Earnings

Update Report
Da Nang Rubber (DRC)
Industry Tire Manufacturing 2022F H1 2023 2023F
Report Date July 17, 2023 Revenue (VND bn) 4,899 2,274 5,042
Current Price VND23,000 Revenue % YoY 11.9% -6.5% 2.9%
Target Price* VND23,100 NPAT-MI (VND bn) 307 76 361
Upside to TP 0.4% NPAT-MI % YoY 5.6% -49.0% 17.5%
Dividend Yield 7.4% EPS % YoY 5.6% -49.0% 17.5%
TSR 7.8% GPM 16.6% 11.4% 16.6%
Rating* OUTPERFORM EBITDA margin 9.8% 6.0% 11.5%
OPM 8.5% 4.2% 10.2%
Market Cap USD115.5mn NPM 6.3% 3.4% 7.2%
Foreign Room USD45.8mn P/O CF 53.8x **10.6x 8.1x
30D ADTV USD0.9mn EV/EBITDA 6.2x **7.6x 5.1x
State Ownership P/E 9.9x **12.8x 8.4x
50.5%
P/B 1.4x **1.6x 1.3x
Outstanding Shares 118.8 mn
ROE 16.7% **12.3% 18.1%
Fully Diluted O/S 118.8 mn
** TTM/ LQ

DRC VNI Earnings drop on lower gross margin

P/E (ttm) 12.8x 15.9x
P/B (cur.) 1.6x 1.8x  DRC announced its Q2 2023 results with net revenue of VND1.2tn (USD49.4mn; +1% YoY &
ROA 6.6% 2.0% +4% QoQ) and NPAT-MI of VND51bn (USD2.2mn; -39% YoY & +100% QoQ).
ROE 12.3% 12.8%  For H1 2023, net revenue was VND2.3tn (USD96.8.4mn; -6% YoY) and NPAT-MI was VND76bn
*Last updated March 30, 2023
(USD3.2mn; -49% YoY).
 H1 2023 revenue and NPAT-MI completed 45% and 21% of our respective full-year forecasts.
Company overview The H1 2023 top line was relatively in line with our expectation as H2 is typically DRC’s high
Da Nang Rubber JSC (DRC) is one season. However, H1 2023 earnings trailed our forecast; therefore, we see a downside risk to
of the largest domestic tire our current projections, pending a fuller review.
producers in Vietnam. DRC is a
subsidiary of Vietnam National DRC’s net revenue decreased by 6% YoY in H1 2023. We believe the YoY decrease in H1 2023
Chemical Group (Vinachem), an
net revenue was mainly driven by weak consumer demand due to the negative impact from the
SOE that has a 50.5% stake in DRC
and holdings in the chemical economic slowdown — especially in the domestic market. Furthermore, we attribute the
industry. DRC offers a wide range of decrease in revenue to a relatively high base in H1 2022 when pending orders were released after
tires and tube products for trucks, strict COVID-19 restrictions.
cars, motorbikes and bicycles.
DRC’s net margin decreased 2.8 ppts YoY in H1 2023. We attribute the NPM decline to a 5.2-
Share price performance ppt YoY decrease in gross profit margin due to a lower proportion of domestic tire revenue over
20% total net revenue (domestic tires have relatively higher margins). However, we believe this was
partly offset by the realization of lower input costs in Q2 2023. As DRC usually accumulates
10% inventory one quarter ahead of production, we believe the lower average cost per inventory unit
in Q1 2023 translated into DRC’s input costs in Q2 2023. In addition, DRC’s earnings were
0% supported by lower selling and administrative expenses that were driven by softened logistics
costs. We estimate that logistics expenses decreased 28% YoY in H1 2023.

-10% DRC guides for earnings to decrease 25% YoY in Q3 2023. We expect this YoY decline will be
driven by weak demand and higher competition in the domestic market, which has higher
-20% profitability, and be partly offset by lower input costs and logistics expenses. DRC’s actual
YTD 1Y 3Y ann. revenue and PBT in Q2 2023 completed 87% and 64% of the company’s Q2 2023 guidance,

DRC VNI
respectively.

A summary of DRC’s H1 2023 results is presented on the next page.

Khanh Vu
Analyst
[email protected]
+8428 3914 3588 ext.130

Nam Hoang
Senior Manager
[email protected]
+8428 3914 3588 ext.124

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 Update Report
Figure 1: DRC’s H1 2023 results

H1 as %
Q2 Q2 H1 H1
VND bn YoY YoY of
2022 2023 2022 2023
2023F
Net revenue 1,148 1,162 1.2% 2,432 2,274 -6% 45%
COGS excl. depreciation -936 -995 6% -1,999 -1,973 -1% 48%
Depreciation 7 21 212% 28 41 50% 65%
Gross profit 205 145 -29% 405 260 -36% 31%
SG&A expenses -101 -83 -18% -213 -165 -22% 51%
EBIT 104 62 -40% 192 95 -50% 19%
Net financial income 0 1 N.M -7 -4 -46% 5%
PBT 105 63 -40% 186 92 -51% 20%
NPAT-MI 84 51 -39% 150 76 -49% 21%
Gross margin 17.8% 12.5% 16.7% 11.4%
EBIT margin 9.0% 5.4% 7.9% 4.2%
NPAT-MI margin 7.3% 4.4% 6.2% 3.4%
Source: DRC, Vietcap forecast

Figure 2: DRC’s Q3 2023 guidance

VND bn Q3 2022A Q3 2023G YoY

Revenue 1,353 1,270 -6%
PBT 96 72 -25%
Source: DRC, Vietcap's compilation

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