Despite the SARS-CoV-2 epidemic, DHC stock is still recommended by analysts to buy

According to the analysis of experts from Viet Capital Securities Company (VCSC), DHC stock is one of the stocks worth buying based on new capacity to promote profit growth despite obstacles from the CoVid-19 epidemic.

Specifically, CVSC believes that the CoV-19 epidemic is likely to affect the demand for packaging paper in the country. Specifically, the Covid epidemic may affect retail and manufacturing activities in Vietnam, which are the core driving factors for packaging paper consumption. In the baseline scenario, VCSC assumes that the CoV-19 epidemic will peak before the end of Q1. Therefore, VCSC expects the growth momentum of packaging paper consumption to generally slow down in Q1/2020, then recover in Q2/2020.

VCSC believes that the packaging segment of Dong Hai Ben Tre Joint Stock Company (21% of DHC's  gross profit in 2019, according to VCSC's estimates) will face more challenges than the paper segment because the packaging segment has customers who arethe company exports seafood and fruits to China.

In addition, VCSC expects paper prices to decrease, however, the corresponding decrease in OCC prices will support DHC's profit margin. VCSC now expects DHC's  average paper selling price in 2020 to decrease by 12% compared to the previous year. corresponding to VCSC's  expectation of lower demand growth.

However, VCSC believes that the disruptions of the Covid-19 epidemic to Chinese paper mills (for example, temporary factory closures and labor shortages) will affect the price of OCC – the main raw material for manufacturers export packaging paper in Vietnam.

In addition, VCSC believes that DHC's  recent 4.5 times expansion of paper production capacity is a driving factor for the company's profit growth. DHC's  new factory (Giao Long 2) has started commercial operations since September 2019 and operated at almost full capacity in the fourth quarter of 2019. Accordingly, DHC's  sales and profit after tax increased by 168% y-o-y and 245% y-o-y in Q4/2019, respectively. VCSC currently assumes that DHC will operate 82%/100% of the capacity of this new plant in 2020/2021.

From there, VCSC recommends buying DHC with a target price of 47,700 VND/share.

From another perspective, securities analysts in the paper sector also said that, with the shortage of raw materials and finished paper products in China when the Covid-19 epidemic broke out, many orders to buy paper from Vietnam were exported at high prices compared to before the Lunar New Year, it will increase DHC's profit margin.

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