DRC - Solid earnings growth on stronger sales and gross margin expansion

H1 2024 results: DRC announced its robust H1 2024 results with net revenue of VND2.3tn (USD91.7mn; +3% YoY) and NPAT-MI of VND127bn (USD5.0mn; +66% YoY), fulfilling 48% and 47% of our respective full-year forecasts. As the results are in line with our expectations, we see no risk to our 2024F forecasts, pending a more comprehensive review.
Q2 2024 results: Q2 2024 NPAT-MI significantly rose by 52% YoY to VND77bn (USD3.0mn), which we attribute to (1) higher sales volume YoY and (2) gross margin expansion outweighing higher selling expenses YoY. We attribute higher sales volume to the improved reputation of DRC’s products in the US despite insignificant impacts from the US’ preliminary determination for the anti-dumping investigation on truck and bus tires exported from Thailand. On a QoQ basis, NPAT-MI jumped 57% due to (1) stronger sales volume from a low base in Q1 (i.e., Q1 historically records the lowest sales volume in a given year) and (2) gross margin expansion.
Profitability: Gross profit margin expanded 7.6 ppts YoY/3.5 ppts QoQ to 20.1% in Q2 2024. We attribute this improvement to the realization of lower-cost inventory procured in the previous quarters following the prices of raw materials cooling down after their peaks in 2022.

DRC’s Q2 2024 & H1 2024 results

VND bn	Q2 2024	QoQ	YoY	H1 2024	YoY	H1 2024 as % of 2024F
Net revenue	1,364	40%	17%	2,337	3%	48%
COGS	-1,090	34%	7%	-1,901	-6%	47%
Gross profit	274	70%	89%	436	68%	56%
Selling expenses	-158	82%	156%	-246	90%	67%
GA expenses	-23	26%	9%	-42	15%	54%
EBIT	93	64%	49%	149	56%	44%
Net financial income & net other income	5	175%	697%	6	N.M.	N.M.
PBT	97	68%	55%	156	69%	46%
NPAT-MI	77	57%	52%	127	66%	47%
Gross margin	20.1%	3.5 ppts	7.6 ppts	18.7%	7.2 ppts
EBIT margin	6.8%	1.0 ppts	1.4 ppts	6.4%	2.2 ppts
NPAT-MI margin	5.7%	0.6 ppts	1.3 ppts	5.4%	2.1 ppts

Source: DRC, Vietcap