- We downgrade our rating for DHC from BUY to OUTPERFORM and cut our target price by 25% as we (1) lower our aggregate 2022F-2024F NPAT by 11% due to weaker demand, (2) cut our target P/E ratio from 11x to 9.5x because of DHC’s weaker medium-term growth outlook and (3) are less optimistic on DHC’s working capital, which drags down our DCF valuation.

- DHC is experiencing lower sales volume on softer packaging paper demand from both exporters and domestic consumption. However, this has resulted in lower prices for both paper and input old corrugated containers (OCC), which will benefit DHC’s price spread in Q4 2022, in our view.

- We remain optimistic on DHC’s ability to benefit from growth in Vietnam’s packaging paper consumption over the long-term due to its cost competitiveness and capacity expansion via its planned Giao Long 3 (GL3) factory that will expand the company’s paper capacity by 120%

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