Earnings Report /
Vietnam

Binh Minh Plastics: A rare cash cow

  • Substantial growth amid macroeconomic uncertainty; stable 2020 outlook

  • BMP remains one of our favourite stocks because of its defensive nature

  • Fair price at VND48,200/share; we recommend Accumulate

Rong Viet
22 May 2020
Published byRong Viet

Q1 20 update: Substantial growth amid macroeconomic uncertainty 

  • Sales volume came in at 24,330 tons, +8.9% yoy. BMP exploited a new market as plastic pipes demand for irrigation surged in the Mekong Delta area due to prolonged drought. 
  • Gross margin improved slightly to 24%. Revenue and NPAT growth came in at 9.5% and 12.4%, respectively. 
  • Despite the social distancing measures in place, April sale volume remained unchanged compared to last year, which makes 4M 2020 sale volume 6% higher yoy.
  • PVC resin price dropped during Q1, which we predict will support BMP’s profitability from Q2. 

Stable 2020 outlook 

  • Our forecast basically stays the same in terms of sales growth.
  • Gross margin is predicted to improve moderately by two percentage points as we think 2020 PVC resin prices will be lower yoy.
  • Net income is predicted to reach VND471bn in 2020, 11.2% higher yoy. We think BMP can pay up to VND5,000 per share as cash dividend for the year.  

Valuation and recommendation

In this update, we highlight Binh Minh Plastic as a solid business. As an industry leader in a market that favours reputable brand names, BMP has shown no impact from Covid-19 in terms of sales. In contrast, it took advantage of the weather conditions to boost sales and became less dependent on the housing market. 

Over the last quarters, BMP managed to stabilise both gross and net margins, which we think is going to lead to a strong trajectory for net income in the long term. Threats from new entrants to the fertile plastic pipe market have eased and we expect BMP will keep this level of profitability in the future. 

We also appreciate the new parent company’s contribution to BMP’s overall efficiency. During the last year, BMP restructured its distribution channel to convert more than VND500bn working capital into cash. This paves the way for a more generous cash dividend in 2020. 

BMP remains one of our favourite stocks because of its defensive nature. Sustainable business results, strong financials and an attractive dividend yield are a good fit for long-term investors. We have added a new method to our valuation matrix: discounted dividend model to assess BMP as a mature business in addition to the existent FCFE and P/E measures. Our valuation leads to BMP’s fair price at VND48,200 per share, along with the VND5,000 cash dividend expected in the next twelve months, implying a 14 % total return as of the closing price on 21 May. We recommend Accumulate on the stock.