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DRC - Cost reduction is key for profit expansion

• Q2 2023 sales and net profit reached VND1,162 bn (+4.4% QoQ; +1.2% YoY) and VND50.9 bn (+100.4% QoQ; -39.3% YoY), respectively. Despite showing signs of improvement due to low raw material costs, the gross profit margin narrowed compared to the same period last year because of 1) lower selling prices to boost revenue growth and 2) a high proportion of exports (reaching 69.1% in Q2 2023).
• Revenue is expected to recover as the economic outlook for 2H2023 is projected to be more favorable. Domestic revenue will be boosted by increased goods and passenger rotation activities, while export revenue is expected to remain stable thanks to the US and other new markets offsetting the decline from Brazil. Benefiting from reduced raw material prices and transportation costs will also create additional room for DRC to improve profitability.
• We forecast 2023 revenue and net profit to reach VND4,959 bn (+1.2% YoY) and VND200 bn (-35.2% YoY), respectively, equivalent to a projected EPS of VND1,581 (-35.2% YoY).
• Our target price is VND21,500. DRC's current P/E ratio is at 11.8x, which is higher than the 5-year average P/E of 10.4x. Therefore, we believe that the positive outlook for DRC has already been reflected in the upward trend of the stock price. However, DRC offers a stable annual cash dividend payment ranging from 15-18% per par per share. Therefore, we consider DRC to be a suitable investment for a "dividend investment strategy