Rubber companies enjoy rising earnings despite higher costs of materials

Inside a Da Nang Rubber Co (DRC) factory. The company has announced Q2 revenue up 52 percent to 1.2 trillion VND (52.2 million USD). (Photo courtesy of DRC)

Many Vietnamese rubber companies have reported positive second-quarter profits despite the rising price of materials needed to produce the popular commodity.

The price of natural rubber has increased sharply since the end of last year and stayed high for the first half of this year. Rubber futures prices on the Tokyo exchange also maintained a high of around 230 JPY per kilogram. This has cooled since the end of June to 211 JPY per kilogram, but still up 32 percent over the same period last year.

This development could be detrimental to the rubber tire business as rubber raw materials account for 70 percent of the product’s cost. However, businesses in this industry still recorded very positive business results in Q2 thanks to an increase in consumption volume in both domestic and export markets.

According to the statistics of the Vietnam Automobile Manufacturers Association (VAMA), automobile sales reached 150,481 units, up 40 percent over the same period last year. Passenger cars, in particular, increased by 37 percent, commercial vehicles rose by 48 percent and specialised-purposes vehicles climbed by 68 percent. In the second quarter alone, car sales reached 79,237 units, up 11 percent compared to the previous quarter and up 58.4 percent over the same period last year.

Da Nang Rubber Co (DRC) – a blue-chip on the HCM City Stock Exchange – has announced Q2 revenue up 52 percent to 1.2 trillion VND (52.2 million USD). Its post-tax profit was 2.2 times higher than the same period last year, reaching 106 billion VND. In six months, its revenue increased 31.3 percent to 2.1 trillion VND and post-tax profit was 170 billion VND, double the same period last year. The gross profit margins increased from 14.8 percent to 18.8 percent in the second quarter and increased from 14.8 percent to 18.6 percent over six months.

According to SSI Research, DRC suffered from high raw material costs in the second quarter as natural rubber, synthetic rubber, chemicals, and black coal respectively increased by 26 percent, 15 percent, 8 percent and 25 percent, compared to the previous quarter. However, sale volumes of bias tires still rose by 34 percent and radial tires rose by 67 percent. Corporate profit margins improved partly thanks to higher radial plant operating capacity and reduced depreciation expenses.

The export activities of the enterprise also prospered with a turnover of 27 million USD in Q2, up 95 percent over the same period last year and up 43 percent compared to the previous quarter thanks to the strong recovery of orders from the US and Brazil.

In the same period last year, the COVID-19 pandemic broke out strongly in these two markets, causing orders to decrease. Export volume of radial tires reached 128,000 units, up 90 percent and bias tires reached 78,000 units, up 160 percent.

Similarly, thanks to the expansion of consumption and export markets, the Southern Rubber Industry Joint Stock Company (CSM) recorded Q2 revenue of 1.39 trillion VND, up 12 percent over the same period last year. The cost of goods sold increased to 18.5 percent as consumption volume and input material prices both rose. However, thanks to cost reductions, profit after tax still rose by nearly 21 percent to 23 billion VND. In six months, the company achieved revenue of 2.47 trillion VND, up 13 percent. Profit after tax totalled 36 billion VND, up 14 percent over the same period last year.

This year, CSM aims to export to a number of new markets such as South America and Eastern Europe, on top of current markets including Brazil, India and the US. Export revenue in 2020 increased by 12 percent compared to the previous year thanks to the output of radial tires, which accounted for 60 percent.

Sao Vang Rubber JSC (SRC) revenue in the second quarter also increased by 16.5 percent to 240 billion VND and pre-tax profit increased slightly from 49.8 billion VND to 50.6 billion VND.

In the first half of the year, its revenue reached 497 billion VND, up 24 percent. In which, export revenue rose by 31 percent to 101 billion VND. Its domestic revenue increased 22 percent to 395 billion VND while profit after tax was the equivalent to the same period last year reaching 24 billion VND./.