VINACHEM

Thanks to optimized production costs and an expansion strategy for capacity, DRC's Radial tires have managed to enhance their competitiveness in the international market.

In a recent analysis report, Viet Dragon Securities Corporation (VDSC) issued a Neutral recommendation for the stock of Da Nang Rubber Joint Stock Company (DRC). From its dominant position in the domestic market with its bias tire line, DRC is forced to pivot toward radial tires, targeting large foreign markets like the US and Brazil. This presents both an opportunity and a major challenge, as the global market requires not just low prices but also scale, technology, and brand recognition.

Radial Tires are DRC's "New Engine"

For many years, bias tires, once DRC's pillar product for growth, have seen a sharp decline due to pressure from cheap Chinese imports and changing domestic tastes. Previously, in 2016, bias tire sales accounted for the majority of total output. By 2024, consumption of this tire type is only half that. Given this situation, DRC chose an audacious strategy by focusing its efforts on radial tires.

According to VDSC's analysis report, DRC has increased the capacity of its radial tire plant to about 1.2 million tires/year. The company aims to expand its market share in the US from 1.3% in 2024 to 2.1% by 2029, while maintaining a stable 7.5% share in the Brazilian market. The US imposing anti-dumping duties on Thai tires starting from Q2 2025 opens a "window of opportunity" for DRC, as it benefits from lower tariffs compared to regional competitors.

Furthermore, the passenger car radial (PCR) tire segment, which only entered the market in 2023, also marked a turning point by reaching gross profit breakeven in Q2 2025. With sales projected to grow by an average of 30.7% per year during the 2025–2029 period, PCR could become the "second Advenza," replicating the success previously achieved by Casumina. The gross profit margin for this segment is expected to improve from the current 0% to 12.5% by 2029.

Profit Recovery is Challenging to Achieve a Breakthrough

DRC's revenue is forecast to grow steadily from VND 5,361 billion in 2025 to VND 7,165 billion in 2029 (CAGR 7.6%). However, in 2025, the parent company's profit after tax is only expected to reach VND 140 billion, a significant decrease of 42.9% compared to the previous year. The net profit margin is projected to drop to a low of 2.6%, substantially lower than the 5–7% range during 2020–2024 and also below the industry average of about 8%.

The main reasons lie in raw material and transportation costs. Natural rubber, which accounts for nearly 40% of the cost of goods sold, is forecast to increase by an average of 3.1% per year, reaching VND 50.6 million/ton by 2029. Synthetic rubber is expected to increase even faster, by 4.6% per year, reaching VND 65.8 million/ton. Additionally, the costs of chemicals (sulfur, silica) and steel cord remain high, which, combined with the volatility of the USD/VND exchange rate (increasing by 2–3% per year), puts increasing pressure on profit margins.

Moreover, to expand market share, DRC is forced to offer aggressive discounts to domestic dealers and accept high shipping and advertising costs when penetrating the US and Brazil. VDSC forecasts the ratio of Selling & General Administration (SG&A) expenses to revenue will increase from 9% in 2025 to 9.5% by 2029, higher than the industry average of 7–8%.

Nevertheless, the long-term outlook still has bright spots. Profit after tax is expected to recover gradually, reaching VND 376 billion in 2029, corresponding to a CAGR of 9% per year during the 2025–2029 period. The net margin is also projected to improve to 5%—still lower than the industry average, but higher than the current low.

A positive point for shareholders is the stable cash dividend policy. DRC plans to maintain a payout ratio of 60% of profit after tax, equivalent to VND 500–1,300 per share annually from 2025 to 2029. The expected dividend yield is 4–7.5% per year, higher than bank deposit interest rates.

Regarding valuation, VDSC uses the Discounted Cash Flow (DCF) method with a WACC of 10.4%, giving a fair value of VND 17,200 per share for the next 12 months. Compared to the market price of VND 16,650 on September 22, 2025, the DRC stock is recommended NEUTRAL. Investors should therefore observe rather than accumulate the stock at the current time.

The key factor that could potentially create a breakthrough for the stock is the ability to expand radial tire (TBR, PCR) output faster than expected or the event of Vinachem's divestment. Currently, Vinachem holds 50.5% of DRC's capital; if the divestment process takes place and includes the participation of an international strategic partner, DRC could gain a boost in technology, scale, and sales network.

Conversely, the biggest risk is raw material prices increasing without the ability to pass the cost onto the selling price, especially if the US or Brazil ease tariffs on Chinese or Thai competitors.