GDT - Long term Value in Household Goods Segment

GDT is a traditional manufacturer of kitchenware, household utensils, home furniture and kid toys made of rubber wood, MDF and plywood. GDT business is fundamentally strong with good management who has successfully steered the company through the global financial crisis and economic recession. From 2007 to 2018, GDT’s business has grown consistently with revenue and EPS CAGR of 10% and 14%, respectively.

Exposed to the sizeable global market, GDT still has growth potential. Demand from key export markets such as Japan and Korea have been sustainable, implying a high likelihood of continued steady growth in North Asia. Management was able not just to maintain but increase ROE over time, from 16% in 2007 to 35% in 2018.

The Le family founded the company in 1991 and hold 40% of the shares. The family has a proven track record and history of equally rewarding shareholders with predictable stock or cash dividends.

History shows GDT can generate FCFE of VND 70 Bn to VND 80 Bn per year. The current market cap implies a valuation of 8x FCFE or 7x trailing P/E with potential EPS growth 10%-12%/year. Despite a lack of upside catalysts, we believe GDT is a good value opportunity, especially considering the current 13% dividend yield. GDT’s dividend payout ratio is around 90%. 

Due to rising labor costs, GDT may report a slowdown in earnings growth in 2019. However, we believe its long-term earnings power will remain and an off-year like this could give investors an opportunity to ACCUMULATE the stock at more attractive prices. Otherwise, the stock provides stable income in the late cycle. We estimate the valuation range for GDT at VND 39,500-52,300/share, using FCFE and P/E method (7x) but recommend investors to apply a personal discount rate as the stock is very illiquid.