Dynasty Ceramic (DCC
Getting less outstanding as outshone by competitors HOLD
Dynasty Ceramic Plc (DCC)
Q3 2012 net profit projected at approx B300m or 5% YoY increase
The competition has intensified because of aggressive marketing strategies of competitors like TGGI and Sosuco while UMI and RCI have focused on granite tiles which are well-responded. Due to the popularity of granite tiles, there’s has been an import of products from China for sales in big modern trade stores, affecting DCC’s market share. At present, the company is in the process of preparing to import Chinese granite tiles for sales which is likely to start in 2013. In 3Q12, DCC is
projected to have sales worth of B1.8bn or an increase of only 6% YoY. However, with the increased margin of the product mixed of 16”x16” tiles and the decreased price of natural gas which is the main production cost, DCC’s gross margin is projected to stand above 40% once again after having low gross margin at only 39.4% in 1H12. In terms of the selling and administrative expenses, they still haven’t declined considerably since the cost of transportation is still close to one in 2Q12. Accordingly, the company’s 3Q12 net profit is projected at around
B300m or 5% YoY increase.
Many 2012 targets revised down after 1H12 plan failed
Due to negative factors in 1H12: lack of trucks for transport in January-April and natural gas price beyond the company’s expectation, DCC has revised down its business targets in 2012 as follows. The revenue is revised down from 10% YoY to 5% YoY while gross margin is revised down from 42% to 40%. For the market’s share that is aimed to increase to 50% from 42%, it currently hasn’t risen due to aggressive competition in the market. Nevertheless, the plan to increase the
production capacity by 5% by improving the efficiency of the tile kiln and 15 opening of new outlets within this year still have trailed as planned. At the same time, the lack of transport truck problem has been resolved by making contracts with more transport companies, attaching a condition to guarantee the number of trucks for DCC.
Share price fully valued. Recommend “HOLD” to receive dividend at 6-7%/year
We revise down our 2012 and 2013 profit forecast slightly to reflect DCC’s business targets that have declined. Accordingly, fair value, using DDM, has fallen from B55.87 to B53.26 which is equal to 16.9x PER, with not much upside from the current share price. However, we reiterate our recommendation “HOLD” for long-term investors who expect the return mainly from dividend due to regular dividend in every quarter.
