Summary of the Q2/2022 results of Hau Giang Pharmaceutical (DHG VN)
H1/2022 results highlights:
- Net revenue increased by 11.1% y/y to reach VND2,184bn, driven by (1) increasing demand for both COVID/flu and post-COVID general healthcare products, and (2) a short-term gain in market share from other firms whose supply chains were disrupted due to their smaller scale and thus they could not recover quickly when the economy reopened. The gross margin improved to 48.5% as DHG sold more owned products which have higher margins. Overall, net profit increased by 21.1% y/y to VND490bn.
- The financial position remained solid: cash and short-term investment accounted for 50% of total assets, with low leveraging levels (D/E and D/A ratios of 0.17x and 0.12x respectively). DHG has increased its raw material purchases in the last two years under COVID, allowing its production to remain uninterrupted. Other smaller firms may not be able to do so due to a lack of financial capability. In July, DHG began expanding its Hau Giang factory with a CAPEX of VND920 bn, which is expected to be finished by the end of 2024. With its current financial position, DHG can finance this project with its retained earnings.
- In the short term, there will be a resurgence of COVID/flu products due to the recent appearance of new COVID variants and widespread seasonal diseases. In the long term, supplements/vitamins will continue to be the main drivers for OTC sales due to (1) people paying attention to their general health after the pandemic; (2) a boom in modern drugstores where supplements/vitamins are highly promoted and clearly displayed; and (3) new products launched deriving from the cooperation with Taisho (e.g. DHG recently introduced “CounterPain” – a pain relief cream).
- We estimate DHG’s revenue will increase by 8.8% and 9.0% in 2022 and 2023 respectively, slightly higher than our previous forecast. Although the operating margin will be at a stable level of 21.2% and 21.0%, financial income will be lower due to CAPEX spending. Net profit is expected to increase by 9.7% to VND851bn in 2022 and 5.2% to VND895bn in 2023.
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