Company Quarterly Earnings Update – DRC VN – 2018 Q4

Summary of the 12M 2018 results of Da Nang Rubber (DRC VN) 

12M/2018 results: highlights
  • 2018 revenue fell by 3.2% yoy to VND 3,551bn, mainly due to lower sales of light truck bias tires. On the other hand, radial tires sales rose strongly by 12.6% yoy and became the largest contributor to total sales.
  • The company’s gross margin decreased to 12.0% in 2018 from 12.6% in 2017, mainly due to the lower contribution from the bias tire segment, which has the highest gross margin among all product lines. The operating margin stayed nearly unchanged at 7.3% thanks to cuts in operating expenses. Net financial expenses were higher, above all due to a FX loss. As a result, net profit was down by 14.3% yoy to VND 139bn.
Outlook
  • We expect the number of trucks in Vietnam to continue to grow solidly thanks to strong demand from the logistics and from the transportation sectors. This favorable trend should support DRC’s long-term growth.
  • But the competition in this industry is mounting, too, as Chinese tire companies are moving into ASEAN countries. This will have some implications on DRC’s radial tire segment. However, the more profitable bias tire segment should continue to do well as competition from imported products is still rather low.
  • Natural rubber prices should continue to stay under control, being supportive for the company’s profitability in the next few years, while other material prices are likely to be more volatile.
  •  In 2019 and 2020, we expect robust growth in radial tires and in light-truck-radial (LTR) tires thanks to their increasing popularity and utilization. We project DRC’s net profit to expand by 31.6% in 2019 and by 20.6% in 2020. From 2021 onwards, a part of radial tire factory will be fully depreciated, being the main reason for the company’s
    expected strong profit growth of 36.4% in 2021 and of 34.8% in 2022.
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