Company Quarterly Earnings Update – DHG VN – 2019 Q4

Summary of the 2019 results of Hau Giang Pharmaceutical JSC (DHG VN)

2019 results: highlights
  • Net revenue was VND3,896bn, +0.2% y/y and net profit was VND631bn, -2.8% y/y. Despite negative growth in NP, EPS growth was positive with at 4.8%. In 2019, DHG booked the large part of its welfare and bonus fund as administration expenses (Before 2019, this item was booked after net profit).
  • DHG’s 2019 revenue growth was lower than that of its peers such as IMP because of the different focus on sale channels. DHG has ~90% of its sale in pharmacies and only 10% in hospitals/clinics. The ratio in IMP was 70% and 30%. In 2019, pharmacy sales were negatively impacted by increased enforcement on the selling of prescription products. In contrast, hospital sales were supported with regulation to increase the use of high-quality medicines produced by domestic makers.
  • The financial position remained solid: cash and deposits was 44.3% of total assets, and
    leverage was low (D/E and D/A of 0.08x and of 0.06x respectively).
  • In Dec 2019, Taisho appointed a Japanese, Masashi Nakaura, to be the company’s CEO, following similar changes in some lower-ranking positions.
  • DHG stated that Covid-19 outbreak doesn’t impact its operation. It has secured Active Pharmaceutical Ingredients (API’s) orders for the whole 2020 at fixed prices. Current
    API inventory is also sufficient for production till end of Q2. On the selling side, performance in 2M/2020 was positive with about 15% revenue growth.
  • For the long-term strategy, Taisho is involving in daily operation, streamlining DHG’s current drug portfolio, adding its drugs in other markets to DHG’s production. The positive impact is however only expected 3 years from now. DHG is also working on the feasibility of a new project, nevertheless, no details were disclosed yet.
  • For 2020, we estimate revenue growth to be at 6.6%, slower than the estimated industry growth (11%) as Taisho is expected to continue streamlining DHG’s drug portfolio. However, bottom line is expected to increase by 9.7% thanks to higher proportion of high-margin drugs in the revenue structure. In 2021, we forecast 8.7% and 9.2% top and bottom line growths respectively.

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