Rubber firms’ fortunes bend with the market

Listed natural rubber companies’ business results for the year have yet to put a bounce in their step.

This is a direct result of sinking rubber prices, which have dropped to around $3,000 per tonne from $5,000 last year, along with sinking demand for rubber and rubber products this year.

Tay Ninh Rubber (TRC), part of the three out of five listed natural rubber companies to have announced results last week, saw the biggest drop in fortunes with a revenue during 2012’s nine months of VND467.5 billion ($22.6 million) and a pre-tax profit of VND252.3 billion ($12.2 million), down 44 and 39 per cent on-year respectively.

Phuoc Hoa Rubber’s (PHR) saw its revenue fall 18.4 per cent on-year to VND1.46 trillion ($70.5 million), while its profit dipped further to 28 per cent to VND452.6 billion ($21.9 million).
Hoa Binh Rubber’s (HRC) revenue slid just 5.4 per cent to VND454 billion ($21.9 million), but its pre-tax profit dropped 14 per cent to VND98 billion ($4.7 million).

Thong Nhat Rubber (TNC) in lately September also posted its revenue for 2012’s first nine month strongly down against 2011 to VND203 billion ($9.8 million). The company planned to generate VND17 billion ($821,000) in revenue in the fourth-quarter.

Dong Phu Rubber (DPR) said it would release the results later. However in the context of the economic slowdown, the fact that rubber companies are still largely making profits has encouraged analysts.

“At such rubber prices, these companies are still making profits. Meanwhile, rubber prices remain flat and are not likely to fall further,” said Pham Trang, an analyst for Saigon Securities Inc. (SSI).

Trang said SSI had a long-term “hold” recommendation for PHR, DPR and TNR which have high profit margins. Especially, she added, the brokerage house was upbeat about TNR thanks to its high capital gains.

To emphasise the point, Tay Ninh said in its announcement that it would pay a 30 per cent on par value dividend for this year.

Also in last week, SSI gave a “buy” recommendation for Southern Rubber Industry (CSM) after it appreciated its higher-than-expected gross margins, while Danang Rubber (DRC) received a “hold” recommendation due to rising gross margins.

Danang Rubber and Southern Rubber are two companies in the tire sector, which have been negatively affected by sinking demand for rubber products.

Maybank Kim Eng Securities’ analyst Nguyen Trung Hoa said he considered natural rubber companies among the “top good fundamental companies” on the stock market thanks to their “rich cash” and “solid business models”.

“Rubber prices can stay low for a while, dragging down rubber companies’ business results, but I think in the long-term demand for rubber and rubber production will bounce back,” said Hoa.
Hoa said the company gave a “buy” recommendation or PHR and DPR, while other companies would be evaluated later.