DGC Update – NEUTRAL

DUC GIANG CHEMICALS GROUP JSC (DGC VN)

Falling Phosphorus price led to worse-than-expected result but showing signs of recovery

Ending 6M2024, DGC recorded a top line of VND4,889 bn (-1% YoY) and a NPAT of VND1.574 bn (-7% YoY), achieving 47% and 50% the company’ targets respectively. While the results are in-line with the company’s yearly target, they fell short of our forecasts, meeting only 45% and 40% respectively. However, we see some recovery signs for P4 price since July thus we expect DGC’s results to improve in 2H2024. Therefore, we just revised down slightly our forecast for 2024’s revenue and NPAT by 6% and 8% respectively to VND10,815 bn (+11% YoY) and VND3,689 bn (+14% YoY). For 2025F, we expect a 5% YoY growth in the revenue and 8% YoY growth in NPAT. Using FCFF valuation method, we derive the target price for the next 12 months at VND 112,200/share. Rating NEUTRAL. 

Key reasons for this slightly underperformance include: (i) falling yellow phosphorus prices (P4) – which we estimate have dropped by 3% YTD – and its by-products (e.g. Fertilizer prices, fell by 2% YTD) and (ii) the maintenance of its WPA factory causing its sales volume reduction in Q1 2024.

On the bright side, the gross margin improved, reaching last-year high – also in 2nd quarter – at 39% compared to 32% in Q1 2024 thanks to mining field 19 fully came into operation in end of March 2024. 

In addition, P4 price is showing recovery signs: With Chinese spot price as our benchmark, P4 price has maintained a downward trend YTD but seemingly created a bottom in June and has increased by 5% since then thanks to recovered demand due to: (i) sowing seasons and (ii) recover in consumer purchasing activities. With the increasing demand from semiconductor sector, we expect P4 price will continue to rise toward year end.

Key catalysts for the period 2025-2026 may come from the revival of Nghi Son project and the CBD project in Duc Giang – Long Bien. However, our current financial forecasts and valuation model have not yet factored in the impact of these projects due to the lack of sufficient basis at this time.