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Company Quarterly Earnings Update – DHG VN – Q1 2024
Summary of Q1/2024 results and outlook of Hau Giang Pharmaceutical JSC (DHG VN)
- Q1/2024’s net revenue increased by 2.4% y/y to VND1,259bn, with DHG’s owned products (80% of total sales) decreased by 9.2% y/y vs. Q1/2023’s strong growth (+21.1% y/y). OTC sales reduced by 13.2% y/y amid the normalized demand for pain/fever-relief and antibiotics, while there was more product supply on the market compared to Q1/2023 when small producers faced an API shortage situation, and DHG gained an advantage by stocking raw materials. Conversely, ETC sales increased by 13.0% y/y. This was driven by their GMP-Japan production lines, allowing DHG to offer drugs of similarly high quality at a more competitive price than imported brands. Meanwhile, trading products (Taisho’s supplements) doubled as demand for general healthcare products returned amid the economic recovery. The gross margin declined to 40.7%, mainly due to higher revenue contribution from trading products that have lower profitability. Overall, the net profit was VND222bn (-38.4% y/y vs. the historical high in Q1/2023).
- Solid financial position: Cash & short-term investments accounted for 44.0% of total assets. D/E and D/A ratios remained low at 0.11x and 0.09x, respectively.
- DHG will commercially operate the new betalactam factory from Q2/2024 under GMP-WHO standards. The GMP-EU is expected to be accredited in 2025. Besides this factory, DHG will have 1 production line (in the non-betalactam factory) certified with GMP-EU in Q2/2024
- AGM updates: DHG set the target for 2024’s revenue and profit before tax to be VND5,200bn (+3.7% y/y) and VND1,080bn (-6.9% y/y) respectively. The AGM also approved the 2023 and 2024’s cash dividend of VND7,500/share (a payout ratio of 90%), which is reasonable as the new factory construction was finished.
- Q1’s revenue showed a negative growth rate due to the exceptionally strong result in Q1/2023. However, we anticipate DHG’s owned product sales in subsequent quarters will return to their normal growth trajectories, supported by the recovered demand for OTC products. The forecasted gross margin is set to improve, driven by declining API prices. However, this will still be slightly below the 2023 level due to the increased utilization of the new factory.
- From 2025-2028, net revenue is expected to grow slightly higher than the sector’s growth rate as we expect local producers, benefiting from the government’s prioritization, to grow faster. Moving forward, the company will continue to prioritize its high-value-added products. As a result, we forecast that the gross margin will progressively improve, settling between 47% and 48%.
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Featured image credit: https://dhgpharma.com.vn/en/
