VHC update – BUY
22/02/2022 - 3:39:35 CHVINH HOAN CORPORATION JSC (VHC VN)
Great advantage from current raw material price hike
No significant impact from raw material price hike and strong barganing power to increase ASP. 0% anti-dumping tax and expected higher ASP from pollock – pangasius’ main competitor, will boost VHC sales volume in 2022. Reiterate BUY with TP VND93,200/sh (+25,4% TSR).
FY2021 snapshot: VHC posted an unaudited FY2021 net revenue of VND9,054.2bn (+28.7% YoY) and VND1,101.2bn of net profit (an impressive +53.1% YoY). Excluding the new Sa Giang subsidiary (HSX: SGC) contribution, that would be 23.6% YoY increase in revenue and 49.9% YoY in net profit. The value added products recorded the highest growth rate of 64.8% YoY, followed by by-products (+33.5% YoY) and the fillet pangasius (+19.5% YoY). According to management, ASP in 2021 increased slightly while most of the growth came from sales volume increase. Despite high logistics fees which we believe VHC has to share with its long-term customers during difficult period and translated by a higher SG&A expenses of 6.1% of sales (vs. 4.5% in FY2020), and higher raw pangasius market price (+12.7% YoY in avg.), VHC is still able to deliver a high gross margin of 19.4%, +5pts vs. FY2020 and almost equivalent to the pre-pandemic level in FY2019. This is thanks to the booming 4Q2021 with 23.7% gross margin while supportive actions to customers start to decline.
Outlook: Following a long period of social distancing with disrupted supply, manufacturing factories and export in Vietnam resumed strongly since 4Q2021. Higher demand led to higher prices of raw materials and raw pangasius prices jumped by 26.0% YoY since Jan 2022. Noticeably, price jumped by 49.4% YoY over the last 2 weeks following Tet holidays, reaching up to VND30,000/kg. If the trend continue, that could go to as high as VND36,000/kg as seen in late 2018. That high price assures at least 15-20% profit for local farmers and we believe a “boom crop” cycle has started in Vietnam. That could be risky for the next harvest season as breeding fish prices also jumped by 48.2% YoY since the beginning of the year while fingerlings price declined by 13.8% YoY even though fingerlings production declined by an avg. of 58% from June-August 2021. This leads us to believe 1) a lower quality of breeding fish moving forward; 2) local farmers might switch to fingerlings and lower quality breeding fish to reduce cost, which will lead to lower survival rate and lower quality of raw pangasius fish which in turn will lead to lower supply and higher raw pangasius price in the next coming months.