2Q23 net profit was Bt278mn, -35.9% YoY and -18.2% QoQ, 10% below consensus due to weak overall ceramic tile demand on weak consumer spending, especially in the North and Northeast regions of Thailand. 3Q23F earnings are expected to improve slightly QoQ on a new strategy to raise ASP to cover high fixed and energy costs. The dividend is low and unlikely to support share price in the near term. We maintain our NEUTRAL rating with an end-2023 TP of Bt2.55, based on 10x EV/EBITDA.
2Q23 net profit was Bt278mn, -35.9% YoY and -18.2% QoQ, 10% below consensus, largely due to the lowest gross margin in 15 quarters at 37.2% vs 37.3% in 1Q23 and 43.7% in 2Q22. Behind this was higher sales of low-end products and higher raw material, electricity and solar cell installation costs.
2Q23 highlights.Revenue was Bt2.0bn, -8.2% YoY and -11.9% QoQ, with sales volume down 11.7% QoQ and 1% YoY and a 3.7% YoY and QoQ small decline in product selling prices. Gross margin fell 10bps YoY to 37.2%, hurt by more low-end products and high fixed, electricity and solar installation costs. Rental & other income fell 30% YoY to Bt9mn on a reduction in rental rates to help tenants during the difficult economy.
3Q23 will be challenging but should improve slightly QoQ. Management said overall tile demand is down 10% YoY on less consumer spending amid a high inflationary environment. Its strategy is to selectively raise average selling price (ASP) from 3Q23 in order to cover its high fixed costs and rising energy costs. This approach is particularly pertinent due to an ongoing weakness in consumer spending, especially in the North and Northeast regions of Thailand. 1H23 net profit accounted for 42% of our 2023 earnings forecast, which we leave unchanged as we expect the company’s new strategy to increase ASP to give a boost to earnings in 2H23.
Dividend yield 2.6%. DCC announced a quarterly dividend of Bt0.013/share, implying 42.75% dividend payout for 2Q23 or 2.6% annualized yield. This is in line with its new dividend policy of not less than 40% of net profit. XD is Aug 21.
Key risks. Changes in purchasing power, higher costs from inflationary pressure.
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