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AN PHAT PLASTIC (AAA): Small Cap Research

'We recommend investors accumulate shares of AAA, the largest plastic packaging manufacturer in Vietnam, over the next three to six months due to a strong profit growth outlook.'
Expansion in US and Japan markets will boost revenue in 2017. We forecast 35.6% sales growth in 2017 based on company guidance, while management targets sales volume to grow 52.8% to reach 70,800 tons. Previously, AAA successfully achieved the necessary qualifications to enter the US and Japan and has created a reputable brand name in these markets. The company has received significant pre-orders from existing customers while it continues to find new clients for products from its factories No.6 and No.7.

New factories support sales volume growth. In 2016, as sales volume and revenue grew 24.4% and 32.8%, respectively, all of the company’s factories operated at full capacity, except factory No.6, which was in its trial period. In 2017, factory No.6 will be ready to go online while factory No.7 is expected to complete its trial period in Q1. Management expects factory No.6 and No.7 to work at 47% and 55% utilization, respectively, which will allow AAA to capture rising demand.

Profits should rise significantly despite slight margin contraction. We forecast 34.8% 2017 NPAT growth to VND197 billion (USD8 million). Lower fixed cost per unit and GPM gains from sales of more premium products will offset higher depreciation related to factory No. 6 to keep GPM flat. At the same time, high outstanding loans will generate more interest expense, but will be offset by a gain from a divestment of VBC shares. The company completely divested its VBC holdings in early 2017 for VND68.6 billion (USD3 million) to raise funds for potential investment in plastic manufacturing....

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