Company Quarterly Earnings Update – DHG VN – 2020 9M

Summary of the 2020 9M results of Hau Giang Pharmaceutical JSC (DHG VN)

9M/2020 results highlights:
  • Net revenue was VND2,543bn, -2.8% y/y mostly due to changes in booking policy, while net profit posted 24.3% y/y growth, generally in line with our expectation. The main cause for the decline in revenue was a change in commission form for distributors. Since Q2, travel packages, which were usually offered as commissions for distributors, could not be held due to travel restrictions amidst the pandemic. As a result, DHG lowered its selling prices instead. Despite a second Covid-19 outbreak in July, businesses have resumed normal activities thanks to the government’s effective containment of the pandemic. Consequently, Q3 enjoyed a moderate sales growth of 5.5% y/y.
  • Gross margin saw an increase to 48.8%, up from 44.0% in 9M/2019. The main reasons were 1) higher contribution of own-product revenue, and 2) certain highmargin products were in higher demand.
  • The financial position remained solid: cash and deposits were 48.4% of total assets, and leverage was minimal (D/E and D/A of 0.15x and 0.12x, respectively).
Outlook
  • For 2020, our last full year estimates are mostly unchanged. As such, revenue is expected at VND3,644bn (-6.5% y/y) and net profit at VND715bn (+13.3% y/y). Although the pandemic is still spreading in other regions of the world, we believe that business activities will likely recover based on the prospect that vaccines will be commercially available next year after the recent successful tests.
  • For 2021, we project revenue growth of 8.7% and net profit growth of 10.8% y/y on the back of long-term growth drivers that include increases in product offerings and improved product quality with Taisho’s support.
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