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Duc Giang Chemical: Strong Q3 Sales Volume, Temporary Margin Pressure – Maintain BUY

Duc Giang Chemical Group: An In-Depth Analysis and Market Outlook

Broker Name: Maybank Securities Limited

Date of Report: December 3, 2024

Introduction to Duc Giang Chemical Group

Duc Giang Chemical Group (DGC VN) stands as a formidable force in Vietnam’s chemical industry, renowned as the world’s leading P4 exporter, a critical component in various phosphoric derivatives. This report, prepared by Maybank Securities Limited, delves into the company’s performance, strategic projects, and market potential, offering a comprehensive view of its prospects.

3Q24 Performance and Market Analysis

In the third quarter of 2024, Duc Giang Chemical Group faced a temporary setback due to increased logistics and input costs, attributed to the disruption caused by the Yagi typhoon. Despite these challenges, the company’s sales volume of P4 reached a two-year high at 13.3k tonnes, marking a significant 47.5% year-on-year growth. However, the margins contracted with gross and net margins declining to 34.5% and 28.9% respectively, down from 39.2% and 34.8% in the previous quarter.

Strategic Acquisitions and Future Growth

DGC’s acquisition of Dai Viet Ethanol Ltd Co. in April 2024 is a strategic move to diversify its portfolio. The ethanol plant, with a capacity of 50,000 tonnes per annum, is set to commence operations in December 2024. DGC projects this venture to generate up to VND1,300 billion in revenue at full capacity, with a net profit margin ranging between 10-15%. The company plans to gradually increase the plant’s utilization rate, reaching full capacity by 2027.

Project Developments and Expansion Plans

The Nghi Son chlor-alkali complex is another significant project under DGC’s pipeline, poised to commence construction in the fourth quarter of 2024. Fully funded through internal equity, this project anticipates trial production by the end of fiscal year 2025 and aims for commercial operations in early 2026. Such initiatives underpin DGC’s strategy to cement its leadership in Vietnam’s chemical sector.

Market Valuation and Investment Potential

Despite a 19.8% increase in share price year-to-date, DGC’s valuation remains attractive, trading at 15x TTM P/E and 11x forward FY25 P/E. This positions the company nearly +2SD above its 5-year average yet below the sector average of 17.8x. The analysis suggests that DGC, as the industry leader, should trade at 14x forward FY25E PER due to its superior growth outlook compared to domestic peers.

Real Estate Ventures and Legislative Changes

In the realm of real estate, the Duc Giang Residence project presents a new avenue for growth. Located in Long Bien District, Hanoi, this project aligns with recent legislative changes allowing the conversion of land use rights for commercial housing projects. The project entails a total capex of VND3,400 billion and spans an area of 54,321 sqm.

Conclusion and Recommendations

Maybank Securities Limited maintains a ‘BUY’ recommendation for Duc Giang Chemical Group, with an end-2025 target price of VND138,250, indicating a 29% upside. The company’s robust project pipeline, strategic acquisitions, and resilient market performance make it a compelling investment in Vietnam’s dynamic chemical industry.

In summary, DGC’s proactive approach in expanding its business segments and optimizing its operational efficiencies positions it well for sustained growth, making it an attractive prospect for investors seeking exposure in the chemical sector.

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