General information about Hoa Phat Group Joint Stock Company
Company overview
Hoa Phat Group, established in August 1992, is Vietnam's leading industrial manufacturing group Initially focused on trading construction machinery and equipment, the company has diversified its operations to include furniture (1995), steel pipes (1996), construction steel (2000), refrigeration (2001), real estate (2001), agriculture (2015), and steel sheets (2016) In 2007, Hoa Phat adopted a group structure, with Hoa Phat Group Joint Stock Company serving as the parent company overseeing its various member companies.
Steel production is the primary focus of Hoa Phat Group, contributing over 80% of the company's total revenue and profit As of March 2021, the Group stands as Vietnam's largest manufacturer of construction steel and steel pipes, holding market shares of 33.8% and 30.19%, respectively.
Hoa Phat Group's core value is rooted in the philosophy of Harmony for Joint Development With a vision to be a leading industrial manufacturer specializing in high-quality steel, Hoa Phat consistently delivers top-tier products that enhance living conditions and foster customer trust.
Hoa Phat has been honored as a National Brand for several consecutive years, earning its place among the Top 50 largest and most effective enterprises in Vietnam Additionally, it ranks as one of the Top 10 largest private companies and is recognized as one of the Top 50 most valuable brands in the country.
Shares and shareholders information
Hoa Phat Group Joint Stock Company was listed on the Ho Chi Minh Stock Exchange (HOSE) in November 2007, with its accounting period running from January 1 to December 31 The company's independent auditor for the years 2018, 2019, and 2020 was KPMG.
As of September 20, 2021, the total number of HPG's shares is 3,313,282,659 The largest shareholders are Mr Long Tran and his wife, with a combined 32.5% stake Foreign ownership stands at 37%
Figure 1.1 Hoa Phat Group’s shareholder structure
Corporate structure
Mr Tran Dinh Long serves as the chairman of the group, guiding the business strategy for each subsidiary His leadership is crucial to Hoa Phat, as he is responsible for making all significant decisions within the company.
Figure 1.2 Hoa Phat Group’s corporate structure
Tran Dinh Long Vu Thi Hien Deutsche Bank AG Dragon Capital Other Ownership
Products and Services
Hoa Phat Group operates across five key segments: iron and steel, steel pipes and galvanized steel, industrial production, agriculture, and real estate The company produces a variety of steel and cast iron products, including sheets, bars, rolls, and pipes, alongside steel-making materials and machinery In its industrial segment, Hoa Phat Group manufactures and trades construction and mining equipment, as well as household appliances and furniture The agriculture segment focuses on pig and poultry farming, meat processing, and the production of animal feeds and fertilizers Additionally, the real estate segment is involved in the development and construction of residential and office buildings for leasing and sale.
Market analysis
The market in general
Steel is an essential global industry, with steel products being a major commodity in international trade However, a recent decline in global economic growth has adversely affected demand for steel across various consuming industries, creating significant challenges for steel manufacturers.
In 2018, the steel industry experienced notable growth, driven by increased global demand and production, as well as a rise in the global capacity utilization rate compared to 2017 This surge in steel demand was fueled by positive economic momentum that impacted both developed and developing nations alike.
In 2019, the steel industry faced significant challenges, with negative steel production growth across most regions, except for Asia and the Middle East The decline in global steel demand was primarily driven by a downturn in Europe’s manufacturing sector, which has been exacerbated by rising trade tensions and economic uncertainty These factors have collectively hindered business investment on a global scale.
In 2020, the global steel industry faced significant challenges due to the COVID-19 pandemic, leading to a sharp decline in steel production, particularly in the first half of the year However, by the second half of 2020, the situation began to improve, largely driven by a strong recovery in China, which saw a remarkable growth of 9.1% The World Steel Association reported that China's share of global crude steel production rose from 53.3% in 2019 to 56.7% in 2020, while steel usage in China increased, contrasting with a decline in other regions This highlights the critical role of China’s economy in shaping the demand-supply dynamics within the steel industry.
In a post-pandemic world, structural changes are reshaping steel demand, with companies leveraging digitization, automation, and infrastructure initiatives to boost output Despite rising production levels, steel prices remain stable or increase, indicating that global demand is outpacing production rates This presents significant opportunities for the steel industry as urban centers reorganize and energy transformations take place.
In recent years, Vietnam's steel industry has experienced significant growth, enhancing its influence in both the regional and global steel markets The production and consumption trends of steel in Vietnam over the past three years illustrate this upward trajectory, highlighting the country's expanding role in the industry.
Figure 2.1 Vietnam steel production and use in the period 2018 2020 –
Vietnam Steel Production & Consumption in the period 2018 - 2020
Between 2018 and 2019, Vietnam's steel industry experienced notable growth despite intense competition in both domestic and international markets The surge in steel exports led several importing nations to implement trade remedies to safeguard their local industries Additionally, the sector encountered challenges such as a mismatch between domestic demand and production capacity, a downturn in the real estate market, and the effects of ongoing international trade tensions.
In 2020, despite the global economic downturn caused by the COVID-19 pandemic, Vietnam's steel industry thrived, positioning the country as a leader in Southeast Asia and the 14th largest crude steel producer worldwide, according to the Vietnam Steel Association Furthermore, Vietnam emerged as the 6th largest steel importer globally The recovery of Vietnam's steel market was significantly influenced by the Chinese market, which, as the largest steel producer and consumer, experienced output cuts to reduce carbon emissions This situation allowed Vietnam to capitalize on increased production for export, resulting in substantial profits.
Vietnam's domestic steel prices have remained stable at elevated levels, primarily due to the market's strong growth rate and the dominance of large enterprises that control a significant share of the industry.
Effective vaccination campaigns and public investment policies worldwide have boosted global steel demand, particularly in the US, China, and the EU, where substantial stimulus packages have prompted steel manufacturers to optimize production The World Steel Association projects continued growth in steel demand, although the growth rates are anticipated to slow in line with a decelerating global economy.
Vietnam's steel demand is expected to maintain stable growth over the next three years, driven by the rapidly growing economy and significant government investment in infrastructure and housing The increasing urban population will further boost the demand for urban housing While challenges such as rising trade restrictions, higher electricity rates, and a slowing real estate market may negatively impact steel demand, the Vietnamese steel industry is likely to continue its growth trajectory due to its currently low per capita steel consumption and consistent foreign direct investment (FDI) inflows.
The industry
The EVFTA Agreement has significantly boosted the export of various products to the EU market, with iron being a key focus Under the commitments of the EVFTA, the EU has largely reduced import tax rates on Vietnamese goods to 0%.
The Ministry of Industry and Trade aims to establish a Vietnamese-brand steel manufacturer that matches regional and global standards They are encouraging new investments in iron and steel production complexes located in coastal areas with deepwater ports to ensure a steady supply of Hot Rolled Coil (HRC) steel for domestic consumption.
Vietnam's effective pandemic management and low labor costs position it as an attractive destination for foreign direct investment (FDI) The influx of new FDI enterprises will drive up demand for factories and industrial zones, consequently boosting the need for construction steel and creating significant sales opportunities for the steel industry.
As Vietnam's export turnover continues to rise, its export firms are facing a growing number of investigations and trade remedy measures In particular, Vietnamese steel products have frequently been the focus of trade remedy lawsuits in various export markets in recent years.
To stimulate economic recovery from the COVID-19 pandemic, governments globally have implemented extensive economic stimulus packages totaling tens of trillions of dollars, leading to an increase in raw material prices Consequently, while the global economy sees a rise in supply, the steel production sector remains heavily reliant on imported raw materials.
To respond to changing market requirements, many steel companies also have to accelerate their innovation and investment in technology and quality management systems to improve productivity and quality.
Consolidated financial statements
Balance sheet
AS AT 31 DECEMBER 2020 BALANCE SHEET Year 2018 Year 2019 Year 2020 ASSETS
II Short-term financial investments 3,724,563 1,374,340 8,126,993
1 Held to maturity investments 3,724,563 1,374,340 8,126,993 III Short-term receivables 6,124,790 8,684,636 7,946,101
1 Short-term trade accounts receivable 3,949,487 5,709,067 4,389,238
2 Short-term prepayments to suppliers 1,303,038 1,787,705 2,203,362
4 Provision for short-term doubtful debts -39,336 -37,692 -38,439
2 Provision for decline in value inventories -86,539 -98,760 -63,242
2 Value added tax to be reclaimed 2,357,339 2,506,178 2,645,433
3 Taxes and other receivables from state authorities 13,817 9,955 10,037
IV Long-term assets in progress 6,247,214 4,335,907 6,289,235
1 Long-term production in progress 918,471 943,713 1,257,341
1 Investments in associates, joint- ventures 385 -9,311 -1,642
VI Other long-term assets 6,247,214 4,335,907 6,289,235
1 Short-term trade accounts payable 10,915,753 10,002,432 23,727,790
2 Short-term advances from customers 1,257,273 1,153,646 1,577,449
3 Taxes and other payables to state authorities 548,579 922,389 1,583,362
8 Short-term borrowings and financial leases 36,798,466 37,292,384 37,528,431
9 Provision for short-term liabilities 5,847 5,431 4,850
5 Long-term borrowings and financial leases 17,343,248 18,268,027 18,465,301
7 Provision for long-term liabilities 26,001 38,838 53,726
Income statement
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2020 INCOME STATEMENT Year 2018 Year 2019 Year 2020
3 Net revenue from selling goods and providing services 55,836,458 63,658,193 90,118,503
5 Gross profit from sales and service provision 11,670.832 11,185,372 18,904,050
8 Profit/loss in joint ventures and associates -1.431 1,965
11.Net profit from business activities 10,072,089 9,030.980 15,292,304
Part of profit/loss from joint venture company
15.Total accounting profit before tax 10,071,073 9,096.662 15,356,967
18.Profit after corporate income tax 8,600,551 7,578,248 13,506,164
Profit after tax of shareholders of the parent company 8,573,014 7,527,443 13,450,300
19.Profit after tax of shareholders of the parent company 4.037 2.726 3.846
Statement of Cash flow
STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020
CASH FLOW Year 2018 Year 2019 Year 2020
Depreciation of fixed assets and properties investment 2,285,645 2,593,233 4,775,782
Foreign exchange (gain)/loss from revaluation of monetary items denominated in foreign currencies 29,911 24,184 52,079 Loss/(profit) from investment activities -112,986 -286,185 490,560
3 Operating profit before changes in working capital 12,740,514 12,358,831 21,932,338
(Increase)/decrease in receivables -1,423,157 -288,520 -3,374,026 (Increase)/decrease in inventories -2,301,594 -5,132,237 -7,061,025 Increase/(decrease) in payables (other than interest, corporate income tax) 1,459,709 3,557,798 4,251,742 (Increase)/decrease in prepaid expenses -500,921 -8,477 -89,041
Corporate income tax paid -1,416,438 -1,552,893 -1,716,803 Other payments for operating activities -304,001 -352,058 -328,363
1 Payment for fixed assets, constructions and other long-term assets -27,594,118 -20,825,372 -11,915,646
2 Receipts from disposal of fixed assets and other long-term assets 64,822 26,938 34,418
3 Loans, purchases of other entities' debt instruments -11,295,502 -4,467,553 -11,971,173
4 Receipts from loan repayments, sale of other entities' debt instruments 17,443,013 6,832,224 5,003,441
5 Payments for investment in other entities -115,948
6 Collections on investment in other entities 17,600
7 Dividends, interest and profit received 946,999 369,547 353,561
INVESTING ACTIVITIES -20,533,134 -18,064,216 -18,495,398 III CASH FLOWS FROM
1 Receipts from equity issue and owner's capital contribution 11,425 85 2,700
4 Dividends paid, profits distributed to owners -5,918 -12,647 -1,419,474
FINANCING ACTIVITIES 11,142,512 12,377,941 16,053,702 Net cash flows during the period -1,748,278 2,028,894 9,145,553 Cash and cash equivalents at beginning of the period 4,264,642 2,515,617 4,544,900 Exchange difference due to re- valuation of ending balances -747 390 5,646
Cash and cash equivalents at end of the period 2,515,617 4,544,900 13,696,099
Financial Analysis
Trend Analysis
4.1.1.1 Gross Profit Margin, Operating Profit Margin & Net Profit Margin
All the three ratios Gross Profit Margin, Operating Profit Margin, and Net Profit Margin in the period 2018 - 2019, have a down-up trend Hoa Phat's sales revenue in
In 2019, Hoa Phat's sales reached 63,658,193, marking a 12.3% increase from 2018 However, profits were negatively impacted due to a significant rise in production costs driven by two main factors: Firstly, iron ore prices surged, with the average price in Q2 2019 reaching 100 USD/ton, nearly 30 USD/ton higher than the same period in 2018, largely due to supply disruptions from mining incidents in Brazil and Australia, including the Brumadinho dam collapse and the Veronica cyclone, which collectively resulted in an estimated ore supply deficit of 60 million tons Secondly, the commencement of Phase 1 of the Hoa Phat Dung Quat Complex in Q4 2019 led to the incorporation of depreciation expenses into production costs Consequently, despite increased sales, the company's profitability ratios experienced a sharp decline, reflecting the heavy reliance on input material prices and production costs.
Figure 4.1 Hoa Phat’s Profitability Ratios, 2018 – 2020
By 2020, Hoa Phat Group successfully stabilized its operations, achieving profitability ratios comparable to 2018 and significantly higher than the fluctuating figures of 2019 Despite high iron ore prices, the company saw a sharp increase in sales volume and market prices for its steel products, resulting in a notable rise in both revenue and profit The total consumption of Hoa Phat's steel products reached an estimated 6.3 million tons in 2020, reflecting a 69.30% year-on-year growth To counteract rising raw material costs, the company began increasing prices in September 2020, culminating in five price hikes for bar steel in December, raising it by 2,500 VND/kg and effectively offsetting increased production costs.
Hoa Phat's profitability ratios have significantly improved, largely due to the successful operation of the Hoa Phat Dung Quat Complex The activation of blast furnaces No 1 and 2 at this complex, initiated at the end of 2019, has played a crucial role in enhancing HPG's operational efficiency and overall performance.
In August 2020, the KLH project Phase 2 led to an increase in the group's raw steel production capacity to 8 million tons per year This output boost, coupled with the rising market prices of Hot Rolled Coil (HRC) from the Hoa Phat Dung Quat Complex, which reached approximately 700-770 USD/ton, contributed to a gradual improvement in gross profit margins throughout 2020.
The Dupont model indicates that both Return on Assets (ROA) and Return on Equity (ROE) are affected by Net Profit Margin, which experienced a downward trend from 2018 to 2019, leading to a similar decline in ROA and ROE A significant factor in the decrease of ROA was the Total Asset Turnover ratio, as Hoa Phat's total assets surged from 78,223,008 in 2018 to 101,776,030 in 2019, an increase of over 23.5 trillion This growth was primarily driven by the operational launch of phase 1 of the Hoa Phat Dung Quat Complex in the fourth quarter of 2019, which boosted the company's fixed assets Additionally, to finance the second phase of the plant, Hoa Phat needed to secure more capital through loans and equity, further inflating total assets in 2019 Consequently, the sharp rise in fixed assets and capital, combined with a decline in Net Profit Margin, led to a significant reduction in Hoa Phat's ROA.
Figure 4.2 Hoa Ph at’s ROA & ROE, 2018 2020 –
A decrease in Return on Assets (ROA) typically leads to a decline in Return on Equity (ROE); however, a significant increase in total assets can enhance ROE, despite not fully compensating for the drop in ROA In 2020, Hoa Phat experienced a sharp rise in total assets with the commencement of Phase 2 of the Dung Quat Complex, which negatively impacted ROA Nevertheless, ROA improved significantly from 8.36% to 11.53%, driven by increased net revenue and net profit margin Consequently, Hoa Phat's ROE stabilized at 25.14%, reflecting an 8.11% increase from 2019, mirroring levels seen in 2018 Furthermore, the consistent ratio of equity to total assets (46.95% in 2019 and 45.03% in 2020) facilitated Hoa Phat's swift recovery following 2019.
Figure 4.3 Ho a Phat’s Liquidity Ratios, 2018 – 2020
In 2020, Hoa Phat Group (HPG) maintained a current ratio above 1, indicating a solid capacity to cover short-term liabilities despite a decline from 1.12 in 2018 to 1.09 in 2020 This suggests that HPG's ability to convert assets into cash for debt repayment remains strong Additionally, the company bolstered its financial stability by increasing financial investments and cash equivalents to nearly 16 trillion VND, which comprised over 38% of its current assets, ensuring robust liquidity.
The quick ratio declined from 0.49 in 2018 to 0.41 in 2019, primarily due to limited growth in current assets as the company allocated funds towards the completion of the Dung Quat project Additionally, inventory surged by 37.5% to meet operational demands at the Dung Quat plant, particularly with the upcoming launch of blast furnaces 1 and 2, which have significant production capacities.
In 2019, continuous operation 24/7 was essential, leading to an increase in current liabilities rather than a decrease By 2020, the situation improved, with the ratio rising to 43.9% following the operational launch of the Dung Quat iron and steel complex During this period, inventory made up only 46% of current assets, down from over 63% in 2019 This change was attributed to Hoa Phat's increase in current assets, as the company took on more short-term debt for financial investments.
4.1.3.1 Debt to total assets ratio and Debt to equity ratio
From 2018 to 2020, Hoa Phat's debt ratios, including the debt to total assets and debt to total equity ratios, showed a significant increase due to the company's substantial investment in the Dung Quat iron and steel complex This rise in debt is typical for a company aiming to expand its production capacity Additionally, the company enhanced its equity by 18% during this period.
In 2019, the company achieved a 24% increase in equity in 2020, leading to a more balanced capital structure This adjustment helped maintain a safe debt-to-equity ratio of less than 1, indicating that the company's assets were primarily financed through equity rather than debt.
In 2020, despite all four Dung Quat blast furnaces operating since the end of the previous year, the company's debt surged by 47.6% compared to 2019, significantly increasing the debt-to-equity ratio This rise in debt stemmed from two primary factors: the need for investment capital for ongoing projects and the company's treasury operations, which involved borrowing at low-interest rates to invest in higher-yielding financial instruments As a result, short-term debts more than doubled from 2019, leading to increases in cash and cash equivalents as well as short-term financial investments Consequently, the net debt-to-equity ratio stood at 0.54, indicating that only 54% of the company's equity was financed through debt.
Figure 4.5 Hoa Phat’s Times Interest Earned, 2018 – 2020
From 2018 to 2020, the times interest earned ratio declined due to a significant rise in interest expenses, particularly in 2019 with the launch of Furnace No 1 and No 2, and again in 2020 with the introduction of Furnace No 3 and No 4 Once the Dung Quat iron and steel complex commenced full commercial operations, interest expenses transitioned from being capitalized to recognized as financial expenses in the Income Statement Despite this shift, Hoa Phat is not expected to encounter major challenges in meeting interest payments, as both profit and revenue have shown substantial growth year-over-year Looking ahead, the long-term profitability of Hoa Phat is anticipated to rise, driven by the extensive capacity of the Dung Quat iron and steel complex.
Figure 4.6 Hoa Phat ’s Inventory Turnover, 2018 – 2020
From 2018 to 2019, inventory turnover ratios showed a significant decline, with inventory comprising 56% of total goods on December 31, 2018, and rising to 64% by December 31, 2019, before dropping to 46% in 2020 This trend indicates a decrease in the efficiency of the enterprise's inventory management during 2018-2019, while suggesting a recovery in sales activities in 2020.
The significant decrease in the inventory turnover ratio in the period of 2018-
In 2019, the inventory scale surged by 60.01%, while sales and service revenue rose by 44.6% This disparity was primarily attributed to the substantial raw material needed to support the expanded capacity at the Dung Quat Complex during its second phase Consequently, inventory turnover experienced a significant decline compared to previous years.
2018, equivalent to the average ratio in the last 4 years This ratio gradually stabilized in
2020 after Dung Quat Complex project completed the first phase and went into commercial operation, resulting in a significant decrease in the proportion of average inventory
Industry Analysis
To assess Hoa Phat's performance from 2018 to 2020, the analysis team utilized industry averages provided by third-party analysts, alongside data on the company's primary competitors, which was compiled by students.
Table 4.1 Hoa Phat Cross-Sectional Analysis of Profitability Ratios, 2018 – 2020
HPG Industry HPG Industry HPG Industry
Although Hoa Phat's financial ratios were relatively fluctuating in 2019-2020, the firm kept them at a higher level than the industry average
In 2019, Hoa Phat experienced a decline in its Net Profit Margin Ratio compared to 2018, primarily due to a significant rise in iron ore prices The average iron ore price surged to 100 USD per ton in the second quarter of 2019, marking an increase of approximately 30 USD per ton from the same period in 2018 Despite the escalating input costs, the company's gross profit margin improved from 78 percent to 81 percent.
In 2019, Hoa Phat increased its inventory reserves to leverage financial opportunities amid rising input material prices Consequently, bank loan interest rates rose compared to 2018, while marketing and administrative expenses remained stable This led to a decline in both Operating Profit Margin and Net Profit Margin compared to the previous year.
In 2020, both Hoa Phat and industry profitability ratios saw an increase, with Hoa Phat's revenue from sales and service provision rising by 29.6% compared to 2019 However, the Gross Profit Margin experienced a decline relative to the previous year, approaching levels nearly equivalent to those of 2019.
In 2020, Hoa Phat demonstrated financial resilience, generating 0.21 VND of net profit for every VND of revenue, an increase from 0.188 in 2019, despite the economic challenges posed by the Covid-19 outbreak The company implemented strict cost management strategies and leveraged its integrated production process to maintain efficiency Additionally, the Hoa Phat Dung Quat Complex Project significantly boosted revenue growth and enhanced profit margins, positioning the company favorably against competitors in the steel industry.
In 2020, the entire industry's Return on Equity (ROE) and Return on Assets (ROA) saw significant improvements, with Hoa Phat leading the way Hoa Phat's ROE rose to 22.8%, up from 15.9% in 2019 and 21.2% in 2018, while its ROA increased from 7.4% in 2019 to 10.3% in 2020 This growth was driven by a 29.2% rise in assets and a substantial increase in profit after tax The company's effective utilization of investment assets suggests that these ratios are likely to improve further in the future.
Figure 4.8 Hoa Phat Cross -Sectional Analysis of ROA & ROE, 2018 2020 –
Table 4.2 Hoa Phat Cross-Sectional Analysis of Liquidity Ratios, 2018 2020 –
The industry norm for the current ratio was below the value HPG had in 2018 and
In 2019, HPG demonstrated a strong liquidity position; however, by 2020, its current ratios fell below the industry average This decline was influenced by a recovery in the domestic steel market during the latter half of 2020, coupled with consistent growth in public investment capital disbursement, which boosted steel demand and revenues for many steel companies, aiding in the management of current debts Additionally, HPG engaged in treasury activities, incurring significant current debt to invest in banks for profit through interest rate spreads Consequently, HPG's current ratio being below the industry average is not a major concern.
The quick ratio of HPG stayed near the industry norm throughout the period from
2018 to 2020 This means that when inventory is subtracted from total current assets, HPG’s liquidity looked steady
Table 4.3 Hoa Phat Cross-Sectional Analysis of Debt R atios, 2018 2020 –
From 2018 to 2019, HPG maintained a debt-to-total asset ratio and a debt-to-equity ratio consistently lower than industry averages, despite a significant 43% increase in total debt during this period In contrast, competitors like VGS saw less debt growth, while NKG and HSG even reduced their debt levels By 2020, HPG's debt-to-asset ratio remained below the industry norm, reflecting a positive trend as steel companies improved their debt management Additionally, HPG continued to take on more debt to support its treasury activities, positioning itself favorably within the steel industry as a leading player in Vietnam with numerous expansion projects Notably, HPG also increased its equity alongside its debt to maintain safe debt ratios.
Table 4.4 Hoa Phat Cross-Sectional Analysis of Inventory Turnover, 2018 2020 –
In 2020, the domestic steel industry faced significant challenges, with production capacity exceeding 11 million tons while consumption was only 5.5 million tons, excluding imports This disparity led to substantial inventory buildup, primarily due to a persistent gap between supply and demand, exacerbated by a stagnating real estate market Additionally, the slow turnover of manufactured goods was influenced by the Covid-19 pandemic, rising iron ore prices, and increased production costs As a result, the inventory turnover ratio remained low, averaging 6.7 times over three years, indicating that these short-term difficulties are unlikely to be resolved quickly.
Industry leaders like HPG and HSG have maintained positive cash flow due to robust sales, which offset rising inventory values, resulting in a stable inventory turnover ratio of 48.35% of the industry average over the past three years Conversely, companies in the lower tier, such as NKG and VGS, are experiencing negative operating cash flows, leading to a significant increase in inventory values amid rising steel prices HPG's inventory turnover ratio is lower than the industry average, primarily due to the exceptionally high ratios of smaller steel companies, which have accumulated large quantities of inventory For instance, VGS's average inventory turnover ratio is 4.5 times that of HPG However, inventory turnover ratios can have different implications across industries; a low ratio may indicate poor inventory management, while a high ratio could result in unmet demand and lost customers during supply increases HPG's average inventory turnover ratio of 3.2 over three years reflects stable and effective inventory management practices.
Table 4.5 Hoa Phat Cross-Sectional Analysis of Total Asset Turnover, 2018 2020 –
Hoa Phat's Total Asset Turnover is relatively low due to its high total asset value, primarily influenced by the Dung Quat Complex The project commenced in 2017 and reached full operational capacity between late 2019 and mid-2020 As a result of the complex's large production volume, Hoa Phat's net revenue surged from 55.8 trillion VND in 2018 to 90.1 trillion VND in 2020 However, despite this significant revenue increase, the company's Total Asset Turnover ratio remains lower than that of its competitors and the industry average, as the substantial asset value of the complex has not yet been fully offset by revenue generation.
Hoa Phat's Total Asset Turnover ratio is currently lower than the industry average, indicating potential inefficiencies in asset utilization, though this is not a significant concern as it reflects short-term performance Notably, from 2018 to 2020, Hoa Phat's profitability ratios, particularly Return on Assets (ROA), surpassed the industry average by 2.94%, 2.08%, and 1.69%, respectively Furthermore, in 2020, the company achieved a 29.4% increase in net revenue compared to 2019, while Total Assets grew by only 22.8%, suggesting a gradual improvement in the Total Asset Turnover ratio.
Development strategy
Well –managed inventory and keeping track of the price of raw material
Table 5.1 The amount of inventory of steel industry by the end of 2020
Material Inventory by the end of 2020
In 2020, the COVID-19 pandemic significantly impacted economic activities, leading to a decline in steel consumption and rising inventories A representative from Hoa Phat attributed this trend to the complex progression of the pandemic in Ho Chi Minh City and surrounding southern provinces, coupled with the onset of the rainy season, which adversely affected demand Additionally, due to operational requirements, Hoa Phat's blast furnaces must run continuously, resulting in the company experiencing the highest inventory levels among major enterprises.
Currently, the large amount of inventory will be a two-edged knife to Hoa Phat
As steel prices rise, businesses like Hoa Phat can expect increased profits, but a decline in prices may necessitate inventory restructuring To enhance inventory management, Hoa Phat should implement the new BRAVO technological system Additionally, prioritizing steel exports and developing strategies to protect steel from natural elements will be crucial for Hoa Phat's success in 2021.
Be cautious with the serious change of the Covid-19 pandemic in 2021
The COVID-19 pandemic significantly reduced construction demand and posed challenges for domestic steel consumption, particularly as the rainy season approached However, Hoa Phat Steel Products Joint Stock Company experienced a notable increase in the export volume of its galvanized sheets and steel pipes, primarily driven by a resurgence in demand from the US and Europe as they recover from the pandemic.
Despite the ongoing spread of the Covid-19 pandemic in Vietnam, Hoa Phat must prepare for potential future challenges In the short term, the company aims to maintain a steady production level to meet local demand while navigating the uncertainties of the pandemic Should the situation persist longer than anticipated, exploring investments in sectors like medical equipment and vaccines could provide new revenue opportunities Additionally, focusing on exporting products to countries effectively managing the pandemic, such as the United States, Japan, and China, will be crucial for sustaining growth.
During periods of slow manufacturing, it is an opportune time to enhance employee training and elevate their academic qualifications Recognizing human resources as the cornerstone of success, Hoa Phat prioritizes the development of knowledge and skills among its workforce The company’s subsidiaries actively conduct training sessions and collaborate with universities, colleges, and vocational schools in mechanical engineering to attract skilled workers that meet business growth requirements Hoa Phat Group ensures that its development policies address both quality and quantity equally Additionally, a standardized rating system has been implemented to evaluate human resources across the group, facilitating a structured approach to salary calculations and employee motivation.
Investing digital technology in business administration
In the past decade, Hoa Phat Group has successfully implemented the Bravo administration solution, enhancing its production, sales, and accounting management This upgraded tool serves as a comprehensive management system tailored to the Group's needs, facilitating seamless monitoring and oversight of operations across all affiliated companies With this solution, Board Directors, Chief Accountants, and Sales Department Heads can effortlessly generate reports for Group Leaders Additionally, it optimizes employee efficiency, delivers accurate data, and addresses financial challenges, particularly in managing cash flow, production, and inventory.
At the Hoa Phat Dung Quat Steel Integrated Complex, an investment of over 100 billion dongs has led to the construction of two key facilities: one for iron and steel quality analysis and the other for mechanical and physical testing The quality analysis area is designed to assess the quality of fluid cast iron and slag from blast furnaces, as well as steel throughout various production stages, including desulfurization and casting Featuring one of the world's most advanced automatic sampling systems, samples can be transported from the factories, located 1.5 to 1.7 km away, to the analysis area within just 30 to 70 seconds via modern pneumatic conduits Once received by ABB robots, samples are analyzed, and results are relayed through an automated system, with maximum transmission times of 2 minutes 30 seconds for steel, 5 minutes for cast iron, and 7-10 minutes for slag This robotic analysis capability enables Hoa Phat to diversify its steel grades and deliver high-quality products to the market efficiently.