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HOA PHAT Group - Analysist about hoa phat

Financial Analysis (Đại học Kinh tế Quốc dân)

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NATIONAL ECONOMIC UNIVERSITY AUDITING ICAEW CFAB

GROUP REPORT

FINANCIAL
ANALYSIS

HOA PHAT GROUP

IMPLEMENTATION GROUP INSTRUCTOR

GROUP X PhD. PHAM THI THUY

Hanoi, April 2023

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GROUP MEMBERS

Auditing ICAEW CFAB 62

Number Student's first and last name Student code

1 Dam Hoang Anh (Leader) 11200046
2 Ta Duy Anh 11200361
3 Nguyen Thi Anh 11200476
4 Bui Minh Quang 11206691
5 Le Huu Phuc Thanh 11206870
6 Nguyen Anh Tu 11208274

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PEER ASSESSMENT

Member Assigned tasks Assessment Rating

- General analysis of Actively working in

Cash Flow Statement. groups, completing
Đàm Hoàng Anh - Detailed analysis of assigned group 16,7%
Profitability Ratios. assignments on
- Editing the report. schedule.

- General analysis of Actively working in

Cash Flow Statement. groups, completing
Tạ Duy Anh - Detailed analysis of assigned group 16,7%
Market Value Ratios. assignments on
- Editing the report. schedule.

- Overview of Hoa Phat

Actively working in
Group Joint Stock
groups, completing
Company.
Nguyễn Thị Ánh assigned group 16,7%
- General analysis of the
assignments on
Balance Sheet.
schedule.
- Editing the report.
- General analysis of the Actively working in
Balance Sheet. groups, completing
Bùi Minh Quang - Detailed analysis of assigned group 16,7%
Solvency Ratios. assignments on
- Editing the report. schedule.
- General analysis of
Actively working in
Income Statement.
groups, completing
Lê Hữu Phúc - Detailed analysis of
assigned group 16,7%
Thành Liquidity Ratios.
assignments on
- Making conclusions.
schedule.

- General analysis of Actively working in

Income Statement. groups, completing
Nguyễn Anh Tú - Detailed analysis of assigned group 16,7%
Activity Ratios. assignments on
- Making conclusions. schedule.

ii

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TABLE OF CONTENTS
GROUP MEMBERS ..................................................................................................... i
PEER ASSESSMENT .................................................................................................. ii
TABLE OF CONTENTS ............................................................................................iii
1. OVERVIEW OF HOA PHAT JOINT STOCK COMPANY .............................. 1
1.1. Introduction to Hoa Phat Group Joint Stock Company (HPG) ............................ 1
1.2 Formation and development .................................................................................. 1
1.3. Main lines of business .......................................................................................... 2
1.4. Member companies .............................................................................................. 2
1.5. Shares of Hoa Phat Group .................................................................................... 2
1.6. Senior personnel structure of Hoa Phat Group .................................................... 3
1.7. Position and direct competitors ............................................................................ 3
1.7.1. Company position .......................................................................................... 3
1.7.2. Direct competitors ......................................................................................... 4
2. GENERAL INFORMATION OF STEEL INDUSTRY & INVESTOR
STATEMENT ............................................................................................................... 5
2.1. Industry characteristics......................................................................................... 5
2.1.1. Line of business .............................................................................................. 5
2.1.2. Main features of the steel industry................................................................. 5
2.2. Investor statement ................................................................................................ 6
2.3. Analysis process of HPG ..................................................................................... 6
3. GENERAL ANALYSIS OF HOA PHAT’S FINANCIAL STATEMENT ......... 8
3.1. Income statement ................................................................................................. 8
3.2. Balance sheet ........................................................................................................ 9
3.3. Statement of cash flows ..................................................................................... 13
4. DETAILED ANALYSIS OF HOA PHAT’S FINANCIAL STATEMENT ...... 17
4.1. Profitability ratios............................................................................................... 17
4.1.1. Return on Sales ............................................................................................ 17
4.1.2. Return on Investment ................................................................................... 18
4.1.3. Comparison with Hoa Sen Group (HSG) .................................................... 20
4.2. Activity ratio ...................................................................................................... 22
4.2.1. Analysis activity ratio of Hoa Phat Group .................................................. 22
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4.2.2. Comparison with Hoa Sen and the industry average in 2022 ..................... 27
4.3. Liquidity ratio ..................................................................................................... 28
4.3.1. Analysis liquidity ratio of Hoa Phat Group ................................................. 28
4.3.2. Comparison of the liquidity of Hoa Phat to Hoa Sen Group and the whole
steel industry in 2022 ............................................................................................. 30
4.4. Solvency ratio ..................................................................................................... 31
4.4.1. Total debt ratio ............................................................................................ 31
4.4.2. Debt to equity ratio ...................................................................................... 32
4.4.3. Interest coverage ratio ................................................................................. 33
4.5. Market value ratio .............................................................................................. 33
5. CONCLUSION AND RECOMMENDATIONS ................................................. 38
5.1. Conclusion.......................................................................................................... 38
5.2. Recommendations .............................................................................................. 38
REFERENCES ........................................................................................................... 40

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1. OVERVIEW OF HOA PHAT JOINT STOCK COMPANY

1.1. Introduction to Hoa Phat Group Joint Stock Company (HPG)

Legal name Hoa Phat Group Joint Stock Company

International name Hoa Phat Group

Stock code HPG

Head office Pho Noi A Industrial Area, Giai Pham Commune, Yen My
District, Hung Yen Province

Phone number 024-62848666

Fax number 024-62833456

Website http://www.hoaphat.com.vn

Charter capital VND 44,729,227,060.00 (exclusive on 09/09/2021)

Industry group Steel production (core field)

Positioning Hoa Phat Group - Vietnamese Brand - Global Class

Vision: Becoming an industrial production group with leading quality, in which

Steel is the core field.
Mission: Providing leading products, contributing to improving the quality of life,
and gaining the belief of customers.
Core Values: The core value of Hoa Phat Group is the philosophy of Harmony
with Development. This is reflected in the relationship between officers and employees,
between the Group and its partners, agents, shareholders, and the social community,
ensuring the Harmony of interests of stakeholders on the same boat, towards sustainable
development. In particular, Hoa Phat Group has built a long-term sustainable
partnership, trusting like a family with sales agents who have been with the Group since
the early days of its establishment.

1.2 Formation and development

Hoa Phat is a leading industrial production group in Vietnam.
➢ August 1992: Starting from a company specializing in trading construction
machines, Hoa Phat in turn expanded to other fields such as furniture, steel pipes,
construction steel, refrigeration, real estate, and agriculture.
➢ November 15, 2007: Hoa Phat officially listed shares on the Vietnam stock
market with stock code HPG.

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➢ 2016-2019: Continue to establish more member companies.

➢ December 2020: Hoa Phat Group restructured its operating model with the
establishment of corporations in charge of each field of operation of the Group.

1.3. Main lines of business

Hoa Phat operates in many industries:
- Trading in iron and steel
- Producing all kinds of construction steel
- Mining
- Coke coal production
- Producing construction machinery and equipment
- Producing office, family, school, and business furniture
- Refrigeration production
- Invest in and build synchronous infrastructure and techniques of industrial
parks and urban areas

1.4. Member companies

Currently, Hoa Phat Group has 11 member companies including:
- Hoa Phat Hung Yen Steel Co., Ltd
- Hoa Phat Hai Duong Steel Joint Stock Company
- Hoa Phat Dung Quat Steel Joint Stock Company
- Hoa Phat Metal Manufacturing Co., Ltd
- An Thong Mineral Investment Joint Stock Company
- Hoa Phat Steel Pipe Co., Ltd
- Ton Hoa Phat Co., Ltd
- Hoa Phat Agricultural Development Joint Stock Company
- Hoa Phat Furniture Joint Stock Company
- Hoa Phat Refrigeration Co., Ltd
- Hoa Phat Urban Development and Construction Joint Stock Company

1.5. Shares of Hoa Phat Group

In 2007, Hoa Phat was restructured according to the group model, in which Hoa
Phat Group Joint Stock Company played the role of the parent company with its
member companies and associated companies. On November 15, 2007, Hoa Phat
officially listed shares on the Vietnam stock market with stock code HPG.
- The person holding the most shares of the group is Mr. Tran Dinh Long.
- First trading day: 11/15/2007
- Closing price of the first trading session (thousand dong): 127.0
- Volume of shares listed for the first time: 132,000,000 VND
Currently on April 28, 2023 HPG shares are being traded at 21,650 VND/share

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Figure 1.1. The most recent HPG’s share

1.6. Senior personnel structure of Hoa Phat Group

➢ Chairman: Mr. Tran Dinh Long
➢ General Director: Mr. Nguyen Viet Thang - member of the Board of
Directors, Deputy General Director holds the position of General Director for the
term 2021 - 2026.
➢ Vice Chairman: Mr. Tran Tuan Duong and Mr. Doan Gia Cuong hold the
position of Vice Chairman of the Board of Directors of the group.

1.7. Position and direct competitors

1.7.1. Company position
Steel production is the core field which accounts for 90% of Hoa Phat Group's
revenue and profit.
With a capacity of 8 million tons of crude steel per year, Hoa Phat is the largest
steel producer in Southeast Asia.
Hoa Phat Group holds the No. 1 market share in Vietnam for construction steel,
steel pipes and Australian beef.
Currently, Hoa Phat Group is located in:
- Top 10 largest private enterprises in Vietnam
- Top 10 most profitable enterprises.
- Top 5 listed companies with the largest charter capital in Vietnam's stock market.
- HPG's market capitalization reached 11 billion USD, among the top 15 steel
companies with the largest market capitalization in the world steel industry.
Currently, Hoa Phat Group creates jobs for nearly 30,000 employees and
contributes to the state budget in 27 provinces and cities across the country. The Group's
total contribution to the state budget in 2021 is VND 12,400 billion. In the first 9 months
of 2022, Hoa Phat has paid VND 9,381 billion to the State budget.
With the business philosophy of "Harmony with Development", Hoa Phat spends
tens of billions of VND per year to fulfill its corporate social responsibility to the
community.
For many consecutive years, Hoa Phat brand has been selected as National Brand,

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Top Strongest Brand in Vietnam; Vietnam Gold Star, Top 50 most effective business
companies in Vietnam; Top 30 largest corporate income tax payers in Vietnam, 20
business brands valued at over $100 million by Forbes Vietnam magazine, Top 10
famous Vietnamese brands…

1.7.2. Direct competitors

Pomina Steel Company is one of the largest steel factories in Vietnam today.
Pomina is a chain of 3 construction steel mills and steel mills with a total annual capacity
of 1,1 million tons of construction steel and 1,5 million tons of billet. Currently, Pomina
is one of the largest and most modern construction steel manufacturers in Vietnam and
the leading enterprise in the construction steel market share in the southern region.
Direct competition with Hoa Phat steel company in the field of construction steel
production.
Competitor of Hoa Phat - Hoa Sen Group was born on August 8, 2001 with the
precursor of just a small business, today, Hoa Sen Group has become an enterprise of
producing and trading corrugated iron and steel. large in Vietnam. As a leading
economic group in Vietnam and ASEAN, Hoa Sen Steel distributes construction
materials through a sustainable development strategy based on 5 core competitive
advantages. As a result, Hoa Sen Group has produced and supplied products of
international quality and reasonable price, diversified, satisfying all needs of consumers
in almost all provinces and international regions. Hoa Sen Group and Hoa Phat Group
mainly compete in the steel pipe market segment when these two groups alternately
hold the No. 1 position.
Hoa Phat has only focused on consuming construction steel in the North market,
when the revenue in the North market accounted for nearly 70% of the enterprise's steel
revenue, accounting for 34% market share here but currently only 9% of the market
consumption in the southern region. In the southern region, one of Hoa Phat's main
competitors will be Vina Kyoei, which holds 24% of the southern steel consumption
market share and has just taken control of Vietnam-Italy steel.
Figure 1.2. Comsumption market share in the Southern region

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2. GENERAL INFORMATION OF STEEL INDUSTRY &

INVESTOR STATEMENT
2.1. Industry characteristics
2.1.1. Line of business
- Trading and importing and exporting iron and steel, materials and equipment
for steelmaking and rolling;
- Producing rolling and pulling steel, producing roofing sheets;
- Producing uncoated and plated steel pipes, stainless steel pipes;
- Producing and trading non-ferrous metals of all kinds, non-ferrous metal scraps;
- Iron and steel refining; Cast iron, iron, steel;
- Mining metal ores; Trading in metals, metal ores, scrap iron and steel;
- Producing and trading in construction machines and mining machines;
- Producing furniture for offices, families and schools;
- Producing, trading, assembling, installing, repairing and warranty electrical,
electronic, refrigeration, civil electricity, air conditioners;
- Investing and building synchronously infrastructure and techniques of
industrial parks and urban areas;
- Real estate business
- Producing and trading in feed for livestock and poultry, raising cattle,
processing meat and meat products, etc.

2.1.2. Main features of the steel industry

a. Complexity
Steel production is complicated by many models, many processes, many equipment
and many influencing factors. In order for the production process to be efficient, it is
necessary to perform a lot of calculations and increase the scope of the question in order
to find the optimal solution.

b. Randomness
High volatility, many uncertain conditions, possible change in production plan
midway, and possible problems during production (equipment failure, need for repair,
change of delivery date, hot steel) does not meet standard quality…)

c. Limitation
The raw ore needs to be processed before it can be made into steel, the waiting time
of each furnace needs to be shorter than the time required by the roughing process. In
order to increase the output, the casting machines need to work continuously.
Furthermore, some equipment needs regular maintenance, for example, those in the kiln
area. They are the rules to follow when planning production.

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d. Many objects
The finished product yield rate and production time need to be improved. Those are
the most important goals to consider in steel production management. In addition, using
resources efficiently, reducing costs, meeting delivery deadlines according to customer
requirements and many other things need to be managed as objects in the metal
production process. Different goals also have different effects on how a particular
problem is handled.

e. Continuity
In the steel production process of enterprises, the raw material conveyor should be
operated in the most efficient way. Lines need to be closely linked, and concurrent
production lines need to be considered in order to realize the harmony between
production plans and the ability to handle errors when there is a problem. Managers also
need to recognize the balance between resources including the division of duties across
different steel-making furnaces, lathes, casting machines, rolling mills, and furnaces.

2.2. Investor statement

About us: We are a long-term investors team, who are trying to find a “good”
company to invest in. Our team is willing to accept a certain amount of risk in pursuit
of potentially higher rewards and that we can afford to be patient for a longer period of
time.
Analysis purpose: Right now, we are considering Hoa Phat, a potential investee, to
buy some of the company’s shares. Analyzing Hoa Phat’s financial statements to make
a conclusion whether to invest in Hoa Phat Group.

2.3. Analysis process of HPG

From the perspective of a long-term investor, our analysis will proceed in the
following steps:
Step 1: General analysis of HPG's financial situation through three types of reports:
balance sheet, income statement, and cash flow statement. The data used will be
provided from the financial reports of the 2018-2022 period, and the data sources will
be listed in the Reference section.
In this step, we will identify the major changes in 2022 and the changes throughout
the period without the reasons for the changes. The reason will be explained in detail in
the next step.
Step 2: Detailed analysis of HPG's financial situation through financial ratio
analysis, including five types of ratios: profitability ratio, activity ratio, liquidity ratio,
solvency ratio, and market value ratio. We will use the ratio analysis combined with
reading the financial report to find out the causes of the listed changes in the general
analysis. From there, we will identify the real events that affected those changes over
time.

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For each of the 5 types of ratios, there are various different ratios that can be
calculated. We have chosen to focus on the ratios that we consider to be the most
important for our evaluation. These ratios are calculated based on the financial reports
of HPG over the past 5 years, as well as the ratios of the company's competitors and the
industry as a whole. The ratios of the company’s competitors and the industry average
are collected in two websites Vietstock.vn and Investing.com. The reasons for any
changes in the ratios will be identified from our perspective, as well as from the
reference of various articles and analyses on HPG. Details of the references will be
listed in the reference section.
Step 3: We will provide our overall conclusions and evaluations of HPG's financial
situation in the 2018-2022 period, focusing on 2022 to make predictions about HPG's
future development. We will also decide whether to invest in HPG or not and make
recommendations for the company.

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3. GENERAL ANALYSIS OF HOA PHAT’S FINANCIAL

STATEMENT
3.1. Income statement
Based on HPG's financial statements for the years 2018-2022, we redesigned the
Income Statements over 5 years in a Common-Size format, to be able to compare the 5-
year volatility in the most efficient way. Here is the common-size report:
Table 3.1. Hoa Phat Corporation Common-Size Income Statement

2018 2019 2020 2021 2022

Net Revenue 100% 100% 100% 100% 100%

COS (79,09) (82,43) (79,02) (72,54) (88,15)

Gross profit 21,90 17,57 20,98 27,46 11,85

Selling expense (1,21) (1,37) (1,21) (1,42) (1,88)

Administrative expense (0,79) (0,89) (0,76) (0,88) (0,72)

(include distribution cost)

Finance income 0,53 0,74 1,11 2,05 2,65

Finance cost (1,38) (1,85) (3,15) (2,49) (4,97)

Profit from operations 18,15 14,20 16,97 24,72 6,93

Other income 0,87 1,03 0,72 0,53 0,62

Other cost (0,88) (0,93) (0,65) (0,49) (0,52)

Profit before tax 18,14 14,30 17,04 24,76 7,03

Income tax expense (2,69) (2,52) (1,98) (1,91) (0,71)

Defer income tax profit/ 0,06 0,13 (0,07) 0,21 (0,34)

expense

Profit after tax 15,51 11,91 14,99 23,06 5,98

Besides, we also get the graph of trend of Revenue, Total cost and Net profit of Hoa
Phat Corporation over the last 5 years as follows:

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Figure 3.1. Trend of Growth's HPG

From the above statement and chart, we have some analysis below:
• A pretty stable trend of growth of Hoa Phat’s revenue and cost. No
significant discrepancy between the two items. As a result, Hoa Phat got a much
flatter profit before tax line.
• In 2021, net income sharply increased from 90.118 billion VND to
149.679 billion VND (approximately 66%).
• In 2022, Hoa Phat's COS increased by 14,8% (an increase of
approximately 12-14 billion VND).
• In 2022, revenue also decreased by 8.000 billion VND.
• In 2022, Hoa Phat's financial cost increased sharply by 88% due to
realized exchange rate losses as well as losses from revaluation of foreign
currency principal debt items this period increased by 6,5 times to more than
1.270 billion VND; Loan costs increased by 20% due to high interest rates.
 Net income in 2022 decreased sharply (from 34.520 billion VND to 8.444 billion
VND, by 75,5%).
In general: HPG's Revenue has increased over the last 5 years, but it is also
accompanied by an increase in total costs with a similar level, making profits seem to
have no growth after 5 years. Especially, just within 1 year, from 2021 to 2022, there
was a significant drop in revenue and an unusual increase in costs. We'll learn more
about that anomaly in the next section, where we calculate and analyze financial ratios
to investigate the cause.

3.2. Balance sheet

We redesigned the Balance Sheet over 5 years in a Common-Size format to
compare the 5-year volatility in the most efficient way (Based on HPG's financial
statements for the years 2018-2022):

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Table 3.2. Hoa Phat Corporation Common-Size Balance Sheet

2018 2019 2020 2021 2022

A. ASSET 100% 100% 100% 100% 100%

Cash and Cash
3,22% 4,46% 10,42% 12,61% 4,88%
equivalents
Short-term investments 4,76% 1,35% 6,18% 10,23% 15,42%

Inventory 18,05% 19,07% 19,99% 23,64% 20,25%

Current asset
Current receivable 4,10% 3,50% 4,66% 4,30% 5,81%

Other current assets 2,23% 1,52% 1,91% 2,05% 0,90%

Total Current asset 32,36% 29,91% 43,15% 52,82% 47,26%

Non-current receivable 0,03% 0,03% 0,02% 0,05% 0,05%

Property, Plant and
16,06% 30,44% 49,66% 38,57% 41,21%
Equipment

Intangible asset 0,28% 0,26% 0,19% 0,30% 0,37%

Investment property 0,23% 0,57% 0,43% 0,31% 0,37%

Non-current
asset Long term assets in
48,72% 36,78% 4,75% 5,44% 7,84%
progress

Long-term investments 0,08% 0,04% 0,13% 0,004% 0,0004%

Other long-term assets 2,24% 1,97% 1,46% 2,10% 2,41%

Total non-current asset 67,64% 70,09% 56,85% 47,18% 52,74%

B. LIABILITIES AND EQUITY 100,00% 100,00% 100,00% 100,00% 100,00%

LIABILITIES

Short-term trade payable 11,12% 7,38% 8,30% 13,31% 6,52%

Current
liabilities Short-term prepayment
0,46% 0,40% 0,96% 0,44% 0,51%
from customers

Taxes and other payables

0,62% 0,47% 0,42% 0,45% 0,38%
to government budget

Payables to employees 0,32% 0,24% 0,24% 0,46% 0,18%

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Short-term accrued
0,33% 0,42% 0,49% 0,43% 0,27%
expenses

Short-term unearned
0,01% 0,03% 0,03% 0,01% 0,01%
revenues

Other short-term
0,38% 0,23% 0,25% 0,59% 0,25%
payments

Short-term borrowings 14,69% 16,54% 27,98% 24,54% 27,44%

Short-term provisions 0,01% 0,00% 0,00% 0,00% 0,00%

Bonus and welfare fund 0,97% 0,79% 0,86% 0,98% 1,06%

Total current liability 28,94% 26,51% 39,52% 41,21% 36,62%

Non- Long-term trade payable 2,11% 6,54% 2,01% 0,00% 0,31%

current
liabilities Long-term accrued
0,58% 0,42% 0,17% 0,23% 0,00%
expenses

Long-term unearned
0,00% 0,00% 0,01% 0,01% 0,00%
revenues

Other long-term
0,05% 0,06% 0,05% 0,04% 0,04%
payments

Long-term borrowings 16,38% 19,49% 13,19% 7,55% 6,55%

Deferred income tax

0,00% 0,00% 0,00% 0,00% 0,02%
payables

Long-term provisions 0,23% 0,02% 0,02% 0,03% 0,03%

Total non-current
19,23% 26,53% 15,45% 7,85% 6,95%
liability

Total Liabilities 48,07% 53,04% 54,97% 49,07% 43,57%

EQUITY

Owner’s equity 27,15% 27,13% 25,19% 25,09% 34,14%

Capital surplus 4,11% 3,16% 2,44% 1,80% 1,89%

Treasury shares 0,00% 0,00% 0,00% 0,00% 0,00%

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Differences upon asset

0,00% 0,00% 0,00% 0,00% -0,01%
revaluation

Development and
1,17% 0,91% 0,71% 0,52% 0,49%
investment funds

Undistributed profit after

19,34% 15,60% 16,57% 23,43% 19,86%
tax

Non-controlling interest 0,16% 0,16% 0,11% 0,09% 0,06%

Total equity 51,93% 46,95% 45,03% 50,93% 56,42%

• Cash and cash equivalents & Short-term investments: Increased

significantly in the period 2020-2022. It represents that the Company has
sufficient and huge fund amounts to use in daily operations & look for new
investment projects. However, it also raises the question of treasury
management, in which, how the Company can leave a huge amount of cash left
at the closing date instead of investing in new projects to generate more income
& profits for shareholders.
• Inventory: No significant changes, representing the efficiency in
inventory management. It is critical to the manufacturing company.

Figure 3.2. The Change in Current Asset's HPG

• PPE increased significantly from 2019 to 2022, while long-term assets in

progress decreased dramatically during the same period. It is due to the
completion of the projects to construct the assets, then they were satisfied to be
recorded as PPE.

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Figure 3.3. The change in PPE & Long-term Asset in progress's HPG

The proportion of short-term borrowing increased gradually, which is in contrast to

long-term borrowing's percentage. It showed the increasing pressure on the company to
meet the short-term loan repayment, which would potentially negatively impact on the
company's liquidity. In addition, it represented that the company might not withdraw
many new loans/borrowings during that period. That can be explained by the fact that
the construction in process is completed, then the fund demand to finance those projects
is reduced.

3.3. Statement of cash flows

Table 3.3. Hoa Phat's Cash Flow Statement (2018-2022)

Unit: Billion VND

2018 2019 2020 2021 2022
I. CASH FLOWS FROM OPERATING ACTIVITIES
1. Profit before tax 10.071 9.097 15.357 37.057 9.923
2. Adjustments for:
Depreciation and amortizations 2.286 2.593 4.776 6.083 6.772
Allowance and provisions (73) (6) 28 163 1.011
Exchange (gain)/loss arising from
revaluation of monetary items 30 24 52 42 334
denominated in foreign currencies
(Gain)/loss from investments (113) (286) (491) (1.661) (1.832)
Interest expense 540 937 2.192 2.526 3.084
Allocation of goodwill 18

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3. Operating profit before

change in working capital 12.741 12.359 21.932 44.209 19.291
Change in receivables (1.423) (289) (3.374) (3.039) 4.711
Change in inventories (2.302) (5.132) (7.061) (16.949) 8.023
Change in payables and other
liabilities 1.460 3.558 4.252 9.250 (14.666)
Change in prepaid expenses (501) (8) (89) (814) 3
Interest paid (612) (867) (2.028) (2.567) (3.061)
Income tax paid (1.416) (1.553) (1.717) (2.743) (1.246)
Other payments for operating
activities (304) (352) (328) (625) (777)
Net cash flows from operating
activities 7.642 7.715 11.587 26.721 12.278
II. CASH FLOWS FROM INVESTING ACTIVITIES
1. Payments for additions to fixed
(27.594) (20.825) (11.916) (11.621) (17.888)
assets and other long-term assets
2. Proceeds from disposals to
fixed assets and other long-term 65 27 34 49 22
assets
3. Payments for purchase of debt
(11.296) (4.468) (11.971) (41.061) (55.506)
instruments of other entities
4. Proceeds from collecting loans,
sales of debt instruments of other 17.443 6.832 5.003 31.076 47.413
entities
5. Payments for investments in
other entities (116) (372)
6. Proceeds from investments in
other entities 18 834 7
7. Receipts of interest on term
deposits and loans 947 370 354 1.054 1.698
8. Repurchase of capital
contributions of minority
shareholders in subsidiaries
Net cash flows from investing
activities (20.533) (18.064) (18.495) (19.669) (24.626)
III. CASH FLOWS FROM FINANCING ACTIVITIES
1. Proceeds from issuance of 11 3 11 4

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common stock
2. Proceeds from borrowings 53.472 69.584 83.074 125.075 135.250
3. Payments to settle loan
principals (42.335) (57.194) (65.604) (121.653) (134.771)
4. Payments of dividends (6) (13) (1.419) (1.693) (2.261)
Net cash flows from financing
activities 11.143 12.378 16.054 1.740 (1.778)
Net cash flows during the
period (1.748) 2.029 9.146 8.792 (14.127)
Cash and cash equivalents at
the beginning of the year 4.265 2.516 4.545 13.696 22.471
Effect of exchange rate
fluctuations (1) 6 (16) (20)
Cash and cash equivalents at
the end of the year 2.516 4.545 13.696 22.471 8.325

After evaluating HPG's cash flow performance in 2022, we have the following
observations:
• Cash flow from investment activities was the main source of cash flow,
which is not ideal as manufacturing companies should have their main cash flow
from operating activities to give an initial good view of the company's financial
situation.
• Although cash flow from operating activities was positive, it was still not
enough to cover capital expenditures, resulting in HPG's free cash flow (FCF)
being negative. This is a sign that the company has reduced income or has stalled
and cannot continue to grow.
• The main factor affecting changes in cash flow from operating activities
was a significant decrease in payable and other liabilities, as well as a decrease
in inventory.
• Due to large cash flow from investment activities and a decline in cash
flow from the other two activities, HPG's net cash flow in 2022 was heavily
negative.
• The question is why HPG invested a large amount of money in investment
activities despite the unfavorable financial situation? The reason is refinancing
activities, in the proceeds from borrowing in the financial activities section.
These borrowings help the company purchase and invest more in fixed assets
and other long-term assets.

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Based on our evaluation of HPG's cash flow performance in 2022 and the changes
that have occurred during the 5-year period from 2018 to 2022, we have the following
observations:
• Cash flow from investing activities remains the main source of cash flow.
In particular, a significant amount of capital expenditures is attributed to the
increased refinancing activites of HPG over the years.
• Looking at the components of the cash flow from investing activities,
there have been significant changes. Inventory levels steadily increased from
2018 to 2021, but then decreased sharply in 2022. The same trend was observed
for payables and other liabilities.
• Although the cash flow from operating activities has been positive in all
years, when measured as a percentage of net revenue (as shown in Table 3.4),
2022 had a lower percentage compared to previous years, except for 2021.
• The company's borrowing activities have also affected the following
components: interest paid has steadily increased over the years, and spending on
debt instruments of other entities increased significantly in 2021.

Table 3.4. Horizontal Analysis

2018 2019 2020 2021 2022

Percentage of Net Revenue
Net cash flows from
13,69% 12,12% 12,86% 17,85% 8,68%
operating activities

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4. DETAILED ANALYSIS OF HOA PHAT’S FINANCIAL

STATEMENT
4.1. Profitability ratios
As long-term investors, the first thing we care about is profitability ratios.
- Profitability ratios help determine and evaluate the company’s ability to
generate income against the expenses it incurs and consider the different elements of
the balance sheet and profit and loss account of the company for analyzing the
company’s performance.
- Profitability ratios generally fall into two categories:
+ Return on sales represents the company’s ability to convert sales into
profits at various degrees of measurement.
+ Return on investment represents the company’s ability to generate
returns to its shareholders.
4.1.1. Return on Sales
We consider the 2 most proper ratios in return on sales. These are Gross profit
margin and Net profit margin. From the perspective of long-term investors, we will
particularly focus on Net profit margin.
Table 4.1. Return on Sales formula

Ratio Formula Meaning

Shows how much a business is earning, taking

Gross profit 𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
into account the needed costs to produce its
margin 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
goods and services.

Provides the final picture of how profitable a

Net profit 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
company is after all expenses, including interest
margin 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
and taxes, have been taken into account.

Table 4.2. Return on Sales of HPG

Year 2018 2019 2020 2021 2022

Net Revenue 55.836 63.658 90.119 149.680 141.409
Gross profit 11.671 11.185 18.904 41.108 16.763
Net income 8.601 7.578 13.506 34.251 8.444
Gross profit margin 20,90% 17,57% 20,98% 27,46% 11,85%
Net profit margin 15,40% 11,90% 14,99% 22,88% 5,97%

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Figure 4.1. The Change in Return on Sales of HPG

In general, from 2018 to 2022, the Gross profit margin and the Net profit
margin fluctuated the same. During 2018-2022, both Gross profit margin and Net
profit margin decreased.
Although peaking in 2021, both Gross profit margin and Net profit margin fell
sharply in 2022. The main reason was: in 2022 net revenue decreased slightly
compared to 2021 but Cost of goods sold increased sharply. The reasons were:
- The development of the real estate industry at the beginning of the year was
hot, cooling and freezing at the end of the year, which was the main reason for the
decline in consumption and construction steel price, leading to a gradual decrease in
steel revenue in 2022.
- The energy crisis from the Russia-Ukraine war has pushed the price of coking
coal (one of the two main raw materials of steelmaking by blast furnaces) to
skyrocket, resonating with the influence of slow consumption and low selling prices
due to weak demand, causing the cost of goods sold to increase sharply in 2022.

4.1.2. Return on Investment

We consider the 2 most proper ratios in return on investment. These are Return
on assets (ROA) and Return on equity (ROE). From the perspective of long-term
investors, we will particularly focus on ROE.
Table 4.3. Return on Investment formula

Ratio Formula Meaning

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 Reveals how much after-tax profit a company

ROA
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 generates for every one dollar of assets it holds.

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𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 ROE is a gauge of a corporation's profitability

ROE
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦 and how efficiently it generates those profits.

Table 4.4. Return on Equity of HPG

Year 2017 2018 2019 2020 2021 2022

Net income
8.601 7.578 13.506 34.251 8.444
(Billion VND)
Total equity
32.398 40.623 47.787 59.220 90.781 96.113
(Billion VND)
Average total equity
36.511 44.205 53.504 75.001 93.447
(Billion VND)
ROE 23,56% 17,14% 25,24% 45,67% 9,04%

Table 4.5. Return on Assets of HPG

Year 2017 2018 2019 2020 2021 2022

Net income
8.601 7.578 13.506 34.251 8.444
(Billion VND)
Total assets
53.022 78.223 101.776 131.511 178.236 170.336
(Billion VND)
Average total assets
65.623 90.000 116.644 154.874 174.286
(Billion VND)
ROA 13,11% 8,42% 11,58% 22,12% 4,84%

Figure 4.2. The Change in Return on Investment of HPG

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Overall, from 2018 to 2022, ROE and ROA fluctuated the same. In particular,
ROE in 2021 nearly doubled compared to 2018 and ROA in 2021 also increased much
more than that in 2018. Because 2021 is considered a brilliant year for the steel industry,
Hoa Phat also achieved a record profit of 34,521 billion, up 155% over the previous
year. The driving force behind Hoa Phat's profit in the past year was the commissioning
of Dung Quat Hoa Phat steel plant (phase 1) and the galloping increase in steel prices
in the international market in the first half of 2021.
However, in 2022, there was a serious decline in ROE and ROA because ROE
decreased by more than 36% and ROA decreased by nearly 18%. The reason was that
in 2022, Average total equity and Average total asset increased while Net revenue
decreased, leading to a sharp decrease in Net profit. The reason for the decline was
mentioned in Section 4.1.1.

4.1.3. Comparison with Hoa Sen Group (HSG)

Figure 4.3. Comparison ROE between HPG and HSG

From the chart, as can be seen, ROE of HPG and HSG both decreased from
2018-2019 before increasing sharply in the period of 2020-2021 and falling sharply in
2022. This is the general profit trend of the steel industry because it is a cyclical
industry.
The ROE of HSG fluctuated more strongly than the ROE of HPG.
Table 4.6. Comparison ROE between HPG and HSG

Year ROE = Net profit Asset Financial

margin x Turnover x Leverage

HPG 23,56% 15,40% 0,85 1,80

2018
HSG* 7,93% 1,19% 1,61 4,14

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HPG 17,14% 11,90% 0,71 2,04

2019
HSG* 6,81% 1,29% 1,46 3,62

HPG 25,24% 14,99% 0,77 2,18

2020
HSG* 19,13% 4,19% 1,57 2,91

HPG 45,67% 22,88% 0,97 2,06

2021
HSG* 49,52% 8,85% 2,20 2,54

HPG 9,04% 5,97% 0,81 1,87

2022
HSG* 2,31% 0,51% 2,28 1,99

* The data was collected on 16/04/2023 from Vietstock.vn.

To maintain high ROE, both HPG and HSG use financial leverage. However, the
use of these two corporations is entirely different:
- HSG:
+ Financial Leverage fluctuated around 3 during the prosperous steel
industry period (2020-2021), even up to 4 in 2018. This shows that
equity/total assets is low, debt accounts for the majority of total assets. =>
High risk.
+ Despite borrowing much, HSG's net profit margin is also not very
positive. This index only fluctuated from 1.29% to 8.85% during the
prosperous period of the steel industry.
+ When the steel industry faced difficulties in 2022, interest expenses begin
to “erode” profits due to fluctuations in raw material prices as well as the
slowdown of the real estate industry, Net profit margin was even only
0.51% and ROE plummeted to 2.31% (down more than 47% compared to
2021).
- HPG:
+ HPG's ROE grew steadily by maintaining Financial Leverage at a
manageable level. Specifically, during the prosperous or no longer
prosperous period, HPG always kept the Financial Leverage fluctuating
around 2. This helps HPG not to be “eroded” by interest expenses, despite
the decline in ROE.
+ It can be seen that the use of financial leverage of HPG is more effective
than that of HSG. When the Net profit margin of HPG is always high
(from 9% in a crisis year to 45.05% in a prosperous year) and much higher
than HSG.

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4.2. Activity ratio

Activity ratios measure how efficiently a company performs day-to-day tasks,
such as the collection of receivables and management of inventory. An activity ratio is
a type of financial metric that indicates how efficiently a company is leveraging the
assets on its balance sheet, to generate revenues and cash. These ratios reflect the
efficient management of both working capital and longer-term assets.
Table 4.7. Activity ratio Formula

Ratios Formula Meaning

How many times a company turned over

Inventory 𝐶𝑂𝐺𝑆
its inventory relative to its cost of goods
turnover ratio 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
sold (COGS) in a given period.

Days of How many days, on average, it takes for

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑝𝑒𝑟𝑖𝑜𝑑
inventory on a business to sell its inventory.
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟
hand

Receivables 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 Number of times a company collects its

turnover ratio 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑟𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 average accounts receivable balance.

The elapsed time between a sale and

𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑝𝑒𝑟𝑖𝑜𝑑
Days of sales cash collection, reflecting how fast the
𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟
outstanding company collects cash from customers
to whom it offers credit.

Payable 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 How many times a company pays off its

turnover ratio 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑟𝑎𝑑𝑒 𝑝𝑎𝑦𝑎𝑏𝑙𝑒𝑠 accounts payable during a period.

Average time (in days) that a company

Days of
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 takes to pay its bills and invoices to its
payable
𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 trade creditors, which may include
outstanding
suppliers, vendors, or financiers.

How efficiently a company is using its

Working 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
working capital to support sales and
capital turnover 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
growth.

Total asset 𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 The efficiency with which a company is

turnover 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 using its assets to generate revenue.

4.2.1. Analysis activity ratio of Hoa Phat Group

Based on the above table, we calculate the company’s activity ratios:

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Table 4.8. Inventory turnover and Days of inventory on hand of HPG

2018 2019 2020 2021 2022

COGS (Billion VND) 44.165 52.472 71.214 108.571 124.645
Beginning inventory
11.748 14.115 19.411 26.286 42.134
balance (Billion VND)
Ending inventory
14.115 19.411 26.286 42.134 34.491
balance
Average inventory 12.932 16.763 22.849 34.210 38.313
Inventory turnover
3,13 2,70 2,71 2,58 3,61
ratio (times)
Days of inventory on
116,65 135,02 134,73 141,65 101,00
hand (days)

Table 4.9. Receivables turnover and Collection period of HPG

2018 2019 2020 2021 2022

Net Revenue
55.836 63.658 90.118 149.679 141.409
(billion VND)
Average receivables
4.882 3.385 4.843 6.893 8.777
(billion VND)
Receivables turnover
11,44 18,80 18,61 21,71 16,11
(times)
Collection period
31,92 19,41 19,62 16,81 22,66
(days)

Table 4.10. Payables turnover and DPO of HPG

2018 2019 2020 2021 2022

Purchases
46.531 57.769 78.089 124.419 117.002
(billion VND)
Average trade payables
6.466 8.107 9.211 17.322 17.418
(billion VND)
Payables turnover 7,20 7,13 8,48 7,18 6,72
DPO (days) 50,73 51,22 43,06 50,82 54,34

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Table 4.11. Working capital turnover of HPG

Working capital turnover

2018 2019 2020 2021 2022
Net revenue
55.836 63.658 90.118 149.679 141.409
(billion VND)
Average working
8.610 3.062 4.112 12.733 19.412
capital (billion VND)
Working capital
6,48 20,79 21,91 11,75 7,28
turnover (times)

Table 4.12. Assets turnover of HPG

2018 2019 2020 2021 2022

Net revenue
55.836 63.658 90.118 149.679 141.409
(billion VND)
Average total assets
65.622 89.999 116.643 154.873 174.285
(billion VND)
Total assets turnover
0,85 0,71 0,77 0,97 0,81
(times)

We have the graphs to show the trend of the company’s ratios:

Figure 4.4. The Change in Inventory turnover and DOH of HPG

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Figure 4.5. The Change in Receivables turnover and Collection period of HPG

Figure 4.6. The Change in Payable turnover and DPO of HPG

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Figure 4.7. The Change in Working capital turnover of HPG

Figure 4.8. The Change in Total assets turnover of HPG

From the above tables and graphs, we can conclude some major points:
- In the period 4 years from 2018 to 2021, Hoa Phat’s revenue increased
substantially and the inventory rose gradually to ensure that company always had
goods to sell => Inventory turnover decreased
+ Moreover, Hoa Phat had better business partners, more optimal sales
policy (shorter time to receive money from customers) and good debt
collection ability from customers => Receivables turnover increased
+ In 2021 the company is focusing on implementing many big projects, so
Hoa Phat’s average trade payables increase fastly to meet the need for
expansion => Payable turnover suddenly decreased in this year

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+ Business makes a large purchase, such as investing in more stock, new

products, or equipment. In this year, Hoa Phat’s revenue rose substantially
(by 66%) and the company needed to purchase more goods and inventory
to meet these expansions in production => Working capital suddenly went
down in 2021 (average working capital increased)
+ The company is generating more revenue per dollar of assets. In this
period, both revenue and total assets of the company rose considerably,
which indicate that Hoa Phat used the asset and production resources
reasonably => Total assets turnover increased
- In 2022, The steel industry had many difficulties. Most factories are in a difficult
situation due to high inventory prices. The decrease in selling price made the
companies have the provision for devaluation of inventory or reduce the
producing capacity. Hoa Phat announced to stop operating 4 blast furnaces,
including 2 blast furnaces in Hoa Phat Dung Quat and 2 blast furnaces in Hoa
Phat Hai Duong from November 2022 => This policy made the inventory
balance on the balance sheet and inventory period decrease sharply in 2022
+ The negative global economy made the company reduce the collection
period to meet these difficulties => Receivables turnover increased
+ The company must reduce the capacity for releasing the inventory =>
Payables turnover continue to decrease (purchase decrease)
+ In 2022, the company had difficulties and the revenue dropped down and
the company still needed to raise additional capital to support future
growth => Working capital turnover keeped reducing
+ For each asset, the company generated less revenue and has not used its
assets effectively as expected => Total assets turnover decreased

4.2.2. Comparison with Hoa Sen and the industry average in 2022
We compare some Hoa Phat’s ratios in 2022 with Hoa Sen (The main
competitors) and the industry average:
Table 4.13. Comparison Assets turnover between HPG, HSG and Industry
average

Hoa Phat Hoa Sen Industry average

Inventory turnover (using

3,25 4,66 2,89
average inventory)

Receivables turnover 35,66 24,86 26,55

Total assets turnover 0,81 2,09 0,91

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As we can see the statistics in the table, inventory and receivables turnover of
Hoa Phat is higher than industry average, which shows that in 2022, Hoa Phat has better
inventory and receivables management policy than Hoa Sen (the main competitor of
Hoa Phat) and almost company in the steel industry of Vietnam. With the total assets
turnover, Hoa Phat is less than Hoa Sen and industry average, but it was not too bad in
the background of a negative economy and decrease in steel demand. In the year 2022
with many difficulties and fluctuations, the investors can be optimistic about the
prospect of Hoa Phat in the future.

4.3. Liquidity ratio

- Liquidity is one of the most important aspects that we also need to consider
before any decisions can be made.
- From the financial statements of Hoa Phat, we can calculate some ratios of the
liquidity ratio group. But, in the perspective of a long-term investor, we consider the 3
most proper liquidity ratios, these are current ratio, quick ratio and cash ratio:
Table 4.14. Liquidity ratio formula

Ratio Meaning Formula

- Evaluate ability to pay off short- 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

Current Ratio
term liability of Hoa Phat 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

Quick Ratio
- Conservative level: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Cash Ratio > Quick Ratio >
Current Ratio 𝐶𝑎𝑠ℎ & 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡
Cash Ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

4.3.1. Analysis liquidity ratio of Hoa Phat Group

The following table shows the time-series data of 2 types of ratio of Hoa Phat
(5 years from 2018-2022)
Table 4.15. Liquidity ratios of HPG

2018 2019 2020 2021 2022

Current Assets
25.309 30.437 56.747 94.155 80.515
(billion VND)

Inventory
14.115 19.412 26.287 42.134 34.491
(billion VND)

Cash
2.515 4.545 13.696 22.471 8.325
(billion VND)

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Current Liabilities
22.636 26.984 51.975 73.459 62.385
(billion VND)

Current Ratio 1.12 1.13 1.09 1.28 1.29

Quick Ratio 0.49 0.41 0.58 0.71 0.74

Cash Ratio 0.11 0.17 0.26 0.36 0.13

Figure 4.9. Trend of of HPG’s liquidity ratios

- Over the last 5 years, there is an increase in trend of Current Ratio and Quick
Ratio, and reach the top of the time series in 2022. In general, the Current Ratio over
the years never falls below 1, which expresses good liquidity. Following the
conservative basis, we calculate Quick Ratio and Cash Ratio, too. The Quick Ratios
over 5 years show us the same things as Current Ratios did. Especially, in 2021, all
three ratios reach the top (or near top). According to our understanding, Hoa Phat’s
business went well in 2021, which led to a high net profit and high amount of cash from
operating activities (profit in 2021 increased by 66% compared to that of 2020).
- The Cash Ratios, however, express another aspect of liquidity, where we
recognize a sudden and significant decrease in the ability of Hoa Phat to generate
enough cash to pay for its current liabilities. According to our deep research of the
market and the operation of the company over the year 2022, we see that there is a big
decrease in revenue of Hoa Phat corporation which goes along with an increase in COS
and other different types of expenses, which is also the main purpose for a bad Cash
Ratio index in 2022.
+ During 2022, revenue decreased by 8.000 billion VND. Due to inflation in the
US and Europe along with China's "Zero Covid" policy, which reduced steel
demand in Hoa Phat's main export markets.

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+ In 2022, Hoa Phat's COS increased by 14,8% (an increase of approximately 12-
14 billion) due to the impact of coal price fluctuations stemming from the Russia-
Ukraine war from February 2022. The price of HCC coal continuously peaked
in the first 6 months of 2022, reaching 670 USD, up 96% compared to December
2021, which is the main reason leading to the sharp increase in Hoa Phat's
production cost.
+ In 2022, Hoa Phat's financial cost increased sharply by 88% due to realized
exchange rate losses as well as losses from revaluation of foreign currency
principal debt items this period increased by 6,5 times to more than 1.270 billion
VND; Loan costs increased by 20% due to high interest rates
→ Net income in 2022 decreased sharply (from 34.520 billion VND to 8.444 billion
VND, by 75,5%) → Cash from operating activities fell significantly during this year
and negatively impacted on the Cash Ratio of Hoa Phat.
We assess Current Ratio and Quick Ratio show a good trend over the years, but a
low demand of steel raises a suspicion of liquidity of inventory of Hoa Phat, and we
hesitate whether we should completely evaluate the liquidity of the company based on
the ratios which consist of inventory items. Actually, the bad cash situation of Hoa Phat
is just an abnormal event because of the conflict between Russia and Ukraine and we
highly expect a strong return from Hoa Phat. However, if the conflict continues for too
long, and there is no sign from the company that they have any alternative policies to
face the risk of high COS and low demand for their product, we’ll reject the company
from our potential investment list.

4.3.2. Comparison of the liquidity of Hoa Phat to Hoa Sen Group and the
whole steel industry in 2022
Table 4.16. Liquidity Ratios Comparison

Ratio Hoa Phat Hoa Sen Industry Average

Current Ratio 1,29 1,6 1,23

Quick Ratio 0,74 0,39 0,64

Cash Ratio 0,13 0,05 0,08

- We also have a quick look at Hoa Sen Group, another company operating in
the steel industry. Hoa Sen also recognized a decrease in revenue and a significant
increase in COS like Hoa Phat. This company has a higher Current Ratio than that of
Hoa Phat, however, the others are lower. This is because Hoa Sen has a high amount of
inventory, and we guess that is the result of a low demand of steel due to conflict
between Russia and Ukraine in 2022 (and a high likelihood that Hoa Sen’s inventory is
high because it can’t sell as much inventory as they purchase. The Cash Ratio of Hoa

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Sen is also much lower than Hoa Phat, which is equal to just 0,05, which expresses a
really bad cash situation. This fact proves that Hoa Phat is not so bad in the cash
situation in this conscious industry.
- The industry average also points out something about Hoa Phat if we make the
comparisons. All ratios in 2022 of the company are higher than IA, which means the
effect of political conflict had a negative impact on the whole industry, not just Hoa
Phat, and we highly expect that, when everything comes back to normal again, Hoa Phat
can jump out of the crisis and return strongly.
4.4. Solvency ratio
Table 4.17. Solvency ratio formula

Ratio Formula Meaning

𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡 This ratio is a measure of assets

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 that are growing at the expense of
Total debt ratio Total debt equal the sum of debt.
interest-bearing short-term and
long-term debt

- It shows whether a company’s

𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡
activities are financed with its
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦
own funds or with the help of
Total debt equal the sum of
Debt to equity ratio borrowed funds
interest-bearing short-term and
- It shows whether it will be able
long-term debt
to cover a company's debts if
shareholder equity is liquidated.

Interest Coverage Ratio shows

𝐸𝐵𝐼𝑇
Interest coverage how well profits guarantee the
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑝𝑎𝑦𝑚𝑒𝑛𝑡
ability to pay interest.
4.4.1. Total debt ratio
Table 4.18. Debt ratio of HPG

2018 2019 2020 2021 2022

Total debt 24.305 36.680 54.141 57.212 57.900
Total asset 78.220 101.780 131.510 178.240 170.340
Debt ratio 0,31 0,36 0,41 0,32 0,34
About Hoa Phat Group, we can see that its ratio fluctuates between 0,3 and 0,4.
It means that the value of assets of Hoa Phat which is financed by equity is more than
that of assets purchased by borrowing.
➔ Hoa Phat has enough money to pay its debt.
➔ The risk of the company going bankrupt is low.

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4.4.2. Debt to equity ratio

Table 4.19. Debt to equity ratio of HPG

2018 2019 2020 2021 2022

Total debt 24.305 36.680 54.141 57.212 57.900
Total equity 40.622 47.786 59.219 90.780 96.113
Debt to equity ratio 0,60 0,77 0,91 0,63 0,60
- Debt to equity ratio shows whether a company’s activities are financed with its
own funds or with the help of borrowed funds. In addition, it shows whether it will be
able to cover a company's debts if shareholder equity is liquidated.
- In this case of Hoa Phat Group, debt to equity ratio is lower than 1. It means
that shareholder equity of the group is higher than the amount of debt. Especially, in
2020, when Covid-19 broke out, the group also kept this ratio lower than 1 (0,91). It
shows that Hoa Phat group has enough equity to control and pay its borrowing
- We can see a significant decrease between 2020 and 2021. It is caused by the
large increase of equity between two years (nearly 30,000 billion VND, equal ⅓ value
of equity in 2021). The reason can be explained because the development of the stock
market in Vietnam at that time pushed the stock prices of companies up, and Hoa Phat
Group was no exception. However, it also shows that Hoa Phat is trusted by many
investors.
➔ Ensuring sustainability development without depending too much on borrowing.

Figure 4.10. Trend of Hoa Phat’s Total debt ratio and Debt to equity ratio

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4.4.3. Interest coverage ratio

Table 4.20. Interest coverage ratio of HPG

Interest coverage ratio

2018 2019 2020 2021 2022
EBIT 10.072 9.030 15.292 37.008 9.794
Interest payment 539 936 2.191 2.525 3.083
Interest coverage 18,69 9,65 6,98 14,66 3,18
This ratio of Hoa Phat Group is high (18,69 in 2018 and 3,18 in 2022).
Although it tends to decrease because Hoa Phat Group borrows more and more so
interest payment is higher and higher through the years. However, it also ensures that
Hoa Phat can pay interest on its loan.
This ratio increases significantly in 2021 (from 6,98 to 14,66). The reason for
this increase is the sudden increase in sales compared to COS, which causes EBIT to
increase significantly.

4.5. Market value ratio

Market value ratios are financial metrics that measure and analyze stock prices
and compare market prices with those of competitors and against other facts and
figures.
Through market value ratios, you can determine whether the stocks of a
particular company are overvalued, undervalued, or rightly valued. You can also figure
out the optimal prices at which the shares should be bought or sold.
Table 4.21. Market value ratio formula

Ratios Formula Description

• The current price at which a share of

a publicly traded company is being
Market Price 𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛
bought and sold on the open market.
Per Share 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
• This index is different from the par
value of the stock.

Simply the amount of earnings

Earnings Per 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
attributable to each share of common
Share (EPS) 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
stock.

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• To indicate that investors are willing

to pay more for each dollar of
earnings.
• A high P/E ratio may indicate that
Price-to-
𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 the market is willing to pay a
Earnings
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 premium for the company's future
Ratio (P/E)
growth potential, while a low P/E
ratio may indicate that the company is
currently undervalued or that its
growth potential is limited.

To assess whether a stock is

Price-to-Book 𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛
overvalued or undervalued relative to
Ratio (P/B) 𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦
its book value.
From an investor's perspective, we will first look at the current stock price and
over the years, and then evaluate other indices.
Table 4.22. Market price per share of HPG

2018 2019 2020 2021 2022

Market capitalization
65.734,92 64.885,24 137.335,56 207.543,61 104.666,14
(Billion VND)
Number of shares
2.123,90 2.761,07 3.313,28 4.472,92 5.814,79
outstanding (Millions)
Market Price Per
30.950,10 23.500,03 41.450,03 46.400,03 17.999,99
Share (VND)
The share price recorded a slight decline in 2019, but rebounded and reached its
peak in 2021. However, in 2022, it experienced a sharp decline, dropping 63% in value
compared to the previous year, and even lower by 42% compared to 2018.
However, the share price that we see only represents a part of the assessment of
market value (absolute value). We will continue to analyze related ratios, which present
the relative value:
Table 4.23. Earning per share of HPG

2018 2019 2020 2021 2022

Net Income
8.600,55 7.578,25 13.506,16 34.520,95 8.444,43
(Billion VND)
Number of shares
2.123,90 2.761,07 3.313,28 4.472,92 5.814,79
outstanding (Millions)
EPS (VND) 4.049,41 2.744,68 4.076,37 7.717,77 1.452,23

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The EPS value will correspondingly change with the fluctuation of the stock
price. For example, in 2021, if the stock price is 46,400 VND and the EPS is 7,700
VND, it means investors/the market are willing to pay 6 units to exchange for 1 unit of
earnings. This is also known as the P/E ratio below:
Table 4.24. Price-to-Earnings Ratio and Price-to-Book Ratio (P/E) of HPG

2018 2019 2020 2021 2022

Market capitalization
65.734,92 64.885,24 137.335,56 207.543,61 104.666,14
(Billion VND)
Net Income
8.600,55 7.578,25 13.506,16 34.520,95 8.444,43
(Billion VND)
Total Equity
40.623 47.787 59.220 90.781 96.113
(Billion VND)
P/E (times) 7,64 8,56 10,17 6,01 12,39
P/B (times) 1,62 1,36 2,32 2,29 1,09

Figure 4.11. Market price per Share and Earning per Share of HPG

However, looking at the P/E ratio, although the stock price and EPS were high
in 2021, the amount of money that investors are willing to pay for 1 unit of profit was
the lowest in 5 years. This may explain why the stock value is being undervalued and
investors have low expectations for growth in the near future. In contrast, in 2022,
although the stock price and EPS were both low, the P/E ratio was the highest in recent
years. This could be because investors have high expectations for the stock price
increase, leading to a high increase in buying volume, which is also one of the reasons
causing the stock price to decrease.

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One other ratio we consider is the P/B ratio. Four years before 2022, the stock
price was one and a half times higher than the book value of the stock (2018), and even
doubled in 2020 and 2021. However, in 2022, this ratio was approximately equal to 1.
A P/B ratio greater than 1 indicates that the stock is expected to have high growth
potential. The ratio for the year 2022 being close to 1 can be explained as follows:
• The net asset value is higher than the market capitalization of the stock - This
was true for years prior to 2022, but not for 2022.
• The company is in the recovery process, and its business results are gradually
improving, with increasing profits that help increase the book value at a faster
rate than the stock price - This may be true since 2022 is a period of recovery not
only for companies but also for the economy, although there are still many
challenges, the toughest phase has passed.
And to compare the company's situation with its industry peers specifically and
the industry as a whole, we have the following table:
Table 4.25.

* HPG HSG Industry**

Market capitalization
125.890,11 9.269,85 14.363,47
(Billion VND)
P/E (times) 14,94 37,78 2,16
P/B (Times) 1,31 0,91 0,91
* The data was collected on 28/04/2023 from Vietstock.vn.
** The index is determined by taking the average value of 10 companies in the steel
production industry from raw material procurement.
It can be seen that HPG’s market capitalization is significantly higher than HSG
and the industry as a whole. The P/E ratio is at an acceptable average level, not too high
like Hoa Sen, which could lead to stock price inflation. Meanwhile, the low P/E ratio of
the industry is due to many companies having negative P/E ratios. The P/B ratio has
slightly increased compared to the end of 2022 and is higher than Hoa Sen's and the
industry's, which may indicate that HPGt is on a growth trajectory, as investors expect.
The year 2022 was a challenging year not only for HPG but also for the entire
steel industry. The difficulties, as analyzed above, indicate that although the company
has overcome the toughest crisis, there are still challenges ahead. Although the
difficulties persisted until the end of Q1/2023, positive signs have been predicted for
the latter part of 2023, specifically:
• Overseas, the Asian market, particularly the Chinese real estate market, has
shown positive signs, with previously suspended projects being restarted, which
could increase steel prices and return to a balanced state.
• Domestically, policies to support the real estate market have been passed, and
the government is ramping up public investment.
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• HPG is also focusing all its efforts on the $3 billion Dung Quat 2 project, which
is in the construction phase and, if successful, will elevate Hòa Phát's position in
the manufacturing market, not only domestically but also internationally.
• The conglomerate also has a good corporate governance strategy. In the
recession period such as 2022, HPG was one of the proactive businesses to cut
some projects to stabilize its financial situation and help HPG overcome the
difficult period, maintaining its top position in the industry.

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5. CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion
By analyzing the financial status of the company, it helps us to better understand
the company's performance. Here is the summary about the analysis of ratios:
- Profitability ratios: From the perspective of a long-term investor, we are highly
interested in profitability ratios of the company. Both return on investments and
return on sales fluctuated and decreased in 2022 due to gradual decrease in steel
revenue and weak demand. However, currently, this is the general situation of
the steel industry.
- Activity ratios: Next, we also care about the activities position of the company.
The activity ratios of Hoa Phat in the 5-year period from 2018 to 2022 seemed
to fluctuate. In 2022, the steel industry faces many difficulties due to the decline
in demand but the company still has the ratios above the industry average.
- Liquidity ratios: We assess Current Ratio and Quick Ratio show a good trend
over the years. Even though Cash Ratios in the last year decreased significantly,
it’s still higher than the industry average, which means the effect of political
conflict had a negative impact on the whole industry, not just Hoa Phat, and we
highly expect that, when everything comes back to normal again, Hoa Phat can
jump out of the crisis and return strongly.
- Solvency ratios: The ratios showed that Hoa Phat had enough money to pay its
debt and the company ensured sustainable development without depending too
much on borrowing.
- Market value ratios: all the market value ratios showed that Hoa Phat’s stock has
high growth potential in the future.
Generally, the financial status of Hoa Phat through the analysis of financial ratios
is positive even in the conscious situation of the steel industry.
→ Our decision is to agree to invest in Hoa Phat with a reasonable amount (with the
purpose to support the company’s existing projects) and continue to consider the
situation of the company and the whole industry till we make any other decisions about
additional investment.

5.2. Recommendations
In the background of a negative global economy and the difficulties in the steel
industry, we are skeptical of the company’s future potential from the perspective of
long-term investors. To attract more attentions of the investors in the future, ensuring
the effectiveness of manufacturing systems and follow sustainable development, we, in
the perspective of long-term investors, suggest the company some recommendations:
- To be ready to compete, companies in the steel industry need to continuously
improve and innovate to improve productivity and product quality in the context
of declining steel demand by applying AI into operation. For example, Hoa Phat

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can use Robotics Process Automation (RPA) - one aspect of AI application - to

enhance the quality of the merchandise, reduce the error rate and get cost-
effective phenomena; applying 3D-printing techniques help the company to
anticipate accurately the time to make replacement or maintenance multiple
equipment within the business.
- In 2023, it is forecasted that steel industry demand will continue to increase when
China lifts the "Zero Covid" policy and reopens. Enterprises need to continue to
improve production and business efficiency by strengthening market analysis
and forecasting, organizing production and business flexibly, in line with market
developments. We recommend Hoa Phat expand to an E-commerce platform,
which is an abundant market. Using Machine Learning (AI) to anticipate budgets
more accurately and optimize the inventory situation of the company (and reduce
cost significantly) by predicting different merchandise’s demand for a period of
time.
- Moreover, enterprises should focus on improving their legal capacity, financial
resources, and be more transparent in their accounting system according to
international standards so that when required for inspection, enterprises are fully
providing product transparency. A deep understanding of legal and law systems
of different countries where Hoa Phat has a business will help the company make
exact decisions and avoid any conflict and minimize losses.

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