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DRC - Positioned for a favorable tariff scenario

Q1-FY25: Earnings significantly below expectations due to sharp margin contraction
• Net revenue was a bright spot, reaching VND 1,180 bn (+21.2% YoY), driven by a regained share of the domestic tire market as Chinese imports slowed and DRC offered more attractive dealer discounts. Export markets remain a key medium-term growth driver, led by strong performance in the U.S. (+108.3% YoY) and a rebound in Brazil (+156.0% YoY) after a weak Q4.
• However, NPAT-MI fell sharply to just VND 9.5 bn (-81% YoY), pressured by unfavorable input costs (natural/synthetic rubber and chemicals) and export price cuts for Radial tires (-4.0% YoY). Additionally, this was the first year that the phase-2 Radial plant operated at full capacity, raising depreciation cost in Radial tire’s COGS.
FY25 Outlook: A gradual QoQ recovery is expected towards year-end as input costs ease and U.S. tariff clarity improves from Q3-2025.
• Q2-FY25 earnings are expected to rebound QoQ, supported by cooling rubber prices and pre-tariff implementation stocking in the U.S.NPAT-MI is projected at VND 43 bn (+359% QoQ, -44% YoY). The domestic market should also contribute positively, benefiting from sector-wide recovery tied to industrial production growth, seasonal demand, and DRC's sustained market share gains against Chinese imports.
• We continue to expect a “no further disadvantage” tariff scenario for DRC’s products in the U.S., relative to peers from Thailand and Cambodia. Combined with easing raw material prices (rubber, chemicals), this should support a gradual quarterly recovery in earnings. However, 2025 remains a challenging year due to short-term input/output pressures. We anticipate more stable operations from 2026 onwards as temporary headwinds subside.
• We forecast DRC’s FY25 net revenue at VND 5,094 bn (+9.0% YoY), with NPAT-MI at VND 170 bn (-30.6% YoY), equivalent to EPS of VND 1,428.
Outlook & Recommendation
Given limited domestic growth potential, DRC is shifting its strategic focus to export markets, particularly countries like the US that are imposing anti-dumping/import tariffs on Chinese TBR tires. The company is also transitioning its core product mix from bias to radial tires to better match consumer demand in these markets. However, DRC has been gradually sacrificing net profit margin , in exchange for higher volumes, with margins declining towards the industry average of 5–6% due to lower selling prices and higher logistics/discount costs.
We apply a long-term discounted cash flow (DCF) valuation for DRC, arriving at a 12-month target price of VND 23,200 per share, implying a 2025F P/E of 15.7x. Based on the closing price as of July 4th, 2025, we assign a NEUTRAL rating for DRC.