Company Quarterly Earnings Update – DHC VN – 2020

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

2020 results highlights:
  • Revenue went up by 101.9% y/y. Kraft paper revenue accounted for 88.0% of total revenue, and carton box revenue made up the remainder. In 2020, DHC sold 283,000 tons of kraft paper, of which 231,000 tons in Vietnam and 52,000 tons through export, mostly to China. Export activities saw a steep decrease in Q4 compared to Q3 due to high shipping costs. Carton box revenue saw a slight growth of 1.0% y/y, mostly affected by weakened export activities in relation to Covid-19.
  • Operating margin was 15.1% in 2020. In Q4/2020, operating margin was higher at 16.9% compared to Q3’s 11.1%, due to a combination of (1) increased selling price, and (2) low OCC prices in Q3, when DHC purchased most of its raw material for Q4. Operating expense as a percentage of revenue declined y/y thanks to economies of scale. Lastly, the effective corporate income tax rate was just 4.4% in 2020 as the tax incentive period of the Giao Long 2 factory started in 2020. Net profit was VND392bn, +115.8% y/y.
  • Financial position at the end of 2020 remained healthy with a moderate leverage (D/E and D/A of 0.31x and 0.19x).
  • DHC’s share in the domestic packaging paper market was 5.5% in 2020, significantly increasing from 2.6% in 2019 as (1) the Giao Long 2 factory operated in the full year 2020, and (2) DHC captured market share from domestic competitors.
  • Consumption of packaging paper in Vietnam grew by 0.5% y/y in 2020 as demand was impacted by Covid-19. Going forward, the packaging paper industry is projected to resume growing at 12.0% p.a. through 2025. In terms of material price, average OCC price in 2021 will likely decrease from its current level due to (1) stabilizing global economy, and (2) China stopped importing OCC in 2021.
  • For 2021, we project revenue to reach VND3,323bn (+15.1% y/y) and net profit to reach VND454bn (+15.7% y/y) due to (1) higher selling volume from DHC’s optimization of its Giao Long 2 factory, and (2) higher selling price in 2021. For 2022, we project revenue to grow by 2.6% and net profit to grow at 1.6% as the Giao Long 2 factory will receive a 50% tax discount instead of 0% tax as it did in 2020 and 2021.

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