Equity Analysis /
Vietnam

Loc Troi Group : Adapting business to cope with Covid-19

  • LTG eliminated non-branded rice and now focuses on branded rice which has a higher rate of return.

  • This year, LTG will export 73,000 tons of rice, down 28% YoY. However, the 2020 GPM is expected to improve.

  • Covid-19 is still badly affecting agricultural businesses and the impact is expected to last until the third quarter.

Rong Viet
28 April 2020
Published byRong Viet

Rice segment had positive changes

LTG's rice revenue in 1Q-2020 decreased compared to the same period as LTG no longer sold un-branded rice and exported rice revenue decreased. The gross profit margin (GPM) of the rice segment is estimated to increase compared to Q1-2019 as the proportion of exported rice (low GPM) decreases. Meanwhile, the domestic rice GPM is expected to improve sharply as LTG only focuses on selling branded rice which has higher profitability than non-branded rice (stopped selling since Q3-2019).

Exported rice

Revenue from exports in 1Q-2020 decreased YoY due to a big decline in volume. In 1Q-2020, Loc Troi exported only 4,500 tons of rice, down 59% YoY. The estimated GPM of exported rice was about 6%, not much changed compared to the same period last year. Exported rice contributed only approximately 24% of the rice segment’s revenue which was much lower than usual (about 60%). LTG did not export much in January and February while March, the time when the company planned to boost exports, was affected by the Government's policy of restricting rice exports. In the next months, exporting rice will be put under the control of the Government as other countries are hoarding food due to the disease. This will have a significant impact on LTG's export activities in April. In fact, LTG only registered to export 50 tons in the total export quota of 400,000 tons of rice.

This year, LTG will export 73,000 tons of rice, down 28% YoY. However, the 2020 GPM is expected to improve as LTG does not suffer the pressure of liquidating inventories as in 2019. Last year the company had a large amount of rice which was planned to be exported to China. However, China changed its policy as they switched to import rice from Cambodia and Myanmar instead of Vietnam. Therefore, LTG had to make efforts to export rice as quickly as possible to other countries at lower prices to avoid expiration. That led to a negative GPM in 2019. In 2020, as LTG is no longer facing the pressure of liquidating inventories, we expect that the GPM of exported rice will improve significantly to 6%.

Domestic market

Since 3Q-2019, LTG has stopped selling non-branded rice which has a low price and low GPM. In addition, trading so many different types of rice from non-branded rice, branded rice to exports rice made it more difficult to manage rice inventories.. In previous years, LTG often suffer the burden of high interest expenses which reduced the company's profits. In 2020, as LTG stopped selling non-branded rice, the group has initially experienced positive changes. In fact, it is estimated that by the end of March, rice inventories were only VND500 billion, down 53% YoY. Currently, inventories increased by 129% compared to the end of 2019 because the company boosted their stocks as March is the harvest time of Winter-Spring crop which has a large output and low price. Good controlling of rice inventories and a decrease in accounts receivable (estimated to decrease by 46% to VND 1,100 billion) partly contributes to reduce the short-term debt by 48% YoY, to about VND 1,700 billion. As a result, interest expenses dropped by 42% YoY to only VND 26 billion in 1Q-2020.

LTG eliminated non-branded rice and now focuses on branded rice which has a higher rate of return. At the same time, GPM of exported rice improved in this year. Therefore, we expect that the GPM of the rice segment can reach 8.4% (much higher than 1.5% in 2019) and revenue will reach VND 1,946 billion in 2020.