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DRC - Lower rubber prices will boost QoQ performance

Q2-FY25: Performance was below significant expectations due to a sharp decline in profit margin
• Net revenue reached VND 1,377 bn (+1.0% YoY), reflecting a mixed performance. The bright spot stemmed from a robust recovery in domestic bias tire market share (+8.9% YoY), driven by stronger local production, a slowdown in Chinese imports, and DRC’s enhanced attractive dealer discounts. Strong results from other tire segments, including PCR (+38.1% YoY) and motorcycle/bicycle tires (+11.3% YoY), further bolstered DRC’s revenue this quarter.
• Conversely, the weaker segment stemmed from the TBR tire export market, which underperformed expectations. The U.S. market saw modest growth (+11.0% YoY), hampered by aggressive competition from Cambodian tires, while Brazil’s market contracted after the loss of a major client (USD 15 mn, down from a prior average of USD 18-20 mn).
• NPAT-MI plummeted to VND 32 bn (-58.6% YoY), driven by unfavorable raw material price trends, including natural/synthetic rubber and chemicals, compounded by a strategic price reduction for Radial tires in export markets (-4.0% YoY). Additionally, the first year of full-capacity operations at the Radial phase-2 plant increased the depreciation cost share within the Radial tire cost structure.
FY25 outlook: Forecast to gradually recover QoQ by the end of the year as material prices cool down and the tariff context becomes clearer in the US from Q3-2025
• DRC’s Q3-2025 performance is expected to recover robustly QoQ, propelled by falling rubber prices, with NPAT-MI projected at VND 42 bn (+29.9% QoQ, -9.3% YoY). Nevertheless, revenue is unlikely to surge, as U.S. dealers amassed inventory in Q2, and the 20% reciprocal tariff offers no competitive advantage against Cambodian and Japanese tires.
• With a 20% reciprocal tariff (similar to Thailand’s 18% and Cambodia’s 19%) and cooling raw material prices (rubber and chemicals), DRC’s performance is expected to recover gradually QoQ. However, 2025 remains challenging due to short-term input/output pressures. DRC is anticipated to stabilize further from 2026 as headwinds subside.
• We forecast DRC's net revenue in 2025 to reach VND 5,299 bn (+13.4% YoY). NPAT-MI and EPS reached VND 138 bn (-43.5% YoY) and VND 1,163 bn, respectively.
Valuation & Recommendation
DRC shifted its focus to exporting TBR tires to markets such as the US, which imposed high anti-dumping duties on Chinese tires. The company switched from bias tires to radial tires to meet demand, but this resulted in a gradual decline in net margin to the industry average (5-6%) due to lower the selling price and incur high shipping/discount costs.
We performed a long-term cash flow discount (DCF) valuation for DRC. DRC's determined share price for the next year is at 18,600 VND/share (including cash dividend of 700 VND/share), equivalent to 2025 PE fwd 15.2x. Based on the closing price of 22/08/2025, we recommend a NEUTRAL rating for DRC.