Decrease in exports affects the profits of seafood enterprises

Seafood exports are expected to be brighter in the second quarter of 2023.

Revenues fall

In 2022, Vietnam Fisheries Corporation - Seaprodex Joint Stock Company recorded VND 53 billion in financial revenue, mainly from deposit interest, and VND 170 billion in profit from joint ventures.

The report noted that in the fourth quarter alone, both revenue and profit decreased over the same period. Specifically, revenue in the quarter reached VND 231 billion, down 21.3% compared to the fourth quarter of 2021. However, the reduction in capital costs was deeper, to 25.4%, leading to an increase in gross profit from sales and service provision by 17.5% to VND33 billion.

In 2022, Seaprodex's revenue reached VND 982 billion, a decrease of 2.6% compared to a revenue of more than VND trillion in 2021. However, the deep decrease in capital costs caused gross profit from sales and service provision to increase by approximately 27% to VND133 billion.

In addition, the joint ventures and associates brought in a profit of more than VND170 billion. Financial revenue reached more than VND53 billion, up VND14 billion over the same period.

From the above key factors, despite the decrease in revenue, Seaprodex still had a profit after tax of VND 213 billion, an increase of 5.4% compared to a profit of VND 202 billion achieved in 2021.

According to the Center for Analysis and Investment Advisory of SSI Securities Company, in 2022, listed companies had announced positive business results during the first 9 months, although the quarterly growth rate was still slow. Most companies benefited from the depreciation of VND against USD with revenue recorded in USD. Only companies with dollar-denominated debt recorded unrealized exchange rate losses, but their dollar balances were relatively low.

With demand falling, average selling price and aqua feed costs had not adjusted (up 33% compared to the beginning of the year), SSI forecast companies would record lower profits in the fourth quarter of 2022.

Over the past 10 years, stocks in the seafood industry have traded at an average trailing P/E of 8 times. This year, the valuation of the entire industry has been reduced from 15 times at the beginning of the year to 5 times due to weak earnings growth and a less optimistic 2023 outlook.

The industry's historically low valuations were four times between 2010-2011 and 2018, showing that the stock could fall further in the near term when companies could record negative earnings growth until 2023.

Profit forecast in 2023 will decrease

SSI's analysis showed that in 2023 inflation would continue to be a challenge in the context of the slow rotation of remaining inventories. Although major seasonal events are coming, these events will reduce inventories that are already high. The inventory forecast will be fully processed in the third quarter of 2023, with orders beginning to be received at that point.

The Vietnam Association of Seafood Exporters and Producers has set a target of US$ 10 billion in seafood exports (down 9% over the same period) by 2023. In the context of consumers' reduced consumption, SSI believed that pangasius revenue would be less affected than shrimp revenue.

SSI forecasts that the average selling price of seafood would decrease by 20-30% year-on-year in 2023 and the cost of aqua feed would also decrease. With a slow increase in orders, there would be no shortage of supply for both raw shrimp and fish, thereby, the price of shrimp and fish materials would decrease slightly due to weak demand until the end of the first half of 2023.

The gross profit margin would decline in 2023. With interest rates expected to remain high for the full year, rising financing costs would continue to affect net margins, especially for companies with high leverage ratio, such as IDI. Overall, SSI forecasted companies to launch negative earnings growth in 2023.

Valuations could fall to the industry's historic low P/E of 4 times by the third quarter of 2023, because earnings were expected to fall from their high 2022 base. SSI forecasted a peak drop in profits in the second quarter of 2023 and valuations might gradually recover to the industry's historic average P/E of 8 times when inventories at wholesalers were fully cleared.