Company Quarterly Earnings Update – DHC VN – 2020 9M

Summary of the 2020 9M results of Dong Hai Ben Tre JSC (DHC VN)

9M/2020 results highlights:
  • Revenue went up by 163.6% y/y. Kraft paper revenue accounted for 88% of total revenue, and carton box revenue made up the remainder. In Q3, DHC sold 72,000 tons of kraft paper, of which 53,000 tons in Vietnam (flat q/q) and 19,000 tons through export, mostly to China (+31% q/q). Carton box revenue recorded a 30% q/q growth as many of DHC’s clients in the Mekong Delta were exporting agricultural products. Export activities recovered strongly in Q3 from its low in Q2 due to the sudden drop in demand due to Covid-19.
  • Operating margin was 13.4%. In Q3/2020, operating margin was lower at 11.1% because although the average output’s selling price was mostly flat q/q, raw materials for Q3 production were mostly purchased in Q2, when OCC prices were still high due to lockdowns amidst the pandemic. Operating expense as a percentage of revenue declined y/y thanks to economies of scale. And lastly, the effective corporate income tax rate was just 4.2% in 9M/2020 as the tax incentive period of the Giao Long 2 factory started in 2020. Net profit was VND 236 bn, +209.8% y/y.
  • Financial position at the end of Q3 remained healthy with a moderate leverage (D/E and D/A of 0.40x and 0.24x).
Outlook
  • For 2020, we revised up our last estimates of revenue and net profit by 4.7% and by 12.9%, respectively, based on higher selling price in Q4. We estimate average selling price in Q4 will increase to VND9.7mn/ton from VND8.4mn/ton in Q3. In the context of stable OCC price, the higher selling price will support profit margin.
  • For 2021, we forecast revenue to grow by 10.3%, driven by higher average selling price of kraft paper and volume growth in carton box sales. Selling volume of kraft paper stays similar as in in 2020. Profitability will improve with an operating margin of 15.0% from 13.8% in 2020, since we do not expect any OCC price hike as in Q2/2020 due to COVID-19, which dampened profitability in Q2 and Q3/2020. We also expect net financial expense to lower by 27.7% y/y because of the lower outstanding loan level. By the end of 2021, we expect the company to fully repay its long-term debt. All in all, we project a net profit of VND411bn, +23.9% y/y.
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