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VHC - Weak performance in short term due to COVID-19

In 2019, ASP fell sharply and the weak export to the US market significantly dragged down the company's revenue and profit. In 2020, COVID-19 epidemic caused price and sales volume to decrease while raw material prices to increase in the second half, leading to profit margin deterioration. VHC may boost sales into other markets, especially China, to compensate for the US and EU markets, which were heavily affected by the COVID-19 epidemic. Due to lower selling price in China, gross profit margin will be under downward pressure. Difficulties in the clearance process at the ports may increase selling expenses and provision for inventory depreciation.

We revise the 1-year target price of VHC to VND 31,700 / share (from VND 49,200 in our 2020 Strategy Report) due to poor consumption in the US and EU under the impact of COVID-19 and Tan Hung farm coming into operation one year behind schedule. However, considering that COVID-19 only affects the company’s performance in short term while long-term growth prospect is still bright, supported by positive factors such as the ability to gain market share from Chinese tilapia in the US and the collagen-gelatin segment with outstanding profitability, we recommend BUY for VHC. The company does not pay cash dividends for 2019. We expect the  total return to be 44%, based on the closing price of March 25^th, 2020