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DCM – “A dark horse” in fertilizer industry

• In 2Q2023, DCM announced revenue of VND 3,291 bn (USD 138.9 mn; -19% YoY) and a gross margin of 11% (-22% bps YoY), resulting in VND 311 bn NPAT-MI (USD 13.1 mn; -69% YoY).
• 2Q23 revenue outperformed 1Q23’s thanks to NPK sales, which increased dramatically to VND 632 bn from VND 69 bn in 1Q23. NPAT-MI also increased by 36% QoQ in 2Q23, supported by a decline in SG&A to sales, from 15% in 1Q23 to 5% in 2Q23. 
• When the urea plant finished depreciation in 4Q23, we expect the GPM will expand by 16% bps QoQ to 28% (4Q22: 29%). The GPM, therefore, expand from 16% in H1 2023 to 20% in H2 2023, which results in VND 678 bn NPAT (USD 28.6 mn; -61.3% YoY).
• FY2023 revenue and NPAT are expected to be VND 13,203 bn (USD 557 mn; -17% YoY), and VND 1,220 bn (USD 51.5 mn; -72% YoY), respectively. The 2023 correspondent EPS will be VND 2,075.
• We believe the current market price reflects the expectation of a higher 2024 NPAT as a result of urea plant reduced depreciation. We still recommend investors to hold onto the stock in order to receive an attractive dividend of  VND 2,000/share in 2023F-24F