giải pháp nâng cao năng lực tài chính cho tập đoàn hòa phát cổ phiếu tập đoàn hòa phát (HPG) ICF e

Giải pháp nâng cao năng lực tài chính cho Tập đoàn Hòa Phát. Cổ phiếu
tập đoàn Hòa Phát (HPG)
Subject: Measures to improve financial capability for Hoa Phat Group. Shares
Hoa Phat Group (HPG) is currently listed on stock exchanges in Ho Chi Minh City

In this context of influence of global financial- economic crisis, Vietnam has
maintained macroeconomic stability and growth (6.78%). However, the year 2010 was
a year with much fluctuation of economy: high inflation (11.75%), sharp increase in
gold price (up 25% compared to 2009), decrease in VND by more than 9.68 %
against the dollar, mechanism of two exchange rates, two interest rates, payment
balance deficit distorting picture of the economy as well as businesses. Interest rate
among banks up to 17% at the end of the year, uninterruptible power shortages during
the dry season and the severe consequences of the prolonged flooding in the Central
Vietnam... had a direct effect on business activities of enterprises.
With its unique operation, Hoa Phat Group is no exception to the influence of
such fluctuations. However, stability of industries and especially self-contained
production model has helped Hoa Phat to overcome difficulties to fulfill the plan.
After summarizing the year 2010, Hoa Phat Group reached 14,493 billion VND of
revenue and 1,376 billion of profit after tax, respectively 117% and 102% of the
annual plan. This is a great achievement in the context that many businesses can not
overcome difficulties in the post-crisis period.
With a good foundation, closed production process, activeness in the input
materials and proper corporate governance, Hoa Phat always dominates large market
share in industries that the Group is involved and gradually asserting the leading
position. Hoa Phat brand reputation is not only intangible value but also as a guarantee
of new products launched by Hoa Phat Group.
A new step in completion of the administrative apparatus of Hoa Phat Group in
2010 was restructuring the Holding Company. Along with that, the financial analysis
and evaluation of financial performance, through which to find solutions to improve
financial performance, financial transparency of with stock code of HPG has brought

confidence to the shareholders of the company, and a real value to all shareholders
during purchase or sale of shares of the company.
Based on general research of Hoa Phat Group, group II developed and
implemented a project called "Buying, selling or holding shares of Hoa Phat Group
(HPG)"to making decisions on buying, selling or holding shares of Hoa Phat Group.
Part 1: Introduction of Hoa Phat Group
HOA PHAT GROUP
39 Nguyen Dinh Chieu - Hai Ba Trung - TP. Hanoi
Tel: 043.6282011 - Fax: 043.9747748
Website:
1. History and development of Hoa Phat
Hoa Phat Group was formerly known as Hoa Phat Steel JSC. In 2007, Hoa Phat
Steel JSC has transformed into Hoa Phat Group, as the parent company holding 06
member companies including: Hoa Phat Equipment And Accessory Co.,Ltd, Hoa Phat
Furniture, Hoa Phat Steel Pipe , Hoa Phat Refrigeration, Hoa Phat Construction and
Urban Development, Hoa Phat Trading, Hoa Phat Energy, Minerals and Hoa Phat
Minerals... In Nov 2007, HPG listed its stock in the stock market of Vietnam, as one
of the companies with the largest capitalization at HOSE. Business activities of HPG
is production of furniture, civil electrical equipment, manufacture of cement and
business of construction materials, business of real estate, steel manufacturing and
business, mining, production and business of

materials and plastic products ...

Currently, HPG has a highest or second market share of construction steel throughout
the country.
2. Stock Information:
- Charter capital: VND 3,178,497,600,000
- Stock code: HPG

- Listing center: HOSE
- First date of listing: 15/11/2007


- The number of outstanding shares: 317,849,760 shares.
List of major shareholders:

3. Business line
- Trading and importing- exporting steel, materials and equipment for
processing and rolling steel;
- Production of steel rolling corrugated iron;
- Production of galvanized and non- galvanized steel tubes, stainless steel tube;
- Producing and trading all kinds of ferrous metal, ferrous metal scrap;
- Refining cast iron, steel, casting iron, steel;
- Mining metal ores, trading metals, metal ores, iron and steel scrap;
- Producing and trading all kinds of construction machinery and mining
machines;
- Producing furniture for office, household, and school;
- Investment and construction of infrastructure of industrial park and urban
areas;
- Trading real estate (excluding price consultancy activities);
- Manufacturing, trading, assembling, installing, repairing and maintaining
electronics, refrigeration, civil power, air conditioning equipment;
- Production of cement and building materials business.
4. Characteristics of management structure and organizational chart.


5. Characteristics of production or services:
Hoa Phat Group is an economic group with many business lines and
subsidiaries and annual financial accounting activities of every independent company.

Hoa Phat Group is also a leading group of industrial production, business of real estate
and mining with the parent company of Hoa Phat Group Joint Stock Company, 13
subsidiaries, and four associated companies. It has more than 10,000 employees of
which 20% have university and college degrees.
The steady growth in operations has brought about profitability and growth for
the Group.
Part 2. Financial status of Hoa Phat Group:
1. Income statement for 9 months in 2011
In the third quarter in 2011, profit after tax of Hoa Phat declined dramatically
while sales increased slightly over the same period in last year. Specifically, in the 3 rd
quarter, profit after tax was 110 mil dongs, down 66% yoy, while sales reached 4,237
billion VND, up 6% yoy. Reason for that is lower demand for construction steel and


coke making Hoa Phat to increase discounts and lower prices. Average construction
steel prices decreased by 267,000 dong/ton and discount increased by 195,000 dong/
ton compared to the 2nd quarter. Besides, coke production costs and bank loan interest
rate and exchange rate difference increased sharply….
After 9 months in 2011, HPG reached 13,606 billion of total revenue (reaching
78% of the plan for the year, up 37% yoy) and 1138 billion profit after tax (61% of the
plan for the year, up 19% yoy). There are two highlights of this period including the
growth of financial revenue and financial costs. In particular, financial revenue
increased by 104% yoy, achieving 275 billion VND due to interest on bank deposits;
financial expenses increased 103% yoy, up to 861 billion VND due to increasing borrowing
interest and exchange rate differences (account outstanding in VND of Hoa Phat increases
22% yoy while borrowing interest rate increases from 16% to 20% in 2011). Thus, due to
financing costs heavily increases, revenue increases 37% yoy but net profit only increases
19% yoy.
Current ratio is currently at the end of 3 rd quarter, 2011 is 1.53, relatively stable
compared to previous years but it should be noted that due to the large inventory in the poor

market, when the debt matures, the enterprise can be difficult. Real estate market is quiet that
causes not only difficult for Hoa Phat in the field of real estate business but also increases
receivables from sales of steel, the amount of inventory increasing, this is the cause that
turnover of inventory and accounts receivable 9M2011 reduce against previous year, only at
2.0 and 7.1.
In 9M2011, indicators of ROA, ROE and total asset turnover of Hoa Phat are
respectively 6.6%, 15.6%, and 0.8. Compared to three recent years, these indicators are
declining due to total assets rapidly increase from the long-term investment and inventory but
no corresponding to revenue and profit gained. However, this investment promises to bring
long term profitability for the enterprise.
According to latest information, in 11M2011, HPG reaches 16,562 billion VND of
total sales and 1,252 billion VND in profit after tax, reaching 95% of revenue plan and 67%
profit plan. Although the steel market meets difficult but HPG’s steel construction is still
quite good over the same period last year. Specifically, sales in November reach 50,500 tons,
up 19% compared to October. Hoa Phat steel complex also reaches the highest level ever. As
in 11M2011, HPG reaches sales of 577,000 tons, increasing nearly 10% yoy. Market share of
Hoa Phat construction steel continue to be strengthened and expanded on a national scale.
Financial Targets in 2011


Revenue and profits over the years

Stock price fluctuations:

Source: VCSB


Some solutions to improve financial capability
Firstly, it is to improve qualification, knowledge of economy - society, culture, law ...
for business owners, the managers and workers in the enterprise. As remarked above, it is

currently still 43.3% of business owners at lower than high school level, some at master
degree or higher only accounted for 2.99%. Thus, education - training should be equipped at
bachelor level and the basic knowledge of economy - society, culture, law... for business
owners, directors, managers and workers.
Secondly, it is to strengthen the capacity of business owners, directors and managers
in the business of business administration, strategic management. In all conditions,
entrepreneurs need to regularly update new knowledge, the necessary skills (management
skills in competition, leadership, change management, presentation, negotiation and
communication etc ...) to compete in the market and access to knowledge economy.
To be competitive in the long term and confidently step into the knowledge economy,
companies should build strategies for sustainable development. In particular, focus on
competitive strategies and strategic skills such as strategic management, risk management,


and sensitivity in management, business analysis, forecasting and navigation on development
strategy ...
Thirdly, at present the majority of Vietnam enterprises are small-scale, few capital,
qualification, business knowledge, awareness of the law (especially international law) is not
high, levels of workers are low ... In this condition, to make competitive strategies it is
necessary to implement the principle of association and cooperation to improve product
quality, market competitiveness. The association and cooperation is not the addition of all
enterprises, which is to generate the extremely power is part of groups, economic groups with
production and business (or some) of certain products and jointly implement brand strategy,
promotion and advertisement of products on the market.
Fourthly, to strengthen the support of the government and authorities in capital,
mechanisms, policies, laws, trade promotion, education - training, consultancy on equipment,
modern technology... for businesses. Also, to further strengthen the role of associations,
Director clubs and professional organizations for the development of enterprises.
Fifthly, to build the corporate culture. Culture has an important role in the
development, is both objective and driving force of socio-economic development. In the old

days, our father summarized: " Phi trí bất hưng, phi thương bất phú, phi công bất hoạt".
Today, in modern society, the concept of value, the creative work, the sense of competition,
the will to enrich, social trust ... is of great significance for improving competitive capacity
and building the corporate culture.
Corporate culture, says a generalization as "the rich", ie enrich with culture: Enrich
for them, business, society and the country. The wealth in intelligence, fortunes and
dynamism, creativeness is the social values that every businessman, business must have. So,
building corporate culture is to create a healthy cultural and positive environment that is
always motivation.
In addition, the group management solution information systems, finance sourcing,
corporate restructuring, …
Part 3: "Buy, sell or hold shares of Hoa Phat Group (HPG)"

1. Method of calculation:
Earning Per Share (EPS) is calculated based on profits after dividing preferred
dividends as net income of public shareholders NI divided current stocks.
EPS = net profit of public shareholders / number of shares issued
= 1,490,186,000,000 / 311,309,624 = 4,787
Meanings:


•

EPS is nominal interest of shareholders

•

Changed as per quarter, month and year

•

Rate of shareholder based on to estimate future dividend

1.2 Dividend Per Share - DPS
Calculated based on interest after divided preferred dividends as net income of NI
public shareholders, after deducting remaining amount divided current shares.
DPS = Total dividend/issued shares =
Of which:
DPS: dividend
TD: total dividend

QS: quantity of issued shares of the enterprise
Meaning: As the actual cash that the investor received on a common share
through the Meeting of Shareholders.
1.3 Ratio of profit share price of a share P/E
Measurement of market price of a share from the income of a share
P/E = market price of the share/profits on the share = 20,500/4,787 = 4.3
(times)
In which:
P/E: Ratio of profit share price of a share
P: market price of the share
EPS: profit on the share
Meaning:
•

This ratio reflects how many shares do the investors have to spend to get

a dong of profit
•

This ratio if taking the inverse, it stated the rate of return on investment

1.4 The ratio of market price of the share on the book value of a share
Measuring the ratio of market price of the share on the book value of a share
P/B = market price of the share / price on book value of a share
= 20,500 / 23,274 = 0.9 (times)
In which:
P/B: The ratio of market price of the share on the book value of the share.
P: market price of the share
B: price on book value of a share


2. General assessment
• As a multidisciplinary group whose projects went into operation and in
completing process, it promises big and long-term profits for the enterprise.
Along with the policy of high payment for dividends of 30% -40% / year (in
which the dividend is regularly paid in cash of 20% / year), Hoa Phat will
continue to attract investors.
• Hoa Phat is one of the few companies producing construction steel from iron
ore. By the the closed production lines, it help the Company maintain
profitability. However, due to investment in long-term projects, Hoa Phat fell
into relatively large liabilities in the context of high interest rates, leading to the
high financial costs, a large effect on profitability.
• Due to the strongly-reduced demand of consumption, thus the business
operation in Quarter 3 in 2011 resulted low. The revenue obtained 4.237 billion
dong, increased 6% yoy, meanwhile the profits reached 110 billion dong,
reduced 66% yoy.
• In context of strongly-reduced steel demand as today, Hoa Phat has not
decreasing adjusted the business planning indicators in 2011, thus the Company
has not possibly completed the profits indicators of plan. We forecast that in

2011, the consumpted steel output of Hoa Phat will be at 627.500 ton (reached
97% of plan), the revenue obtained 18.061 billion dong (exceeding 3% of
plan), and the after-tax profits obtained 1.318 billion dong (only 71% of plan
for year). It is considered as the EPS provision that in 2011, about 4.147
dong/cp, reduced compared with the basic EPS of 4 latest quarters of 4.739
dong/cp.
• The basic P / E of Hoa Phat stock has low and lower than P / E in the sector of
4.3 times. As the stock of leading steel sector with high liquidity, the financial
situation is relatively good, and market price is the lowest area in 52 weeks,
along with the expected revenue of long-term projects in the future, we believe
that Hoa Phat stock will be suitable for valuable investment list.


3. Prospect of the Company
Business prospects in 2011: Due to the quiet impact of the real estate sector and
policy of cutting down the public investment by the government, thus the
consumption demand of construction steel in 2011 is forecast at only 4.6 million tons,
reduced 5.5% yoy. Therefore, the production and business activities of enterprises in
general and of Hoa Phat steel in particular in 2011 are evaluated as negativeness.
According to the 11M2011 business report of Hoa Phat, we assume that the
steel consumption in December 2011 is equivalent to 50,500 tons in November, the
expenses of December are not changed as compared with November. Thus, the
revenues and profits of December will be equal to the November of 1499 billion of
revenue and 66 billion of after-tax profits. Thus, in 2011, the steel consumption output
of Hoa Phat is forecast at 627,500 tons (reached 97% of plan, increased 8% yoy), and
the revenue reached 18,061 billion VND (exceeding 3% of plan, increased 25% yoy ),
and after-tax profits reached 1,318 billion VND (only reached 71% of plan in year,
reduced 4% yoy). It is considered as EPS provision in 2011 about 4.147 dong / cp,
decreased as compared with basic EPS of 4 latest quarters of 4,739 VND / cp.

In the context that the steel market was difficult today, however, Hoa Phat has
not adjusted to decrease the business plan targets in 2011 as other steel companies,
thus the company will not be able to fulfill profit targets of plan.
4. Some investment projects of the enterprises
Hoa Phat Steel Complex: In 2011, total exported production of coke reached
45,000 tons, expected profit of about 315 billion dong. Phase 2 is being invested and
expected to be completed in late 2012, with a capacity of 700,000 tonnes of ingot /
year by the investments of 3,600 billion VND. The complex will increase the steel
production capacity of Hoa Phat to 1.3 million tons of steel per year, bringing 500-700
billion profits per year after the completion of Phase 2.
Mandarin Garden Complex: To 30/9/2011, Hoa Phat has sold 300 apartments
with an average price of 45 million per meter square. The progress of payment is
scheduled, 40% in 2011 equivalent to 693 billion and recognized as unrealized
revenue of Quarter 3. The project consists of four height buildings from 25 to 29
floors, providing about 1,000 superior apartments. It is estimated that the project will
bring benefits more than 2,000 billion VND for Hoa Phat selling all the apartments.
5. Some factors affect the steel enterprises
The serious imbalance between supply and demand has pushed the steel
companies in the world into competition, not to mention that it has to face with steels
imported from countries in the region. According to the commitment of joining free
trade area within the framework of Common Effective Preferential Tariff (CEPT /
AFTA), from 2015 onwards, the steel import tax rate into Vietnam is 0%, then the
competition level of the domestic steel market will be more intense.
The steel pipe of Vietnam is formally investigated by U.S. for anti-dumping
and anti-subsidy by the time the exported steel pipe has increased to the U.S. market
and the export price has been relatively low. This type of steel is used in
manufacturing civil furniture and the importing tax rate to the U.S. is at 0%. It is able
to apply U.S. anti-dumping and anti-subsidy methods to non-market economy applied
to Vietnam.

The price of material steels in the world has slightly reduced, thus it has kept
the price of finished steel in the country maintained at the high level, contributing to
reduce the consumption in the market.


Increasing inflation makes the prices of input raw materials such as coal,
electricity, fuel, etc. increased, contributing to the increase of production costs, thus it
leads to an increase of steel price.
Credit interest rates will remain high. Due to the characteristics of the steel
industry as high loan rate, thus when the interest rate of loan is high, it increases the
costs for investment and production, thereby it decreases the profitability of the
enterprise. In addition, for the construction and property enterprises, while increasing
interest rate, it has made the enterprise difficult to access funds with reasonable
expenses for investing in business operation, thus it has indirectly reduced demand for
steel market.
The policy of monetary tighting to prevent inflation (in which wrenching the
credit for field of real estate – as the field to create demand for the steel industry), and
minimum reducing investment by the Government has reduced the consumption of
market, thus reducing the profitability of steel companies.
6. Conclusion:
When compared to the enterprise with large-scale steel production as Pomina
Steel Corporation (POM), Hoa Sen Group (HSG), Dai Thien Loc Corporation (DTL),
we found that Hoa Phat Company has the high liquidity than other enterprise by the
largest ability of using cash to pay short-term liabilities. In spite of relatively large in
liabilities to invest in long-term projects, Hoa Phat still kept the liabilities ratio over
the total assets or equity at the low level compared to POM and HSG. With deep
investment in steel resources (iron ore exploit ion, coke processing, and steel ingot),
generally, Hoa Phat has the higher profit margins than POM and HSG.
On the index of the market, Hoa Phat shares has basic P/E at low level and
lower than the P/E of 4.3 times in the sector. In recent months, Hoa Phat shares

reduced the most in price when the P/B is maintained at 0.7 times compared with the
average level in the sector. As the shares of leading steel section, it has high liquidity,
the financial situation of the enterprise is relatively good, and the market prices are the
lowest, we believe that Hoa Phat shares would be suitable for the valuable
investment list.