DHC Update – OUTPERFORM

Dong Hai Ben Tre JSC (HoSE: DHC)

For the 1H2024, DHC only reached a NPAT of VND116 bn, -34.8% YoY, completing 38.7% of the 2024 plan and 37.5% of ACBS’s forecast. However, due to the stabilization of shipping costs, reducing pressure on imported recycled paper prices, we forecast that DHC’s results in the 2H2024 will be more positive, resulting in VND272 bn of NPAT for 2024, -12.0% YoY. We revise down the 12-month target price to VND42,400/share, rating OUTPERFORM.

Although revenue in 6M2024 increased by 10.8% YoY, the gross margin continued to decline, leading to a 24.6% YoY drop in gross profit.  This was mainly due to increased costs of imported old-corrugated-container (OCC) caused by soaring shipping freight, while output prices were pressured by competition from imported paper from China.

However, the packaging segment performed well in 6M2024, +33.5% YoY in production, thanks to the strong recovery of the agricultural and seafood export business in the Mekong Delta region – which is the main market of DHC. Nevertheless, the gross margin of this segment is relatively low, so its contribution to bottom line profit is insignificant.  In addition, this segment could be expanded as the current production is reaching only 70% of its capacity.

DHC has obtained a construction permit for the Giao Long 3 facility and is expected to start building from Q1/2025 to Q4/2026.  In the final plan, the designed capacity is 1,000 tons of paper/day, with two main product lines areTestliner and Kraftliner, and  total investment of VND1,800 bn. Furthermore, DHC is going to finance the charter capital for the Giao Long 3 project through the issuance of  stock option and ESOP, to be implemented in Q4/2024.

For 2024F, we expect DHC will achieve VND272 bn in NPAT, -12.0% YoY, as the results of the 2H2024 would be better than the 1H due to the temporary cooling of freight rates after peaking in mid-Jul 2024.  Besides, the USD/VND exchange rate also began to stabilize from the end of Aug 2024, following the trend of lowering the Fed’s interest rate.

For 2025F, DHC would achieve VND3,782 bn in revenue, +9.0% YoY and VND323 bn VND in NPAT, +18.9% YoY.  All forecasts for 2025F have not been reflected with the impact of the construction of the Giao Long 3, which may start from early 2025.  We will update when the company has a more specific capital mobilization and disbursement plan.