- We cut our target price (TP) by 43% and downgrade our rating to OUTPERFORM from BUY as DGC’s share price has declined 35% over the past three months.
- Our lower TP mainly reflects a 37% cut in our aggregate 2026F–2027F core EBITDA forecasts and a 15% valuation discount applied to reflect DGC’s current restricted and warning trading status. This is partly offset by rolling our TP horizon forward to mid-2027.
- We lower our 2026/27/28F NPAT-MI forecasts by 36%/39%/37%, driven by (1) the full removal of captive ore self-sufficiency assumptions, (2) delays to the chlor-alkali and real estate (RE) projects, and (3) the removal of ethanol’s earnings contribution from 2027F.
- We fully remove our captive ore self-sufficiency assumption, from 50% p.a. previously. We note that, the investigation outcomes and mines’ implications remain pending (see Page 3).
- We push back the chlor-alkali project’s commercial operation to Q1 2027 from Q2 2026, in line with the company’s latest update for an anticipated trial run in Q4 2026. Our revised utilization rates are 0%/65%/70% (vs 65%/90%/90% previously) in 2026F/27F/28F.
- We push back RE revenue recognition to 2028F–29F from 2027F–28F, reflecting slower-than-expected progress in investment approval.
- We remove ethanol’s earnings contribution from 2027F onward, following DGC’s resolution to transfer the ethanol plant assets within 2026F. We have not yet incorporated any potential one-off gain from the transaction, pending further information on deal value and timing.
- We revise down DGC’s GPM to 20.3%/22.6%/25.4% in 2026/27/28F from 26.7%/27.5%/27.5%, mainly due to lower captive ore self-sufficiency. As a reminder, DGC’s 2026–2027F margins are also pressured by the increase in the P4 export tax, which we had already incorporated in our previous Update Report, partly offset by current strong P4 price momentum.
- Downside risks: Stronger-than-expected compression in market price spreads; project delays/removals; unfavorable changes in phosphorus export policies; potential fines or additional liabilities related to the ongoing investigation.
- Upside potential: 1) Trading restriction removed, 2) self-supply ore mining resumes.
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