Company Quarterly Earnings Update – DRC VN – 2018 Q3

Summary of the 9M 2018 results of Da Nang Rubber (DRC VN) 

9M/2018 results: highlights
  • 9M/2018 revenue declined by 3.4% yoy to VND 2,551bn, mainly due to a drop in volume of light truck bias tires, while sales from other truck tire products recovered somewhat.
  • The company’s gross margin declined to 12.4% in 9M/2018 from 13.0% in 9M/2017, above all due to a lower contribution from the bias tire segment. Net financial expenses increased because of a FX loss in Q3/2018 as a result of the adjustment of a USD loan to the market value. Net profit was down by 18.8% yoy to VND 106bn.
Outlook
  • The number of trucks in Vietnam is likely to continue to grow solidly thanks to strong demand from the logistics and the transportation sectors, which are supported by strong manufacturing and construction. This favorable trend should support DRC’s long-term growth.
  •  The competition in this industry is also mounting up as Chinese tire companies are moving into ASEAN countries. This will have some implications on DRC’s radial tire segment. 9M sales growth of radial tires was not as strong as expected, but DRC was showing a gradual improvement in volume and profitability. But the bias tire segment continued to do well as competition from imported products was still low; hence, this segment should continue its solid growth and good profitability.
  • We project DRC’s net profit to decline by 3.4% yoy in 2018, but profit should rebound strongly by 39.3% yoy in 2019 thanks to the additional volume from new light-truck radial tires (LTR) and from phase 2 of the radial tire plant.
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