FMC – Set for another good year – Initiation

• FMC is one of the largest shrimp exporters in Vietnam, accounting for nearly 5.3% of Vietnam’s shrimp exports turnover in 2021.
• We expect FMC’s net profit to grow at 18.8%/23.3% yoy in FY22/23F thanks to strong export demand and better gross margin.
• Initiate coverage with an Add rating and TP of VND80,300.

Vietnam’s shrimp sector keeps thriving in near futute
We expect Vietnam’s shrimp exporters will have bright outlook thanks to the following catalysts: (1) solid growing demands worldwide for farmed-aquaculture products with CAGR of 14.8% in 2021-30, according to FAO, including shrimp products; (2) US high import tariffs imposed on India shrimp products; (4) lower tariffs on Vietnam’s shrimp exported to major markets such as European Union (EU), Japan.
FMC is well-equipped to capture the demand recovery of export market
2022 is expected to be a bright year for the whole Vietnamese seafood industry, including the shrimp industry when the demand from target export market will strongly recover. FMC is one of the largest shrimp exporters in Vietnam, accounting for nearly 5.3% of Vietnam’s shrimp exports turnover in 2021, per our estimate. The integrated value chain allows the company to adapt all the strict requirements of export markets. In addition, the expansion plan in 2022-25F will 1) lift the raw shrimp self-supply ratio up to 50% by FY25F from current level of 20-30%, cutting down the raw shrimp costs by 3-5%, per our estimate, and 2) increase about 80% of production capacity in FY22F through two new factories.
Both revenue and earnings will grow healthily over FY22-23F
We expect FMC’s revenue to grow 17.4%/15.5% yoy in FY22/23F driven by 1) 16.2%/14.7% yoy increase in shrimp product revenue, and 2) 56.3%/34.3% yoy increase in agricultural product revenue following (1) 5.5%/-2.1% yoy in ASP of shrimp product and (2) FMC’s shrimp consumption output may increase 15.6%/16.7% yoy following strong demand from target export markets. We project 0.5%/0.6% pts increase of blended GM in FY22/23F following 1) higher self-supply rate of raw shrimp, and 2) a decrease in shrimp breed and feeding costs, thus net profit is expected to achieve double-digit growth by 18.8%/23.3% yoy in the same period.
We initiate coverage on FMC with an ADD rating and TP of VND80,300
Our target price is based on 10 years DCF valuation (WACC:12%, LTG: 2%) and equivalent to FY22/23F P/E of 17.0/13.8x. Potential upside is demand and prices for shrimp and agriculture products are higher than we expected. Downside risks include longer than expected Covid-19 epidemic could disrupt the supply chain and affect demand from main export markets.

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