- We maintain our OUTPERFORM rating and target price (TP) of VND45,000/share as we remain positive on the long-term prospects of VHC’s high-margin C&G segment while pangasius fillet demand continues to recover — albeit at a slow pace currently.
- We trim our aggregate 2021F-2023F NPAT-MI by 2% (mainly attributed to 2021F-2022F) as C&G sales are trailing our expectations amid COVID-19 disruptions to demand. Meanwhile, fillet ASP and GPM are trending above our previous expectations amid a robust demand recovery in the US.
- Our TP puts VHC’s average 2021F-2022F PER at 10.9x vs its 5-yr average TTM PER of 7.5x. We think a re-rating is warranted due to C&G’s current large profit contribution (33% in 2021F vs 0% in 2017) and our view that C&G should trade at a premium vs VHC’s traditional fish fillet business.
- Potential risks to our positive view: China’s prolonged tight import regulations due to concerns of COVID-19 spread from imported frozen seafood; softer-than-expected C&G sales.  

Vietnam’s pangasius exports continue to slowly rebound amid China’s tight inspections on frozen food imports and a global shortage of shipping containers. Per market intelligence firm Agromonitor, Vietnam’s pangasius export volume advanced 15% YoY in H1 2021. Given strong vaccination numbers in the US, exports to this market rebounded 60% YoY in H1 2021, exceeding our expectation. However, demand remains far from a full recovery as (1) export volume to China slumped 8% YoY in H1 2021 and (2) export prices edged up only 2% YoY in H1 2021 — which was partly due to the shipping container shortage that discouraged customer orders. Notably, export volume to China dropped 25% YoY in June 2021 as COVID-19 escalated in Vietnam, which could exacerbate China’s concerns of COVID-19 spread. We expect the above trends will remain through at least H2 2021. Overall, we trim our 2021F-2023F aggregate fillet volume by 3% due to lower exports to China but still project a 4% YoY rebound for 2021 mainly backed by elevated US demand.  

We keep our view that fillet ASP and GPM will strengthen in late 2021 thanks to suppressed supply. Given a modest rise in pangasius export prices YTD amid price rallies in feed materials, we expect pangasius farming activity will remain sluggish, which could tighten supply and bolster export prices in late 2021. We project VHC’s ASP (per kg) will rise from USD2.8 in 2020 to USD3.0/USD3.1 in 2021F/2022F while its GPM will widen from 11.5% in 2020 to 14.0%/14.0% in 2021F/2022F.  

C&G profits to slide 13% in 2021F amid soft demand. Per VHC, prolonged COVID-19 economic disruptions are hurting global demand for beauty products, in turn dampening VHC’s collagen sales volume and ASP. We project VHC’s C&G NPM will contract 6.9 ppts YoY to 32.6% in 2021, which will overweigh a projected 5% YoY rise in volume (vs 20% in our previous report). However, as these disruptions are temporary, we forecast C&G net profits will post a 48% CAGR in 2021F-2023F.