Summary of the Q1/2022 results of Dong Hai Ben Tre JSC (DHC VN)
Q1/2022 results highlights
- Both DHC’s kraft paper and cardboard box facilities ran at full capacity in Q1/2022. As China’s demand slowed due to the recent Covid-19 lockdown, some paper mills in northern Vietnam have geared their output towards the domestic market instead. Despite this, DHC’s paper facilities still ran at max capacity as the company focused on buyers in southern Vietnam. Also, DHC can actively increase the internal use of paper to produce boxes and increase paper exports to other countries in the region. Notably, in this quarter, DHC obtained a new customer, Unilever, a multinational consumer goods company with strict environmental requirements.
- DHC’s net revenue inched up by 1.5% y/y to VND1,032bn thanks to higher selling prices as the company partly passed on surged input costs to customers, while sales volume diverged between the two products (paper volume -6.3% y/y, cardboard boxes +10.2% y/y). The gross margin was 18.5%, which has improved from the previous three quarters and was back to normal levels. Overall, net profit reached VND118bn, down 31.8% y/y but strongly improved by 27.3% q/q.
- The development of the new cardboard box factory is on schedule: Commercial operations commenced in April. We expect DHC to ramp the utilization of its new factory from 35% in 2022 to 100% by 2024.
- DHC’s expansion plan for the next five years: (i) The next cardboard box facility with a capex plan of VND250bn. (ii) The company also has plans to expand its kraft paper facility (Giao Long 3). Since this project with a large capex of VND1,800bn still needs approval from the 2022 AGM, we haven’t yet considered it for our valuation target.
- Thanks to the added box capacity, some paper output will be used for the in-house production of cardboard boxes and thus support the company’s gross margin. In the meantime, the OCC prices are forecast to remain high in 2022 before normalizing in 2023. Compared to our previous projections, we keep it relatively unchanged: a net profit of VND522bn (+8.5% y/y) for 2022 and VND600bn (+15.0% y/y) for 2023.
- Domestic demand for kraft paper is still robust with a forecast average annual growth rate of 15.0% during the period of 2022 – 2025 thanks to the combined trends of industrialization, e-commerce, and robust growth in Vietnam’s exports.
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