Earnings Report /

Vinh Hoan Corporation: Q1 20 review and 2020 outlook – Reduced selling price stimulates demand

  • Q1 20 NPAT decreased by 50% yoy mainly due to a sharp decline in gross profits; revenue only decreased slightly

  • Q2 will be a difficult period for the company's export due to the impact of the lockdown on the US food service segment

  • We estimate the one-year fair value for VHC at VND30,500/share; Accumulate

Tam Pham
Tam Pham

Fishery, Insurance

Rong Viet
24 April 2020
Published byRong Viet

The coronavirus pandemic caused export prices to continue to decline after having adjusted sharply throughout 2019. Thanks to a boost in export volume, VHC's Q1 20 revenue only decreased slightly. However, Q1 20 NPAT dropped 50% yoy mainly due to a sharp decline in gross profits.

Q2 will be the most difficult period for the company's exports due to the US food service segment (accounting for 60% of consumption in the US) having to stop operating due to Covid-19. Increasing consumption in the retail segment may contribute in curbing the decline in total sales. According to VASEP, export volume to the US in Q2 may decrease by c45-50% yoy. The recovery of the Chinese market will be the saviour, but average export prices may decline still because the export price to the Chinese market is lower than to the US and EU. Pangasius export prices may decrease by 31% while export volumes may increase by 26% yoy because export volumes were lower than the annual average in Q2 19. This was the result of high stockpiling of inventories in the US and changes in China’s seafood quality control regulations at that time.

Q2 20 gross profit margin is estimated at 12%, down sharply from 21% in the same period in 2019. Accordingly, Q2 revenue is forecast at VND935bn, down 54% yoy and PAT at VND83bn, down 76% yoy. Excluding profit from divestments in Q2 19, NPAT would drop 73% yoy in Q2 20.

The stock price of VHC, after a sharp decline in March, has rebound since the beginning of April as investors believe that the coronavirus outbreak in Vietnam is under control. We estimate the one-year fair value for VHC to be VND30,500/share. Considering that the impact of the pandemic will be reflected more strongly in Q2, but that business operations will recover well in H2 20, we believe that it will be a good opportunity for investors to accumulate the stock when the company records lower earnings.