DBC – Resilient through peaks – Update

• We believe the sustained high level of pork price and the animal feed demand recovery will be the key drivers for FY21-22F revenue growth.
• We upgrade from Hold to Add with a higher TP of VND70,000 following positive long-term growth of the pig segment due to capacity expansion.

Is FY20’s stellar performance just an upward blip?

In FY20, DBC recorded VND10,022bn in net revenue (+39.4% yoy) and VND1,400bn (+359.1% yoy) in net profit, mainly thanks to the spike in live hog price (+64.2% yoy) due to the ASF outbreak. We expect the ASF vaccine to roll out in 3Q21, but the pork price will not drop immediately after that as production cost remains high in FY21-22F after the current surge in feed input price. Thus, we forecast DBC’s FY21-22F NP will remain positive versus pre-FY19 level in thanks to 1) 31.6% higher pork price than the pre ASF level (despite decreasing 13.3%/ 8.0% yoy respectively), and 2) volume recovery of feed segment due to farmers’ re-herding activities.

What DBC has beyond pork price hike

In FY21-22F, apart from pork-related revenue, DBC will record revenue from the Lotus Center project and Huyen Quang projects in Bac Ninh with a total value of VND845bn and VND802bn, respectively. In addition, the oil segment is run at full capacity of phase 1, while phase 2 of the edible oil factory will be put into operation in 4Q/2022 with the double capacity of phase 1 and a total investment value of c.VND650bn. We estimate these segments will contribute about 10.2% /10.9% to FY21-22F GP and reduce the risk of profit loss in case of an unexpected pork price performance. Additionaly, thanks to a sharp increase in FY20 net profit, DBC has reduced net debt by VND1000bn, reducing interest expense by 30.5% yoy/10.3% yoy in FY21-22F.

Has FY20 stellar performance fully priced in DBC’s price?

We expect DBC’s NP to decrease by 24.0% yoy/15.8% yoy respectively in FY21-22F mainly due to 19.9% yoy/8.0% yoy plunge in live hog price, but still 250.1%/194.7% higher than the FY19 level. Although DBC seems to have passed its peak growth period, we believe the FY21 P/E and P/B valuation of 7.0x/1.4x still look attractive for one of the biggest 3F businesses in Vietnam.

Upgrade from Hold to Add with higher TP of VND70,000

We raise our TP to VND70,000 on the back of the 8.9%-7.9% increase in FY21- 22F EPS and a higher target P/E of 7.0x (from 5.5x previously). Re-rating catalysts include higher-than-expected pork prices. Downside risks include a faster-than-expected fall in pork prices and higher-than-expect prices of input material for animal feed.

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