Updated report Q2/2011

DANANG RUBBER JOINT STOCK COMPANY

Expected price: 57,700

2011 PROFIT IS STILL ENSURED BY THE INCREASE IN SELLING PRICES

COMPANY INFORMATION
DRC

Exchange

HSX

Area

Recommendation: BUY

Q2/2011 BUSINESS RESULTS FORECAST

Stock symbol

Industry

VND

Industrial
Tires & tubes manufacturing

Sales volumn is expected to keep growing at 5% compared to 2010. According to the

information from DRC, the companys sales volumn in Q2/2011 does not grow
substantially, at about 5% compare to 2010.
The selling prices are highly increased. As the input rubber price has increased 47% in the
first two quarters of 2011, DRC has increased its car tires prices up more than 20% and

SHARE INFORMATION
Market price (26/6/2011)

21,200

52-week lowest price

15,800

52-week highest price

35,740
978

Capitalization (bil. VND)

30,769,248

Outstanding shares

120,021

10-day average trading value

FINANCIAL INFORMATION
Unit: billion VND
Total asset

Input prices have increased significantly. Similar to Casumina, in Q2/2011, the most
major element that affect DRCs COGS is the 47% increase in input rubber prices compared
to the same period in 2010; the rubber price increase alone has pushed DRCs COGS up
about 20.7%.
The price adjustments would make DRCs business results in the second quarter more
favourable than the 1st quarter. Hence, DRC is expected to achive VND 685 bil. in revenue
and VND 54 bil. in after tax profit in Q2/2011.

2010

2011E

2011 PERSPECTIVES

1,049

1,197

732

827

2,218

2,713

195

227

Sales volumn has surpassed the designed production capacity. Currently, DRCs factory
has been opertating at 156% of its designed capacity, hence, the increase of the production
outputs as well as the sales volumn depends largely on the relocation to its new factory
which would be finished building in 2012. Therefore, the expectation of high output growth
rates in 2011 is not realistic for DRC.

Owners equity
Revenue

motor bike and bike tires up about 10%; specifically, there have been 3 price increase
periods in January (5-7%), March (10%) and May (5%).

Profit after tax

Input rubber prices are expected to reduce in the last two quarter of 2011. Although the

FINANCIAL RATIOS

rubber price has increased largely in the first half of 2011, it is expected to decreased in the
second half due to increasing rubber supply in harvest season (which is from May every

Indicator

2010

2011E

Revenue growth

20%

22%

-50%

16%

year). Specifically in 2nd quarter of 2011, the natural rubber price has declined nearly 10%
compared to the 1st quarter. With this speed, the rubber price of 2011 would increase 36% in

Asset growth

34%

16%

average compared to 2010.

Owners equity growth

31%

14%

The selling prices are expected to remain stable until the end of the year. The selling

-75%

13%

price growth rate of DRC currently has been enough to cover the increase in input prices and

Gross profit margin

17%

0%

Operating profit margin

12%

17%

ROE

27%

11%

ROA

19%

19%

Profit after tax growth

EPS growth

produced a profit surplus. Although the rubber price in the 2 nd half of 2011 could likely to
reduce, the selling prices are expected to stay unchanged compared to the current prices.
For the whole year of 2011, due to the influence of increased selling prices, stable sales
volumn, DRCs 2011 revenue is estimated to increase 25% compared to 2010, reach
VND2.720 bil. Besides, as the rubber prices are expected to decrease in the next two
quarters, DRCs profit would mainly concentrate in the 2 nd half of 2011. DRCs profit after

VALUATION RATIOS
2010

2011E

tax is estimated to reach VND227 bil. in 2011, increased 15% compare to 2010.

6,350

7,372

INVESTMENT VIEWPOINTS

P/E (x)

3.3

2.9

P/B (x)

2.1

2.1

Indicator
EPS (dong per share)

In short term, although the input prices have significantly increased, the adjustments in
selling prices of DRC have helped the company maintain its profit margin as in 2010.
DRCs estimated 2011 after tax profit is about VND227 bil., equivalent to EPS level of
7,336 dong per share. Hence, DRC shares are being traded at a very low price, PE 2011 is

Analyst: Nguyen Thi Lam Anh - nguyenthilamanh@baoviet.com.vn

estimated at about 2.9 times.

In middle and long term, DRCs tires and tube manufacturing business in the next few years
would achive good growth rates due to the new factory is put into operation; revenues and
after tax profit in the period of 2011-2015 are expected to grow at 16.3% and 23.2%.
Therefore, we recommend BUY DRCs shares with the expected price of 57.700 dong, this
price level does not include the cashflows from Radial factory project.

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RESEARCH & INVESTMENT ADVISORY DEPARTMENT

Bao Viet Securities Company
Head Office: 8 Le Thai To, Hoan Kiem distric, Hanoi

Branch office: 233 Dong Khoi, District 1, Ho Chi Minh City

Tel: (844) 3928 8080

Tel: (848) 39146888

Fax: (844) 3928 9888

Analyst:

Senior Analyst:

Nguyen Thi Lam Anh ext: 622 nguyenthilamanh@baoviet.com.vn

Luu Van Luong

ext: 512

Fax: (848) 39147999

luuvanluong@bvsc.com.vn