Company Quarterly Earnings Update – DRC VN – 2019 Q2

Summary of the Q2/2019 results of Da Nang Rubber (DRC VN) 

Q2/2019 results: highlights
  • DRC’s Q2/2019 results were very encouraging as net revenue rose by 18.2% yoy, while net profit surged by 30.6% yoy thanks to strong sales of radial tires and an increase in selling prices of 5% since April. H1/2019 net revenue grew by 15.6% yoy to VND 1,920bn, and net profit advanced by 17.0% yoy to VND 88bn.
  • The company’s gross margin was 12.4% in H1/2019, slightly lower than in the same period of last year (12.6%). This was mainly due to the higher contribution from the less profitable radial tire segment as a result of high depreciation expenses. However, gross margins for single product lines were more encouraging.
  • The radial tire segment grew strongly with net sales advancing by a whopping 52.0% in volume and by 48.1% in value. In Q2/2019 alone, DRC sold 145,000 radial tires, implying a capacity utilization rate of 96% for the radial tire production line. On the other hand, sales of bias tires fell.
  • 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 longer-term growth.
  • But tire supply (radial tires in particular) is mounting, and the competition in this industry is increasing. For example, many Chinese tire companies are building production facilities in ASEAN countries, not only for exports, but also to capitalize on the growing domestic demand of these markets.
  • We expect to see positive earnings growth in the coming years: 36.9% yoy in 2019, 22.0% yoy in 2020 (thanks to the increasing capacity utilization of the radial tire production line) and 71.2% in 2021 (thanks to less depreciation).

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