Earnings Report /
Vietnam

Danang Rubber: Q2 20 – Sharp decline on Covid-19 impact, but still a Buy; cut TP

  • Net revenue reached VND789bn, down by 28% yoy; gross profit came in at VND117bn, down by 26% yoy

  • We adjust our target price by reducing it to VND19,200/share (previously VND22,500/share)

  • Coupled with expected cash dividend of VND1,000/share within the next 12 months, the total return is 27%; Buy

Rong Viet
7 August 2020
Published byRong Viet

In H1 20, radial tire exports were heavily affected by Covid-19. Results continued to decline following the trend of recent years. Taking into account the difficult year, the increasing level of competition and the possibility of the radial plant expansion, which will happen in 2021 instead of 2020, we adjust our target price by reducing it from VND22,500/share to VND19,200/share. Coupled with the expected cash dividend of VND1,000/share within the next 12 months, the total return is 2 7 %. We recommend Buy.

Q2 20 business results: A sharp decline

Net revenue in Q2 20 reached VND789bn, down by 28% yoy. The bias tire segment saw a revenue drop of 26.4% yoy, to VND260bn. Radial tire revenue also dropped by 33% yoy, reaching only VND362bn due to a sharp drop in quantity. Gross margin slightly improved from 14.5% (Q2 19) to 14.9%. Most of DRC's products had higher GPM than the previous year, except for radial tires whose GPM decreased from 6.8% (Q2 19) to 5.7%. Meanwhile, bias tires GPM reached 26.4%, higher than 25.3% in Q2 19, thanks to lower production costs. Hence, gross profit came in at VND117bn, down by 26% yoy.

Boosting sales in the context of increasing competition and reduced demand due to Covid-19 increased selling expenses by 10% yoy, to VND39bn. Meanwhile, financial expenses dropped by 28% yoy, to VND16bn. Therefore, total costs (including financial, selling and G&A expenses) was VND70bn, down by 4% yoy. PAT reached VND43bn, down by 39% yoy.