DBC – Bright outlook but valuation looks fair – Update

• In FY21, DBC’s revenue grew 7.9% yoy to VND10,813bn while net profit (NP) plunged 40.8% yoy to VND830bn.
• We forecast DBC’s NP to grow 8.4%/15.1% yoy in FY22-23F.
• We raise TP to VND74,000 but downgrade to HOLD as market price is close to fair value.

FY21 business results: Hurt by higher material cost
DBC recorded 7.0% yoy increase in core business revenue (Feed-Farm-Food) in FY21 to VND9,821bn as 1) animal feed price increased sharply ~25% yoy in FY21 due to higher material costs, and 2) live hog prices decreased by 23.9% yoy due to increasing supply and lower consumption demand amid the Covid-19 pandemic. FY21F gross margin narrowed down by 8.4% pts yoy mainly due to the increasing input price for the animal feed (60.4%/44.5% yoy in corn/soybean price). Overall, DBC enjoyed a 7.9% yoy growth in FY21 revenue while its NP plunged 40.8% yoy.

Meat demand to recover, bolster revenue growth in FY22F
In FY22-23F, we expect animal feed revenue to grow 6.0%/0.9% yoy thanks to a 6.0%/3.0% yoy increase in sales volume. In addition, farm and food record a 11.0%/7.8% yoy growth in revenue as sales volume increase by 17.2/3.0% yoy thanks to demand recovery while ASP decline by 5.8% yoy in FY22F due to high base in 1H21 and improve 4.0% yoy in FY23F. Overall, DBC’s net revenue increase 7.0%/8.0% yoy in FY22-23F and we expect blended GM narrow by 0.8% pts yoy in FY22F before recovering 0.2% pts yoy in FY23F.

Recent stock price rally to corresponding with ASF vaccine expectation
We believe that DBC’s recent price increase is a result of investors’ expectations of higher live hog prices and its revenue from anti-ASF (African Swine Fever) vaccines production. We expect with the success vaccine, by 2024, the ASF disease can be controlled in Vietnam and the pig herd will be restored to pre-epidemic levels. However, the vaccine’s information is still limited, and it will not be commercially produced until end-2022F. Thus, we believe vaccines will not contribute a large proportion of DBC’s 2022F results and need more information to account vaccine production into our model.

Downgrade to Hold with a higher TP of VND74,000
We increase our TP by 15.6% following the rollover to FY22F and target P/E of 9.0x apply on average FY22-23F EPS. However, we think current stock valuation has fully reflected the bright FY22-23F outlook. Upside risk includes higher-than-expected pork prices. Downside risks include a faster-than-expected fall in pork prices and a higher-than-expect prices of input material for animal feed.

Please follow this link for the full report