Company visit: DBC — Industry consolidation is the silver lining of African Swine Fever

Target price: N/A

Upside: N/A

Event catalyst:

• African Swine Fever is obviously a short term concern, but longer term it should lead to market consolidation.
• DBC still expects pork to be its main growth driver in FY19E.
• DBC plans to transfer its listing from the HNX to HSX in 3Q19.

Management expressed confidence that ASF would lead to industry consolidation under scaled producers. The disease appears to have taken just 1.5 months to spread into 13 of Vietnam’s 63 provinces. However, management believes that only small farms will be hit by the virus, whereas its farms and other pork producers with large-scale, modern management, and strict disease-control system should be relatively immune. Thus, DBC believes that the epidemic should help the larger players to consolidate the market.

DBC still expects pork to be the main growth driver in FY19E. Despite admitting the reality of consumer fears regarding the ASF virus, management stated that because the virus is harmless for humans, consumers should remain comfortable with pork. Furthermore, reduced supply and stronger cross-border transfers of pork to China (both due to the disease) should result in increased domestic pork prices. The company plans to bring new farms into operation and to raise meat production by 32.5% YoY in FY19.

Positive view on animal feed segment. Although management sees headwinds in pig feed volumes given reduced production this year, they believe other animal feeds – notably, poultry and fishery – should offset the impact. The company also plans to bring a new animal feed factory with 70k tons of capacity (equivalent to 14% of DBC’s 2018 production) into operation in June 2019.

Poultry segment: Premium branded eggs to drive growth and profitability. Management plans to raise the sales contribution of premium eggs sales from 14% in FY18 to 34% in FY19E.

DBC plans to transfer its listing to the Ho Chi Minh Stock Exchange in 3Q19 (it is currently listed on the Ha Noi Stock Exchange), which management expects to draw more investors.

Our view: We don’t cover DBC and have no investment view on the stock. We are perhaps less optimistic than DBC on the short-term risks of ASF given uncertainties regarding the spread of the epidemic and – just as important – its impact on consumer sentiment regarding pork. These issues could hamper both the animal feed business and pork sales in the short term.

However, we agree that the outbreak could be a longer term positive for players with sufficient scale. Thus, consolidation under large producers could become the long-term silver lining on the short-term cloud that is Asian Swine Fever. If so, Masan Group could be a key beneficiary. This supports our positive longer-term view and Buy rating on MSN VN, although we acknowledge the short term sentiment risks facing its shareholders.

Please access the link for our complete report: DBC — Company Visit

Analyst: Quang Vo, quang.vo@yuanta.com.vn