DGC Initiation – NEUTRAL

DUC GIANG CHEMICALS GROUP JSC (DGC VN)

Initiate with an NEUTRAL rating, target price of VND 100,986 given solid business performance.

DGC is a company that operates in the chemical sector. The company engages in manufacturing phosphorus products including yellow phosphorus, phosphoric acids, fertilizers, feed additives, etc. 

Is leading in the phosphorus subsector: Currently, the company is the biggest yellow phosphorus manufacturer in Vietnam in term of capacity. In addition, the company is able to produce high quality products that meet standards countries manufacturing high-tech products (e.g. Japan, Korea).

Maintaining a healthy balance sheet and ready for expansion: the company has been maintaining a net cash position in recent years. Thanks to 2022 results its net cash increased by almost threefold compared to 2021. This enables the company to execute its M&A plans and further solidify its leading position.

Eyeing on expanding to other businesses: Not only expanding within the phosphorus sector but the company has huge plans for expansion in other business lines such as (i) NaOH Nghi Son business project and (ii) the Tay Nguyen Bauxite project. These projects will be key growth drivers for DGC in long-term period.

For 2023, we expect DGC to achieve a total revenue of VND10,216 bn (-29% YoY) and a NPAT of VND 3,236 bn (-46% YoY), 8% below its planned revenue but 8% above its planned NPAT as P4 selling price recovered better than the company expected but demand did not.

However, things will be better for the company as commodity prices is slightly increasing. We expect DGC revenue to reach VND 11,556 bn (+23% YoY) and Net profit of VND 3,681 bn (+23% YoY). 

Using a combination of DCF and P/E as our valuation method, our one-year target price for the stock is 100,986/share equivalent to an expected return of 5% (including dividend yield). Thus, we initiated with an NEUTRAL recommendation.

View details in full report below.