Company Quarterly Earnings Update – DHG VN – 2020 H1

Summary of the 2020 H1 results of Hau Giang Pharmaceutical JSC (DHG VN)

H1/2020 results highlights:
  • Net revenue was VND1,678bn, -3.7% y/y mostly due to changes in booking policy, while net profit posted 17.7% 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. In 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. Other reasons that also contributed to the weaker sales in Q2, albeit to a smaller extent, were 1) normalization of Q1 stockpiling by consumers amidst the concern of production disruption in China; 2) low consumption in hospitals as people avoided these medical facilities for fear of getting infected with Covid-19.
  • Profitability was not affected by the above-mentioned change in commission form. In addition, certain medicines that were in high demand during the pandemic, such as immune-system enhancing supplements, generally had higher margins.
  • The financial position remained solid: cash and deposits were 45.3% of total assets, and leverage was minimal (D/E and D/A of 0.14x and 0.10x respectively).
  • For 2020, despite the ongoing second wave of Covid-19, we believe that Vietnam’s government will be able to contain the outbreak and we do not expect strict social distancing measures such as those in Q2. Regarding sales in pharmacies, pharmaceutical products for common illnesses will potentially see higher demand, which will be less likely to stem from hoarding as seen in Q1. We revise down revenue projection from our last estimate by 13%, mainly because of the change in commission form. Nevertheless, net profit estimate will stay in line with the last note at VND726bn (+15.1% y/y).
  • For 2021, we project revenue growth of 8.7% and net profit growth of 11.0% 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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