VHC update – BUY

VINH HOAN CORPORATION JSC (VHC VN)

Taking advantage from increasing global demand and shortage of supply from Russia

VHC posted an outstanding 1Q2022. We reiterate our BUY recommendation with a target price of 112,300 VND/share (27.1% expected total return).

Forecasts changes: VHC just increased its freezing capacity and upgraded main production lines to meet increasing demand. The company is also planning to increase its farming area to maintain the 70% self-sufficiency rate with a 90ha of breeding farm for higher traceability and sustainability. The 40.4% YoY increase in revenue from the Wellness segment indicated that this could be a strong source of growth for VHC in the next few years, developing other derivative products such as Xavia collagen, chewy candy… VHC Wellness will also optimize the utilisation of by-products from fruits and vegetables from VHC Agriculture next year, enhancing the company’s margins. 

Thus we raise our 2022 revenue forecasts by 25.0% to VND13,241.2bn, contributed by a 13% increase in sales volume to reflect the rising demand and a 17% increase in ASP as we foresee higher raw material prices in the near future. With the high gross margin recorded in 1Q2022, we expect VHC to earn 20.9% gross margin in 2022 which results in a VND1,676.1bn of net profit (+52.5% YoY and 32.3% higher than our previous forecast).

Valuation: We continue to value VHC based on the avg. of DCF and PE valuation. We set our target PE at 10.3x, in line with Vietnam’s avg. peer of fishery exporters. We note that the avg. fishery countries which includes Thailand, Indonesia, the Philippines and India has an avg. FY2022 PE of 13.5x. For POR17, India is the surrogate country (amongst 6 countries Bolivia, Egypt, Honduras, India, Morocco and Nicaragua). We note that India’s peer of fishery exporters has an avg. 2022 PE of 21.3x, double that of  Vietnam’s avg. PE. Our new TP came in at VND112,3000/sh (+27.1% TSR inclusive of an expected 2.2% dividend yield). VHC stock price has corrected by 20% since mid-April, tracking the pull-back of the general market. The stock is currently traded at 9.9x – equivalent to its avg. PER since 2020, which is an attractive opportunity to build a position considering the potential outlook of the company’s business model.  We reiterate our BUY recommendation.