Summary of the 2020 H1 results of Dong Hai Ben Tre JSC (DHC VN)
H1/2020 results highlights:
- Revenue was up by 202.6% y/y. Kraft paper revenue accounted for 88.4% of total revenue, and carton box revenue made up the remainder. Kraft paper sales volume was 134,035 tons, an approximately fivefold increase y/y. 85% of kraft paper was sold in Vietnam and 15% was exported. The new factory has been fully utilized in H1/2020. Kraft paper selling price, on the other hand, declined by 17% y/y as DHC passed over cost-savings from lowered raw material (Old Corrugated Cardboard –OCC) cost in Q1. In Q2, the company still had to lower its selling price, despite a surge in OCC prices in Apr, due to lower domestic demand during the lockdown period.
- Operating margin reached 14.7%, an increase from 13.7% in H1/2019. However, on a quarterly basis, Q2 margin of 10.8% was much lower than Q1’s level of 18.4%. As mentioned above, in Q2, selling prices declined, and OCC prices surged. However, the lowered profitability is in line with our expectation and was already discussed in our last note. Due to the typical 3-month inventory turnover, inventory price in Q3 will remain high, but will soften in Q4 as OCC price has retreated recently.
- Financial position at the end of Q2: leverage was lower (D/E and D/A of 0.43x and 0.23x) as DHC further repaid its long-term loans. The rate of repayment was faster than expected, thanks to the company’s improved working capital turnover.
Outlook
- For 2020, our net profit estimate is unchanged at VND294bn, +62.1% y/y. Revenue is 3.4% higher than the last estimate thanks to the 9.0% higher selling volume, as a result of more export. Average selling price is, on the other hand, lower than the last estimate, as the company seeks to boost sales to fully utilize its new factory as soon as possible. At the current level of sales volume, DHC will already be running at its full capacity of kraft paper production in 2020, instead of 2021 as previously forecasted. The carton box segment is expected to see flat growth in 2020.
- For 2021, we forecast revenue to grow by 4.1%, driven by growth in carton box sales as the kraft paper segment would already be running at its full utilization since 2020. Revenue from carton box (+15%) will increase its contribution to 13.7% (12.4% in 2020). Profitability will normalize from the low level in 2020, as we expect OCC price to stabilize at the current level. Our estimated net profit is VND378 bn (+28.6%).
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