Invest in Vietnam: Your Guide on Rubber Sector Growth

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Disclaimer: The opinions expressed herein are that of  RongViet Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities.

Expecting on replacement segment

Particulars Da Nang Rubber vietnam

drc-resultupdate-may2016-1Slow growth in Q1 profit. In Q1/2016, net revenue and PAT only reached VND 746 billion (-3% yoy) and VND 88 billion (+1% yoy) respectively. Additionally, gross profit margin also declined by ~2% yoy, although the material price slumped strongly compared with last year. The reasons are (1) the average selling price decreased by 12% in 2015 and additional 2% in Q1/2016, (2) depreciation expense increased by ~34% yoy due to an adjustment in depreciation method of Radial line since Q2/2015, which offset the increase in contributing from material price decrease.  A notable factor was that the revenue decrease was much less than the selling price slump; meaning that selling volume got significant growth (~10%).

The radial outlook:

In Q1/2016, DRC sold 49,619 units, achieved 18.7% of 2016 plan (265,000 units), in which, export volume was 21,613 units. The spotlight should be emphasized that in Q2/2016, DRC exported the first container to US market, focusing on mid-range products, of which prices are only 20% of premium ones. In near future, US government may impost 35% anti-dumping tax on made-in-China tires (the current tax rate of 15%). Thus, DRC can improve price competitive advantage in US market. Additionally, in April 2016, DRC also achieved BIS certificate for exporting tire to India, became the unique Vietnamese supplier. Therefore, penetrating the Indian market in upcoming period will help consumption volume reach phase 1 capacity.

In 2015, the radial line depreciation expense was VND 203 billion (total depreciation expense of VND 246 billion). According to our 2016 assumption based on this depreciation method with stable selling price, average rubber price of USD 1600/ton and the consumption volume of 250,000 units, radial segment can slightly exceed breakeven point.

Recommendation and Valuation: In short-term, Radial plant prospect is not certain due to uncertain issues when phase 2 comes into operation and demand increase of radial tire consumption. However, DRC also maintains the stable growth thanks to Bias tire demand in replacement segment. We concern that material price could recover significantly and (especially natural rubber) reduce DRC gross margin. Therefore, it is difficult for DRC and other domestic tire manufactures to raise selling price, which results from competitive pressure of Chinese low-price products.

Currently, we maintain our recommendation of “ACCUMULATE” for this ticker with target price of VND 52,000 per share.

Exhibit 1: 1QFY2016

Exhibit DRC Result Update

Exhibit 2: 4QFY2015 performance analysis

Result Update Performance analysis

Brief updates

The ability to expand market share in the north due to SRC relocation. The factory at 231 Nguyen Trai street, Ha Noi will relocate to expand production capacity. The construction will delay SRC’s manufacture activities; thus, DRC and CSM are planning to penetrate into the north market.

Increase in dividend. In 2016, DRC are paying dividend with 30% in cash and 30% in bonus share. The dividend in bonus share is higher than usual rate.

Change in Chairman of BOD. In December 2015, Mr. Phan Van Tien was elected to replace Mr. Nguyen Van Thieu as Chairman of BOD

Rubber price movement

Vietnam Rubber Stock Price

Result Update

This report is created for the purpose of providing investors with an insight into the discussed company that may assist them in the decision-making process. The report comprises analyses and projections that are based on the most up-to-date information with the objective which is to determine the reasonable value of the stock at the time such analyses are performed. Through this report, we strive to convey the complete assessment and opinions of the analyst relevant to the discussed company. To send us feedbacks and/or receive more information, investors may contact the assigned analyst or our client support department.

Rating Guidance

Rating Guidance


This report is prepared in order to provide information and analysis to Rong Viet’s clients only. It is and should not be construed as an offer to sell or a solicitation of an offer to purchase of subscribe for any investment. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. The readers should be aware that Rong Viet may have a conflict of interest with investors when does this research. Investors are advised make their own financial decisions based on their independent financial advisors as they believe necessary and based on their particular financial situation and investment objectives. Rong Viet will not take any responsibility for any loss/damages occurred as a result of using the information herein.
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
The information herein is believed by Rong Viet to be reliable and is based on public Sources believed to be reliable. We do not warrant its accuracy or completeness. Opinions, estimations and projection expressed in this report represent the current views of the author as of the original publication date appearing on this report only and the information, including the opinions contained herein, are subject to change without notice.
This report shall not be copied, reproduced, published or redistributed by any person for any purpose without the express permission of Rong Viet in writing.
Copyright 2016 RongViet Securities Corporation.


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