VHC – Strong 2Q21 business results – Earnings update

• In 2Q21, VHC recorded its net revenue of VND2,343bn (+41.3% yoy) and net profit of VND261bn (+16.3% yoy)
• VHC posted 6M21 net profit and net revenue of VND392bn (+4.1% yoy) and VND4,131bn (+25.4% yoy), fulfilling 44% and 49% of our full-year forecast, respectively.

2Q21 business results: soft gross margin dented net profit growth
• 2Q21 net revenue increased 41.3% yoy to VND2,343bn, much better than that of 9.2% yoy seen in 1Q21. The positive results came from the strong pangasius export volume growth (+45.4% yoy, per our estimate) which offset 5.2% yoy decline in ASP, alongside with a 75,4% yoy increase in by-products revenue mostly thanks to animal feed price hike.
• VHC’s export value to the US and China grew significantly 124% yoy and 37.7% yoy, to VND901bn and VND387bn, respectively. Notably, after the 16^th period of review (POR16) on Jun 28^th 2021, VHC and ANV are the only companies enjoy a 0% anti-dumping tax for exports to US, while others pay an anti-dumping tax of at least US$0.15/kg or higher.
• On the other hand, VHC ‘s export value to EU fell 14.3% yoy to VND359bn due to: (1) port congestion due to staff shortage from social distancing, and (2) low food demand because of the slow economies reopening.
• 2Q21 gross margin (GM) softened 1.5% pts yoy to 18.5% on declining selling prices but higher raw fish prices. Raw fish prices have been accelerated on fish feed price hike while selling prices have dropped on lower demand from EU and quarantine procedures in China (-12% yoy in June), according to Vietnam Association of Seafood Exporter and Producer (VASEP). SG&A expenses also surged 108.9% yoy due to higher transportation costs amid (1) shortage of empty containers and (2) higher oil price.
• 2Q21 NP grew only 16.3% yoy, yet higher than the 13.8% decline in 1Q21.

We maintain our forecasts for FY21-22F

• Following the positive 2Q21 results, we believe VHC’s upcoming quarter results will grow on the back of stronger economy recovery thanks to vaccination, results in global economy reopening.

• The freight cost will anchor at the high level in FY21F and cool down in FY22F as we believe the wider vaccination coverage will alleviate the container shortage and port congestion, which will help reduce sea freight rates since 4Q21.

• We believe stronger ASP recovery will improve VHC’s GPM on the back of (1) reopening of economies, (2) the boom circle of commodity prices, and (3) lower inventory, thus likely to meet our forecasted net profit

• We maintain our forecast for VHC’s FY21-22F net revenue of VND8,524bn/VND9,939bn (+21.1%/16.6% yoy) and NP of VND899bn/VND1,224bn (+27.6%/16.7% yoy).

Downside risks and re-rating catalysts
Potential re-rating catalysts include 1) faster-than-expected store opening timeline, 2) a better-than-expected recovery after the pandemic, and 3) new projects, which are expected to boost sales. Downside risk to our call is longer social distancing period caused by prolonged Covid-19 waves.

• Downside risks are: (1) rising rate of freight cost and other transportation-related risks (2) lower than expected ASP. Re-rating catalysts includes higher-than expected ASP, export volume and favorable changes in regulations.

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