Earnings Report /
Vietnam

Danang Rubber: Sales increased slightly while GPM improved significantly

  • 2019: Radial segment was the main contributor to DRC's growth

  • We forecast that DRC can achieve VND3,7bn of net revenue (-3% YoY) and VND 306 billion of net income (+22% YoY) in 2020

  • We have a target price of VND 22,500/share , 52% higher than the closing price on 30/03/2020. We recommend a BUY

Vu Tran
Vu Tran

Oil & Gas, Fertilizers

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Rong Viet
31 March 2020
Published byRong Viet

2019 results

Revenue in 2019 was VND 3,858 billion, up 8.6%. The bias segment recorded a decline in revenue of -11.6%, to VND 1,203 billion. On the contrary, radial tire sales grew by (+13.1%) as it went up by 34.2%, to VND 1,916 billion due to an increase of 36% in sales volume, to 511,005 tires.

The GPM increased from 12% in 2018 to 14.8%. Most of DRC's products had higher GPM than during the previous year. In fact, the two main products (bias and radial tires) saw GPM improving from 22.5% to 24.4% and 2.6% to 9.5%, respectively. The main reason was a big decrease of material prices while selling prices dropped only slightly.

The expansion of radial production and selling activities boosted the selling and administrative expenses by 12.6% and 12.4%, respectively. Meanwhile, interest expenses declined by 16.4% YoY.

PBT of the company reached its highest level of the past three years (VND 313 billion, +79% YoY). PAT was VND 250 billion, up 81% YoY and EPS was VND 2,108.

2020 Outlook

We forecast that DRC can achieve VND 3,730 billion of net revenue (-3% YoY) and VND 306 billion of net income (+22% YoY) in 2020.

The radial segment will continue to play a key role in the company's business with expected output growing from 511,000 tires to 521,000 tires (+2% YoY). GPM is forecasted to improve from 9.5% to 15.3%. In contrast, bias production is expected to fall from 626,000 tires (in 2019) to 550,000 tires (-12% YoY) while GPM is expected to climb slightly from 24.4% to 26.7%. The company's gross profit will increase by 15% YoY, to VND 659 billion. Besides, selling, administration and interest expenses will go up by 8%, 6% and 6%, respectively. As a result, net income will increase by 22%, to VND 306 billion.

Valuation and recommendation

We believe that DRC can maintain its revenue growth steady while improving profit in 2020. The radial segment will operate efficiently with higher profit and still has room to grow. Meanwhile, although the bias segment has shrunk, it still accounts for a relatively high proportion of total profit. Recently, the company has been planning to expand the capacity of its radial plant. The official implementation of the project will be positive for the company’s future.

We have a target price of VND 22,500/share , 52% higher than the closing price on 30/03/2020. We recommend a BUY for this stock.