20160609_BSC_Vietnam Company Research_EN_TRC_ICB1353

We recommend BUY for TRC with 1 year - target price of 25,100 VND per share, up 14.6% higher than the closed price as of June 9th 2016, using FCFF valuation method. At the current price, TRC is traded at P/E of 12.5x and P/B of 0.5x.

On Feb 7th 2016, rubber price hit the 6 year bottom, before a strong recover. This led to the expectation that the natural rubber sector had passed the bottom zone and started a recovery stage. Forecasts issued by major organizations are contradictory about rubber price trend in 2016, but all agree that rubber sector is approaching the cyclical trough. In case rubber price has passed the trough, TRC will have the strongest recovery thanks to good fundamentals and effective cost management. Prospects of TRC are based on:
(1)        Expectation in rubber price recovery. Cyclical factors, along with the market regulation policies of major rubber producing countries and the increase of oil price, has raised the price of rubber since February, 2016. Besides, adverse weather caused by El – Nino and La - nina is forecasted to reduce both the domestic and international rubber supplies.
(2)        Good fundamental values:  young rubber plant with high productivity, and 65% of products are Latex and CV50, 60, whose prices are high and do not depend on the tyre production.
(3)        Tay Ninh – Siem Riep project operated in 2019 will expand the plant area by 85% and the production capacity by 65%. Also, since the profit from rubber tree liquidation is significantly lower than the sector average, TRC’s business results totally depend on the rubber price.

Q1/2016 business results continued to decline with 52.2 billion VND of sales revenue (-38.7% yoy) and 10.7 billion VND of profit (-47.8% yoy). The profit of rubber production sharply fell by 63% to VND 3.7 billion. First quarter is the deciduous phase of rubber trees so TRC earnings mainly came from long-term contracts, which did not reflect the remarkable recovery of rubber price in Q1.

We estimate that the 2016 rubber sales revenue of TRC could reach VND 322 billion (-1.5% yoy). The estimated PAT is 70.6 billions (+23.3% yoy). With 20% PAT for welfare fund, 2016 EPS is estimated to be at 1,941 VND. The expected dividend is about 10% over the period of 2016-2019 and then increase to 20%.