Company Quarterly Earnings Update – DHC VN – 2019 Q1

Summary of the Q1/2019 results of Dong Hai Ben Tre JSC (DHC VN) 

Q1/2019 results: highlights
  • Q1 net revenue rose by 6.0% yoy. Sales volume for industrial Kraft paper reached 13,500 tons, unchanged from the same period of last year, as the factory was already operating at full capacity. Meanwhile, sales volume of carton boxes rose to 7.5mn units (+10.1% yoy). The new Kraft paper factory – Giao Long 2 – has been in the testing phase from April 2019, and will commercially operate from July 2019.
  • DHC’s gross margin declined to 18.3% from 19.1% in Q1/2018 as the company’s selling prices slightly decreased and as the average input material prices rose a bit. All in all, net profit amounted to VND 21bn, -9.4% yoy.
Other developments: the 2019 AGM approved:
  • A new packaging factory project with a capex of VND 168bn, completely funded by the company’s current equity. The added capacity from the new factory will be 2,600 ton/month. Construction starts in July 2019, and commercial operation is expected to begin in July 2021.
  • An ESOP plan with 5% of total current outstanding shares (~2.2mn shs). Issue price: VND 17,000/share. The BOD will choose the timing of the plan.
  • A stock dividend of 20% for 2018.
Outlook
  • Thanks to the added capacity, DHC’s total industrial kraft paper capacity will fivefold from mid-2019. We are confident that the company will be able to sell all its output. Today it can only serve a small part of its customers’ demand even though the current factory is operating at full capacity. Domestic demand is still robust with a forecasted  average annual growth rate of 15.0% in the next 5 years. We expect DHC to ramp up the utilization of its new factory from 35% in 2019 to 100% by 2022.
  • All in all, we project a net profit of VND 150bn (+11.8% yoy) for 2019 and of VND 191bn (+27.4% yoy) for 2020.
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