Company Quarterly Earnings Update – DHG VN – 2020 Q1

Summary of the 2020 Q1 results of Hau Giang Pharmaceutical JSC (DHG VN)

Q1/2020 results highlights:
  • Net revenue was VND858bn, +11.9% y/y and net profit was VND176bn, +30.9% y/y. Sales of its own products increased by 17.3% y/y accounting for 89% of total revenue. Profitability was higher than the same period of last year thanks to the higher sale contribution from high-margin products. During Q1, as a result of the COVID-19 outbreak, people increased the purchase of general drugs like pain/fever relief or supplements, which are perceived to enhance a person’s immune system.
  • The financial position remained solid: cash and deposits were 48.2% of total assets, and the leverage was low (D/E and D/A of 0.05x and 0.04x respectively). 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).
  • DHG will pay its 1st 2019 dividend of VND3,000/share in June. The final payout will be decided in the AGM (10 Jun). We project a total of VND3,500/share for 2019.
  • The COVID-19 may have a net positive short-term impact on pharmaceutical firms. For Q1 and Q2, we expect sales of basic drugs and supplements to be strong, before normalizing in Q3 and Q4. As China’s production of Active Pharmaceutical Ingredients (API’s) has almost been recovered to its full capacity, there is not any disruption of the input materials now.
  • For the long-term strategy, Taisho’s involvement has started to show positive impacts on DHG’s performance: 2019 focus on product streamline has resulted in higher gross margin in Q1, and we see new products in supplements and skincare categories, which will likely sell well in DHG’s wide network of pharmacies.
  • We revise up our 2020 bottom line estimate by 6.0% to VND735bn (+16.5% y/y) thanks to higher than expected margin in Q1. For 2021, we forecast revenue growth of 8.7% and net profit growth of 9.5%.

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