A scheduled listing on stock exchange is causing the price of the stock of Vietnam National Petroleum Group, or Petrolimex’s stock (OTC: PLX) to soar, however, there are many factors that may make the stock not as attractive as investors speculate.

A rare commodity

Petrolimex, the biggest fuel supplier in Vietnam, has basically finished preparations for its planned listing on the Ho Chi Minh City Stock Exchange (HOSE) in mid-April 2017. 

Since the end of 2016, many big firms that are going to be listed or have outstanding business results have become hot commodity on the OTC market. 

Thus, the PLX ticker is being hunted and its price has been increasing as the day of listing on HOSE is approaching.

During Petrolimex’s IPO in 2011, the purchase price for a share was VND15,032 ($0.66). 

Since November 2016, numerous investors have been looking to buy PLX stocks at VND24,000 ($1.05) per share, and the price kept increasing. 

At the beginning of March 2017, according to Saigon Securities Inc., PLX was about VND40,000 ($1.75) per share on the OTC market.

Some brokers said that Petrolimex shares are now worth VND46,000-47,000 (about $2), but they are rarely bought.

Besides, the attractiveness of PLX can also be explained by its improving business results. In 2016, Petrolimex earned an after tax profit of VND5.2 trillion ($227.67 million), which was 1.5 times as much as 2015’s figure (VND3.4 trillion—$148.86 million). 

Notably, its 2016 profit margin reached 4.2 per cent, compared to the 2.3 per cent of 2015.

In 2016, Petrolimex also finished selling its stakes to Japanese strategic partner JX Nippon Oil and Energy, a company with 50 per cent market share in Japan. 

In this deal, JX Nippon Oil and Energy purchased 8 per cent of PLX’s stakes at a price of VND39.017 ($1.7) per share. 

Thanks to this deal, Petrolimex gained VND4.039 trillion ($176.84 million) and raised its chartered capital to VND11.388 trillion ($498.6 million).

Short-term factors reigning in enthusiasm

Despite its actual potential, investors should have a more accurate view of this enterprise. Petrolimex had a favourable year in 2016, but it was the past. 

Whether 2017 and the years ahead will be favourable is difficult to forecast.

Despite higher after-tax profit, Petrolimex owners’ equity in 2016 also rose dramatically, from VND16.7 trillion ($731 million) to over VND23 trillion ($1.007 trillion), by 38 per cent. 

Thus, return on equity (ROE) in 2016 was 22.6 per cent, only a slight increase compared to the 20 per cent of 2015.

Besides, there was no significant increase in Petrolimex’s gross profit, while its total profit sharply increased. 

In particular, in 2016, Petrolimex earned a revenue of over VND14 trillion ($613 million), a slight increase compared to the VND13 trillion ($569 million) of 2015. 

Meanwhile, sales expenses grew from VND6.8 trillion ($297.7 million) in 2015 to VND7.6 trillion ($322.75 million) in 2016. 

These figures show that Petrolimex’s core business was not improved remarkably throughout the year.

In addition, the increasing profit in 2016 originates from the significantly declining financial expenses, which went from VND2.6 trillion ($113.8 million) in 2015 to VND875 billion ($38 million) in 2016. 

There is no guarantee that financial expenses will not rise again in 2017, especially in light of the probable appreciation of the USD from the beginning of 2017, which may raise these expenses as most Petrolimex products sold in Vietnam are imported.

VIR