

Winter - Spring 19,466 19,653 19,653

Summer - Autumn

14,434 14,387 14,522

Total 42,194 42,329 42,471

Source: The Ministry of Agriculture and Rural Development

Differences in weather conditions equate to 3 main crop types,

which explains the fluctuation in the demand of fertilizer in the year

Vietnam boasts 3 main crops: Winter (“Lua mua”- October); Winter-

Spring (December – January) and Summer-Autumn (May – June), which

partly explains the fluctuations in the fertilizer demand. The winter and

summer-autumn yield is lower as compared to the winter-spring yield. As

shown in the table below, the harvest area of the winter –spring crop

occupies 40% of total harvest area in the year.

Increase in food demand leads to an incremental demand for

fertilizer

It should be noted that there is a direct correlation between the fertilizer

business and the food demand. As Vietnam experiences population

growth, food demand will become compulsory (Vietnam’s current

population is roughly 80 million and is expected to reach 100 million in

2020). In addition, Vietnam relies heavily on exportation (In 2011,

Vietnam ranks No 2 in the top ten rice exporter), which emphasizes the

food demand. See Graph 6: Increase trend in rice export result and

Graph 7: Vietnam Paddy Rice Production for more details.

The percentage of cultivated area remained identical, which



Graph 6: Increase trend in rice export results from

2008 to 2011

Source: Vietnam Food Association (VFA)

Graph 7: Vietnam Paddy Rice Production (from 1992 to

2012)

Source: USDA/FAO/OGA/IPA

consequently led to a demand for high quality fertilizer to increase

productivity and yield.

We noticed that Vietnam’s cultivated area remained constant; therefore,

we assumed that because of the fact, high yielding quality fertilizer is

important to enhance the productivity in order to satisfy the ample

demand.

Southern Vietnam remains the dominant rice cultivation region

Boasting the largest percentage of total cultivation area, Southern

Vietnam is the largest fertilizer market in the country. In addition, as

Southern fertilizer is also dedicated for export, farmers in the South have

the incentive to focus more on fertilizers’ quality to ensure the

enhancement of productivity as well as the quality of agricultural

products. In contrast, in the North, farmers are less interested in

effective agricultural production, so the price of fertilizer, and not quality

is an important competitive factor. This is why high quality fertilizers

concentrate in the south, additionally the average selling price of

fertilizer in the south is also higher than in the north.

Table 9: Cultivated area in Vietnam from 2000 to 2011

Rice Corn Cane Cotton Peanut Soybean Total % growth YoY Thousand ha 2000 7666.3 730.2 302.3 18.6 244.9 124.1 9086.4 2001 7492.7 729.5 290.7 27.7 244.6 140.3 8925.5 -2% 2002 7504.3 816.0 320.0 34.1 246.7 158.6 9079.7 2% 2003 7452.2 912.7 313.2 27.8 243.8 165.6 9115.3 0% 2004 7445.3 991.1 286.1 28.0 263.7 183.8 9198.0 1% 2005 7329.2 1052.6 266.3 25.8 269.6 204.1 9147.6 -1% 2006 7324.8 1033.1 288.1 20.9 246.7 185.6 9099.2 -1% 2007 7207.4 1096.1 293.4 12.1 254.5 187.4 9050.9 -1% 2008 7400.2 1140.2 270.7 5.8 255.3 192.1 9264.3 2% 2009 7437.2 1089.2 265.6 9.6 245.0 147.0 9193.6 -1% 2010 7489.4 1125.7 269.1 9.1 231.4 197.8 9322.5 1% 2011 7651.4 1117.2 281.3 9.4 223.7 181.5 9464.5 2%

Source: GSO (The General Statistics Office)

Table 10: Percentage of total cultivation area in Vietnam

Unit: thousand ha

% of total cultivation area 2011A 2012E 2013E

W/country 7,655.4 7,300.0 7,300.0

North 2,390.2 2,336.0 2,336.0

% 31.22% 32.00% 32.00%

South 5,265.2 5,037.0 5,037.0

% 68.78% 69.00% 69.00%

Source: Ministry of Agriculture and Rural Development



Domestic supply

The domestic fertilizer supply is highly concentrated with

manufacturing companies associated to two SOE giants: Vinachem

and PVN. As shown in the table below, with 15 key players in the market,

10 companies belong to Vinachem and 2 companies belong to PVN.

Table 11: Key domestic fertilizer companies in Vietnam

Corporation No Companies name Product Designed capacity (tons/year)

Vinachem 1 Ninh Binh phosphate fertilizer JSC FMP 300,000

NPK 150,000

2 Southern fertilizer company Superphosphate 200,000

NPK 300,000

3 Lam Thao fertilizer and chemical JSC Superphosphate 750,000

FMP 140,000

NPK 700,000

4 Van Dien fused magnesium phosphate fertiliser company

FMP 270000

NPK 150000

5 Binh Dien fertilizer company NPK 500,000

6 Can Tho fertilizers & Chemical JSC NPK More than 200,000

7 Ha Bac urea company (Ltd) Urea 190,000

8 Ninh Binh urea company Urea 560,000

9 DAP 1 Company DAP 330,000

PVN 10 PetroVietnam fertilizers and Chemical JSC

Urea 800,000

11 Ca Mau fertilizer plant Urea 800,000

Others 12 Five star international group NPK 300,000

Fertilizer complex Na

Specialized fertilizer Na

13 Baconco NPK 200,000

14 General Materials Biochemistry Fertillizer JSC

NPK 360,000

15 Japan Vietnam Fertilizer Company (JVF)

NPK 350,000

Source: Vinachem, Company data

Based on 2011 output and 2011 revenue, top 5 companies in the fertilizer

sector is PetroVietnam fertilizers and Chemical JSC - DPM, Binh Dien

fertilizer JSC, Lam Thao fertilizer and chemical JSC - LAS, Southern

fertilizer JSC and Five stars international group (Source: VNR 500, SSI

research)



Graph 8: 2011 Vietnam fertilizer market supply &

demand

Source: Ministry of Agriculture and Rural Development,

Feb 2011

Confronted with a domestic oversupply of urea, phosphate and NPK,

Vietnam still has to import other types of fertilizer (DAP, SA, K)

According to the Ministry of Agriculture and Rural Development, in 2012,

Vietnam experiences an oversupply of NPK, superphosphate and urea

due to the operation of new plants and the operation expansion of current

plants (See graph 8 & graph 9 below for more details). However, 65% of

DAP demand is still dependent on import, and would decrease in the next

few years (after the operation of the second DAP plant). Two other key

fertilizers (SA and potash) are completely imported as Vietnam does not

produce them.

Urea market

Prior to 2012, domestic demand far exceeded supply, so fertilizer

companies experienced high growth and found it easier to market and sell

their products. However, from 2013 onwards, with the full operation of two

new plants (Ca Mau fertilizer plant & Ninh Binh fertilizer plant), the total

urea supply will double; therefore the domestic market will experience

oversupply.

Graph 9: Vietnam domestic urea supply

Source: PetroVietnam fertilizer and chemical JSC



Phosphate market

Phosphate fertilizers can be sold as commercial output or can be used as

an input for NPK production. The Ministry of Agricultural and Rural

Development estimated that 2011 demand for phosphate fertilizer will

reach 1.8 million tons. Currently domestic production is sufficient to satisfy

domestic demand. Biggest players are the subsidiaries of Vinachem, and

cumulatively they produced approximately 1.5 million tons of

superphosphate in 2011.

Table 12: Details of the phosphate producers in Vietnam

Fertillizer Companies Designed capacity

(thousands tons/year) 2011 Production output

(thousand tons/year)

Superphosphate Lam Thao Fertillizers & Chemicals., JSC

750 830

Southern Fertillizer., JSC 200 181

Melting Phosphate

Van Dien Fused Magnesium Phosphate Fertillizer., JSC

300 199

Ninh Binh Phosphate Fertillizer., JSC

300 235

Lam Thao Fertillizers & Chemicals., JSC

300 43

Source: Prospectus of Lam Thao Fertilizer and Chemical JSC

NPK market

The Ministry of Agriculture and Rural Development estimated that 2011

demand for NPK will be roughly 3 million tons, highest among other

fertilizer segment. Currently Vietnam boasts many producers that have

enough production capacity to satisfy demand. The most notable NPK

manufacturers are the subsidiaries of Vietnam Chemical Group

(Vinachem): LAS (700.000 tons), Binh Dien (500,000 tons) and Southern

fertilizer JSC (350,000 tons).



Fertilizers imports

For fertilizers that Vietnam is unable to produce (SA and K) or the

domestic supply cannot satisfy demand (DAP), import activity is

encouraged, for example: prioritization in foreign currency allocation to

import; low import tax rate (at 5%).

Graph 10: Imported fertilizer since 2005 until Nov 2012

Source: CEIC

Most of Vietnam’s imported fertilizers arrived from China. While the

government can control the official import volume, it is difficult for them to

control the unofficial import volume. The competitive pressure mainly

comes from NPK and urea as foreign companies cannot compete with

Vietnamese phosphate fertilizer. (The price of superphosphate is roughly

VND 3 mil/ton, while the transportation tariff from China to Vietnam is high

at roughly VND 2mil/ton).



PRICING DYNAMICS

The domestic price is determined by two main factors: international

benchmark and the interaction between domestic supply and demand. In

addition, it is also affected by other factors like Government policies and

speculations.

Graph 11: World Bank urea price forecast

Source: World Bank, Commodity Price Forecast Update, Sept 2012

International benchmark and interaction between

domestic supply and demand: Urea example

International urea price is one of the most important benchmark of

domestic urea price. Urea price will likely experience a downtrend as in

2013; the urea market will experience an oversupply as mentioned

above. The World Bank has also published a downward urea trend

forecast.

In addition, the domestic market will experience its own oversupply in

2013 and onwards, causing prices to contract (with the full operation of

Ca Mau fertilizer plant and Ninh Binh fertilizer plant, see graph 9 above)

Other factors

Governmental policies: As the fertilizer business is important for an

agricultural driven country like Vietnam, the fertilizer sector is heavily

regulated with governmental policies such as: subsidization of material

input (DPM and Ca Mau fertilizer plant profit from a low natural gas price,

40% lower as compared to the gas price to industrial users), allocation of

material input (government’s decision to ban the export of apatite, which

is advantageous for companies producing phosphate fertilizers),

government control of production (as most of big players in fertilizer sector

belong to two SOE giants: Vinachem and PVN). Therefore, changes in

government’s policies can affect profits of companies in the sector.

Speculations: Speculations could lead to abnormal increases in volume

and market prices. Normally, the speculation phenomenon occurs when

the fertilizer demand increases depending on crop type or when the

fertilizer price tends to increase. However, it can also harm fertilizer

companies if market price drops significantly.

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SECTOR OUTLOOK

Sector weighting: Neutral

Earnings outlook is less affected by economic downturn but is difficult to grow as market has already

been oversupplied

As Vietnam continues to remain an agricultural driven country, therefore the fertilizer sector still plays a key

role in the economy. Although the current difficult economic situation influences all economic sectors, fertilizer

sector is one of the sectors less affected and unperturbed by the economic downturn. Thanks to the constant

demand, fertilizer companies have realized profit amidst economic slowdown. However, along with market

oversupply (urea, phosphate fertilizer and NPK) and the downtrend risk of international price, we expect a

squeeze in the profit growth of the sector.

Long term investments in depth to drive prospective growth

As mentioned above, the oversupply is dominated in some specific fertilizers such as urea, NPK, phosphate.

Then, the “pure” increase in capacity seems not profitable for fertilizers companies. Taking LAS as an

example, in 3Q12, as economic difficulties cast its shadow over the fertilizer market, LAS decided to delay its

production line expansion. Once the production line expansion is complete, it will boast a total production

capacity of 850,000 tons (+21.4% as compared to the old line).

Therefore, growth from 2013 onwards might arrive from the investments in depth. It should be noted that the

niche market still exists for high quality fertilizer despite its higher price as compared to other fertilizer types

(for example NPK Dau Trau, TE Agrotain of Binh Dien Fertilizer Company). However, the investments in depth

sometimes require huge investments, therefore, in our opinion, not able to boost the sector growth in the short

term.

Additional policies needed to limit poor quality fertilizer

The oversupply situation in the fertilizer market is highlighted by the existence of poor quality fertilizer as well

as smuggled fertilizer. The fertilizer industry is currently regulated by two decrees: 113/2003/ND-CP and

191/2007ND – CP. However, in these two decrees, fertilizer sector is not a business under condition,

therefore, although many small establishments do not have to meet specific requirements, they continue to

produce and trade fertilizer, which has led to a “real” higher supply as compared to the official figures

mentioned above.

According to the Vietnamese Ministry of Agriculture and Rural Development, a new decree will soon be

released which will require that fertilizer sector become a business under conditions: fertilizer

production companies must meet 14 criteria such as production capacity, production condition, etc. Therefore,

it is expected to somewhat reduce the oversupply conundrum once the degree is implemented.



COMPANY IN FOCUS

PetroVietnam fertilizers and chemical JSC

(Ticker: DPM – HOSE)

Company background: PetroVietnam Chemical and Fertilizers JSC was

established on March 28th, 2003 and is currently one of Vietnam’s largest domestic

fertilizer manufacturer. Today, the company boasts a charter capital of 3,800 billion

VND. The main manufacturing plant is located in Phu My 1 Industrial Zone (Ba Ria

Vung Tau). The plant costs USD370 million to build with Danish and Italian technologies

with a design capacity of 800,000 tons urea per year. Besides manufacturing urea

fertilizer, DPM also participates in electricity, importing fertilizers and others. However,

these only contribute a small percentage toward net profit and manufacturing fertilizer

remains the largest contributor to net profit. DPM currently holds roughly half of Vietnam

urea market.

Strategy: As a subsidiary of PetroVietnam, management team is appointed by

PetroVietnam. Management team members are experts with vast experience in the

petrochemical industry. Besides serving the shareholders’ interests, management has to

perform other political duties such as stabilizing the fertilizer market and supporting the

domestic agricultural industry.

Strength

Strong distribution network and strong brand name among customers.

Lower cost thanks to discounted gas price translates to higher profit margins.

Large market share thus exerts a big influence on the fertilizer market.

Healthy financial status: abundant cash and no debt.

Weakness

Besides managing a profitable business, DPM is also responsible with fulfilling political

duties of stabilizing the fertilizer market and support the domestic agricultural industry,

and this is not always in the shareholders’ best interest

The management is under heavy influence of PetroVietnam.

Current price (VND) 35,400

Target Price (12M) 37,000

Recommendation (12M): HOLD

Short-term Rating (<3M): NEUTRAL

Sector Rating: NEUTRAL

Key figures

Market Cap. (USD mil): 636.4

Market Cap. (VND bn): 13365

Outstanding shares 377,554,320

52-week high/low (000s, VND) 41.2/22.3

Average 3-month volume 548,529

Foreign ownership (%) 25.27%

State ownership (%) 61.77%

Management ownership (%) Na

Stock performance

Source: Bloomberg

(



Financial summary table

Bln VND 2009A 2010A 2011A 2012E 2013E

Net revenue 6,630 6,619 9,227 12,227 10,549

NI to parent shareholder

1,348 1,703 3,104 2,902

2,328

EPS (VND) 3557 4499 8288 7637 6217

ROE 26.4% 29% 43.2% 31.6% 22.1%

RÓA 23.4% 24.8% 37.6% 28.5% 21.1%

Dividend (VND) 2000 2000 3500 2500 2500

PE 9.56 8.45 2.87 4.64 5.69

PB 2.35 2.33 1.1 1.3 1.2

EV/EBITDA 3.94 4.19 1.28 2.16 2.7

D/E 0.04 0.05 0 0 0

9M12 Review

9M12 boast good earnings results, exceeded 2012 net income plan by 42%: DPM announced its 9M12

results, which net revenue totalled VND 10,563 bn (+53% YoY) and net income to parent shareholders

reached VND 2,495 bn (+11% YoY). These high earnings are mainly explained by the impressive earnings

results in 1H12.

53% increase YoY in 9M12 revenue thanks to the distribution of Ca Mau fertilizer: Although Ca Mau

fertilizer plant and DPM remain separate entities and did not enter into an M&A proposition, DPM was

responsible for distributing both Phu My and Ca Mau brands fertilizer since 1Q12. Therefore, DPM accounted

100% of revenue from selling Ca Mau fertilizers into DPM’s financial results in 9M12 results.

1H12 earnings results are impressive thanks to a high average selling price (ASP) and a sharp increase in

net financial income. Firstly, the ASP in 1H12 remains high due to a high international urea price and a lack of

domestic urea supply (it should be noted that Mau Plant and Ninh Binh plant’s production is behind schedule

while in early 2012, due to several warnings about urea oversupply, importers have slashed urea imports by

46% YoY, which has led to a shortage of urea). Secondly, the sharp increase in net financial income is

explained by an abundant cash reserve and a stable foreign exchange rate as compared to the foreign

exchange rate in 1H11.

In 3Q12, the scenario has reversed: 3Q12 net income is low (-30.6% YoY and -44.8% QoQ) mainly due to the

decrease trend in international urea price. In addition, the shortage of urea scenario in 1H12 no longer exists

with the increase in capacity of Ca Mau Plant, therefore the increase in urea supply contributed to the

decrease in urea average selling price.

Strong cash balance at 30 September 2012: At the end of September 2012, DPM cash balance remained

comfortable at VND 5,669 bn, which makes DPM one of the top ten listed companies boasting a rich cash

balance. As DPM do not have any CAPEX plan in 2012, the company maintains its low debt balance (Total

debt balance at 30 Sept 2012 is VND 27 bn)



Update on Ca Mau deal: According to Petro Vietnam’s restructuring plan, the Prime Minister has requested

that Petro Vietnam Fertilizers (DPM) and Dam Ca Mau Company Ltd remains separate entities and not enter

into an M&A proposition. Therefore, Ca Mau plant will become DPM’s competitor thus resulting in loss of

valuable market shares. However, it will help DPM to use its cash reserve to invest in other chemical projects

and especially ensure its high dividend policy to investors.

2012 - 2013 outlook

Good performance in 2012: Even though 4Q12 earnings growth will be squeezed as the domestic downtrend

urea price remains, we keep our opinion that DPM will experience a good performance year thanks to 1H12

impressive results: 2012 net income to parent shareholders is estimated at VND 2,901 bn, decrease 8% YoY

compared to 2011 earnings results but excess 2012 target by 62%). According to this estimates, we assume

that DPM could increase the 2012 dividend compared to its initial plan to at least 35% on par (DPM has

already paid 25% on par). This high dividend yield along with a high cash reserve makes DPM an attractive

value stock in the market

Challenges in 2013: International urea price – the important benchmark of domestic urea price is estimated to

decrease in the following year. In addition, in 2013, the domestic oversupply due to the full operation of Ca

Mau fertilizer plant and Ninh Binh fertilizer plant will add downward pressure to average selling price. In 2013,

we estimate that DPM net income would start to saddle: net income to parent shareholders will reach VND 2

328 bn (-20% YoY) (based on the assumption that the urea ASP decrease by 7% and 2% increase in input gas

price).

CAPEX update: DPM has decided to cancel the NPK project. Therefore, in 2013, there will be no CAPEX

plan, so DPM’s cash reserve remains intact. For the long term, DPM plan on investing in: NH3 project and

H2O2 project. However, the implementations of these projects remain uncertain, so we assume that they will

not have influences in DPM’s performance as well as the stock price in the short and medium term.

DPM would lose the Ca Mau urea distribution contract in 2013: Ca Mau fertilizer plant would use many

agents instead of only DPM like in 1H12 (In 1H12, DPM was the sole distributor of Ca Mau fertilizer; therefore

increases its total market share). Since November 2012, DPM distributes Ca Mau fertilizer as a trading product

with a low profit margin at approximately 3%. According to DPM, the estimated trading Ca Mau fertilizer is

roughly 350,000 tons.

Investment view

Given the fact that DPM and Dam Ca Mau Company Ltd remains separate entities and have not entered into

an M&A proposition along with the loss of the Ca Mau urea distribution, this has led to an alarming concern

about DPM market position in the future. In the years ahead, the urea market will face many challenges as

oversupply persist couple with the decrease trend in average selling price. It should be noted that it is not easy



for DPM to expand into foreign markets. Therefore, in 2013, we estimate that DPM net income would start to

decrease: net income to parent shareholders would reach VND 2 328 bn (-20% decrease YoY), translating to

an EPS of VND 6,127.

Even though earnings growth will most likely chart into negative territory, a strong balance sheet with high cash

reserve and an expected high dividend yield would make DPM a value stock in the market. Short term upside

might arrive from the news of dividend policy or rumours on a possible stock split/stock dividend. Although in

terms of fundamentals, DPM is a good company, we do not see positive catalysts in the long run. Therefore,

we recommend a HOLD on the stock at the current price.



Lam Thao fertilizer and chemical JSC

(Ticker: LAS – HNX)

Company background: Established in 1962, LAS’s main product is NPK

with a high production capacity of 700,000 tons/year (tpy) making LAS the leader in

NPK fertilizer segment; moreover, LAS is also the domestic leader in manufacturing

superphosphate, providing about 80% of total domestic supply. LAS’s other main

products include sulfuric acid with a production capacity of 250,000 tons/year and

fused calcium magnesium phosphate (FMP) with a production capacity currently at

100,000 tpy and expandable to 300,000 tpy. LAS’s main market is Northern Vietnam.

In 2010, LAS was equitized and in 3/2011, it began trading on HNX with initial

charter capital of VND 540 bn.

Management and Strategy: Investment and development in depth;

maintenance the big influence in the fertilizer market, especially in the North;

intention to expand in the South and exportation market.

Strength

Belongs to a segment heavily supported by the government to maintain food security

Ownership of a high-capacity and fully depreciated phosphate manufacturing chain.

High market shares in the north of Vietnam

Weakness

The company operates at full capacity; there is no more room for growth without

decreasing margin.

The company relies on imported input (potash, SA, sulfur, etc.) and vulnerable to

global price surges.


Bln VND 2009A 2010A 2011A 2012E 2013E

Net revenue 3,365 3,609 4,056 4,708 4,810

NI to parent shareholder

78 288 300 384 384

EPS (VND) (*) Na 6654 6519 5922 6080

ROE 13.5% 43.6% 35.7% 35.2% 28%

ROA 3.3% 14.1% 14.7% 16.8% 15.7%

Dividend (VND) Na Na 2000 2000 2000

PE Na Na Na 4.6 4.5

PB Na Na Na 1.4 1.2

EV/EBITDA Na Na Na 3.27 3.29

D/E 2.22 0.87 0.82 0.38 0.35

(*): In July 2012, LAS paid 20% dividend in stocks for 2011, which leads to an increase of the share

capital. Therefore, EPS after bonus stocks is lower for 2012 (not comparable for YoY comparison of

EPS).

Current price (VND) 27,200

Target Price (12M) 30,000

Recommendation (12M): HOLD

Short-term Rating (<3M): NEUTRAL

Sector Rating: NEUTRAL

Key figures

Market Cap. (USD mil): 84.01

Market Cap. (VND bn): 1764


52-week high/low (000s, VND) 32.4/15.1

Average 3-month volume 101741

Foreign ownership (%) Na

State ownership (%) 69.82%

Management ownership (%) Na

Stock performance

Source: Bloomberg

(



9M12 Review

Good performance earnings results thanks to 1H12 results: LAS has announced its 9M12 results in which

revenue reached VND 3678 bn (+18% YoY) and net income totaled VND 312bn (+36% YoY). These high

earnings are mainly explained by the impressive earnings in 1H12 (net income increased 51% YoY) thanks to

a high increase in average selling price YoY and in commercial output volume. However, since 3Q12, the

fertilizer market has experienced difficulties; LAS’s commercial output decreased, LAS has to increase the

commission percentage to agents; which has led to a decrease of 8% of 3Q12 net income.

Delay of the NPK expansion: In 2H12, the company expects to build a new NPK production line, which will

bring total production capacity to 850.000 tons (+21.4%). However, as the fertilizer consumption in the market

has slowed down since 3Q12, LAS has decided to delay this expansion to at least 2013.

2012 - 2013 Outlook

2012 good earnings results: Even though 4Q12 continues to be a difficult quarter for fertilizer companies,

LAS could fulfill its 2012 target: 2012 net income to parent shareholders is estimated at VND 384 bn, an

increase of 28% YoY. Based on this estimates, 2012 dividend would be at least 20% in stock and 15% in cash.

Most likely to maintain a good earnings results in 2013, slight increase of 3% YoY in net income: If the

economy continues its downturn trend, 2013 will continue to be a tough year for all sectors. However, thanks to

the specific characteristic of LAS’s products (as a necessary product in an agricultural driven country) and its

high market share, LAS will most likely maintain its good earnings results in 2013. In addition, LAS could

somehow profit from the downtrend risk in fertilizer average selling price by reducing its COGS (LAS’s input

price contains urea price, SA price and potash fertilizer price). In 2013, net income to parent shareholders is

estimated at VND 394 bn, an increase of 3% YoY. Dividend policy in 2013 could remain at least in 20% in

stock and 15% in cash.

Investment view

LAS possesses good fundamentals; however, investors must take into account the low liquidity of the stock as

Vinachem own 69.82% stake in the company. Our investment view for 1 year horizon is HOLD with a target

price of VND 30,000 (10% upside from the market price of VND 27,200- price at 18 Dec 2012). This estimate

is based on estimated 2012 EPS of VND 5,922 and 2013 EPS of VND 6,080, translating to one year forward

EPS of VND 6,072 and one year forward target PE at 5x.



Van Dien fused magnesium phosphate fertilizer JSC

(VAFCO – OTC)

Company background: Established in 1960, Van Dien Fused Magnesium

phosphate fertilizer JSC (VAFCO) is the first company in Vietnam to produce fused

magnesium phosphate (FMP). VAFCO has two main products: FMP and NPK. The

main product is FMP with a production capacity of 270,000 tons/year, in which

approximately 200,000 tons is sold as commercial output to farmers; the remaining

FMP is used for its own process of NPK. The NPK production capacity is 150,000

tons/year; however the NPK production output is often lower than the production

capacity. After the re-evaluation of asset in 2009 in the equitization process, total

value of asset increased by VND 149bn.

Strategy: FMP margin is much higher than NPK margin as most of NPK’s

ingredients are imported. It is the main reason why the company currently focuses in

FMP products. In terms of operation expansion, VAFCO plans to build a new plant

boasting a capacity of 300,000 tons FMP per year. In the long term, VAFCO intends

to increase its total production capacity, up to 500,000 tons FMP/year and 200,000

tons NPK/year.

Strength

As VAFCO focuses on FMP production, all input materials (Apatite, Serpentine, ect.)

are available domestically.

VAFCO operates in a segment supported by the government to maintain food

security

Weakness

CAPEX plan to expand the operation seems not efficient


Bn VND 2007 2008 2009

(equitization) 2010 2011 2012 plan

Net revenue 439 611 Na 595,922 Na 805

NI 27 55 na 53 60 60

EPS (VND) 1,003 2,028 Na 1,973 2,222 2222

ROE 28% 37% na 16% 17%

RÓA 11% 16% 11% 12%

Dividend (VND)

Na Na Na 1250 1500

D/E 0.17 0.89 na 0 0

Key figures



State ownership (%) 67%

Institution’s ownership (%) 26.5%

Employee’s ownership (%) 3.3%



9M12 Review

Slight increase YoY in 9M12 results: VAFCO announced its 9M12 results, which net revenue totalled VND

834 bn (+28% YoY) and net income reached VND 53 bn (+8% YoY). Therefore, it is expected that VAFCO

could easily exceed its earnings target (mentioned in the table below). Like other fertilizer companies, this

slight increase in net income mainly derived from 1H12 results, as since 3Q12, the fertilizer market faced

additional difficulties.

No use of leverage, maintain a safe balance sheet: At the end of 9M12, D/E ratio is 0, which imply that

VAFCO does not use leverage in its business operation. Cash balance is quite high, at VND 302 bn (61% of

total asset)



Southern fertilizer JSC

(SFC – OTC)

Company background: Established in 1976, SFC was equitized in 2010.

SFC’s main product is NPK with a production capacity of 300,000 tons/year (tpy) (NPK

contributes to approximately 70% of total revenue); SFC is also one of Vietnam’s two

superphosphate manufacturers with a production capacity of 200,000 tpy

(Superphosphate contributes to approximately 10% of total revenue). SFC possesses

a H2SO4 chain with a production capacity of approximately 80,000 tpy. In 2011, SFC

has decided to merge their Chanh Hung factory into Hiep Phuoc factory then currently,

SFC has 5 subsidiaries factories: Long Thanh superphosphate factory, Hiep Phuoc,

Cuu Long, Yogen, and a packaging factory.

Strategy: Maintenance the high market share in the North and intention to

expand to exportation market

Strength

High market share in the South and Central of Vietnam (NPK market share is 40%,

superphosphate market share is 80%)

Large distribution network

Weakness:

The company relies on imported input (SA, potash, sulfur, etc.) and vulnerable to

global price surges.

9M12 results

bn VND 2011 1Q12 2Q12 3Q12 9M12 9M YoY

Net revenue 3,110 667 1,243 1,004 2,915 -3%

Gross profit 298 41 98 79 218 12%

Gross margin 10% 6% 8% 8% 7%

NI 97 21 30 24 74 -4%

Total asset 1,220 1,621 1,672 1,871 1,871

Total equity 478 496 489 522 522

ROA 9% 5% 7% 5% 6%

ROE 22% 17% 25% 19% 20%

D/E 1.6 1.3 1.5 1.5 1.5

Key figures




Institution’s ownership (%) 6%




Binh Dien fertilizer JSC

(BDFC – OTC)

BDFC – OTC)

Company background

Established in 1973 with the initial name of Thanh Tai Fertilizer Company

(Thataco), BDFC has expanded and was formally converted into a state owned

enterprise in 1976, renamed Binh Dien Fertilizer Factory II. In 2003, the company

officially became a member of the Vietnam National Chemical Group – Vinachem

thanks to rising demand of fertilizer market. BDFC was equitized in 2011 with an

initial charter capital of VND 397 bn. Fertilizer manufacturing and trading is the

biggest segment of BDFC, which accounts for 98.8% of total revenue. Besides

manufacturing fertilizer, BDFC also participates in importing/exporting fertilizer,

fertilizer production equipment, trading of real estate; however, non-core

manufacturing businesses only contribute a small percentage toward net profit.

BDFC’ main product is NPK with total production capacity of 500,000 tons/year.

Dau Trau Fertilizer is the main brand.

Strategy: BDFC focuses on enhancing products’ quality through R&D

activities. Brand awareness is promoted by social activities and promotional

programs, publishing and sending fertilizer user’s books, guides, leaflets, flyers and

The Binh Dien newsletters to farmers

Strength: Large distribution network; highest market share of NPK in the South

Weakness: The Company relies on imported input (SA, potash, etc.) and

vulnerable to fluctuations in global prices

9M12 results

bn VND 2011(*) 1Q12 2Q12 3Q12 9M12

Net revenue 5,346 1,379 2,693 1,785 5,858

Gross profit 340

Gross margin 6.36%

PBT 87 7 46 57 111

NI 68

Total asset 2,422

Total equity 472

ROA 2.81%

ROE 17.21%

D/E 2.73x

(*): From 1 Feb 2011 to 31 Dec 2011

Key figures




Institution’s ownership (%) 15%




LIST OF TABLES AND FIGURES

List of tables

Table 1: Different types of nitrogen fertilizers

Table 2: Different types of phosphate fertilizers

Table 3: Details of core input price in the superphosphate production

Table 4: Different types of potash fertilizers

Table 5: World Nitrogen; Phosphoric; Potash Supply/Demand Balance

(million metric tons)

Table 6: World Urea Supply/Demand Balance (million metric tons urea)

Table 7: Concentration of world fertilizer production capacity, 2008-09

Table 8: Vietnam’s Area, Yield, and Production for Rough Rice

Table 9: Cultivated area in Vietnam from 2000 to 2011

Table 10: Percentage of total cultivation area in Vietnam

Table 11: Key domestic fertilizer companies in Vietnam

Table 12: Details of the phosphate producers in Vietnam

List of graphs

Graph 1: Process of urea production by natural gas

Graph 2: Vietnam’s gas value chain

Graph 3: Process of urea production by coal

Graph 4: Superphosphate production process

Graph 5: Utilization and production of cereal in the world

Graph 6: Increase trend in rice export results from 2008 to 2011

Graph 7: Vietnam Paddy Rice Production (from 1992 to 2012)

Graph 8: 2011 Vietnam fertilizer market supply & demand

Graph 9: Vietnam domestic urea supply

Graph 10: Imported fertilizer since 2005 until Nov 2012

Graph 11: World Bank urea price forecast


WWW.SSI.COM.VN SAIGON SECURITIES

INC.

Member of the Ho Chi

Minh Stock Exchange,

Regulated

by the State Securities

Commission

HO CHI MINH CITY

72 Nguyen Hue Street,

District 1

Ho Chi Minh City

Tel: (848) 3824 2897

Fax: (848) 3824 2997

Email: [email protected] (848) 3824 2997 Email: [email protected]

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Ha Noi City

Tel: (848) 3936 6321

Fax: (848) 3936 6311

RATING

Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock’s expected

return relative to the market required rate of return, which is 18% (*). A BUY rating is given when the security is expected

to deliver absolute returns of 18% or greater. A SELL rating is given when the security is expected to deliver returns below

or equal to negative 9%, while a HOLD rating implies returns between negative 9% and 18%.

Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within three months

because of a stock catalyst or event. Short-term rating may be different from 12-month rating.

Industry Rating: We provide the analyst’ industry rating as follows:

Overweight: The analyst expects the performance of the industry over the next 6-12 months to be attractive vs. the relevant broad market

Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with the relevant broad market

Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution vs. the relevant broad market.

*The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above two constituents.

DISCLAIMER

The information, statements, forecasts and projections contained herein, including any expression of opinion, are based

upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. Expressions of

opinion herein were arrived at after due and careful consideration and they were based upon the best information then

known to us, and in our opinion are fair and reasonable in the circumstances prevailing at the time; Expressions of opinion

contained herein are subject to change without notice; This document is not, and should not be construed as, an offer or

the solicitation of an offer to buy or sell any securities; SSI and its affiliates and/or its officers, directors and employees may

have positions and may effect transactions in securities of companies mentioned herein and may also perform or seek to

perform investment banking services for these companies.

This document is for private circulation only and is not for publication in the press or elsewhere; SSI accepts no liability

whatsoever for any direct or consequential loss arising from any use of this document or its content; The use of any

information, statements forecasts and projections contained herein shall be at the sole discretion and risk of the user.

CONTACT INFORMATION

Phuong Hoang Director, Institutional Research & Investment Advisory [email protected]

Thuy Nguyen Research Analyst , Oil& gas, Fertilizer [email protected]

vietnam fertilizer sector

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