Company Quarterly Earnings Update – DHC VN – 2020 Q1

Summary of the 2020 Q1 results of Dong Hai Ben Tre JSC (DHC VN)

Q1/2020 results highlights:
  • Revenue was up 226.7% y/y. Kraft paper accounted for 88.7% of total revenue, and carton boxes made up the remainder. Kraft paper selling volume was 66,628 tons, +435.3% y/y. The new factory has run at full utilization and the company could sell all that it produced. 90% of sales was for domestic consumption and 10% was exported to mostly China and other countries in the region. The average selling price, on the other hand, declined by 19% y/y. The price reduction was due to low previously procured material cost price.
  • Profitability was higher with gross margin increased to 24.2% from 18.3% in Q1/2019. Throughout 2019, Old Corrugated Cardboard (OCC) price was on a downtrend because of the escalating trade war between the U.S. and China. Net profit increased to VND 89 bn, +320.9% y/y.
  • Financial position: leverage was moderate with D/E and D/A of 0.54x and 0.30x respectively. DHC has paid VND2,000/share for FY2019 in two tranches (payment dates in Dec 2019 and Apr 2020).
  • Impacts of COVID-19 will be reflected in Q2 results. Price of input material, OCC, surged due to limited supply during lockdowns. Meanwhile, demand for kraft paper reduced because of slower trade activities and lower domestic consumption. We perceive these impacts as short-term.
  • The long-term growth drivers of the kraft paper industry in Vietnam remain. 1) domestic industrialization (modern retail accounted for 25% of total retail sale in 2015 and is expected to go up to 45% in 2020); 2) domestic e-commerce growth (Online shopping +30% p.a. in the last 5 years); 3) shift of international manufacturers out of China to other countries (Foreign Direct Investment disbursement to Vietnam 2014- 2019 CAGR was 10.5%, and more is expected to come after COVID-19).
  • We estimate 2020F revenue and net profit to go up by 81.3% and 62.1% respectively. (10.3% and 22.2% in 2021F).

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