BACHKHOA UNIVERSITY

INDUSTRIAL MANAGEMENT
CORPORATE FINANCE
---------------o0o---------------

REPORT
HOA SEN GROUP

STEEL INDUSTRY

TRAN THI ANH NHU 1652457- 1652457@hcmut.edu.vn

LE NGOC NGAN 1652410

NGUYEN CHU NGOC THUY HUONG 1450232

NGUYEN QUOC THANH 1552333

HCMC, December 21, 2018

TABLE OF CONTENT

Contents
Company Activities........................................................................................................................5

Trend Analysis...............................................................................................................................6

I. Short-term solvency, liquidity ratios:.......................................................................................6

II.Levergae Ratios:......................................................................................................................8

III. Efficient Ratios....................................................................................................................10

IV. Profitability Ratios:.............................................................................................................12

V. Market value ratio:................................................................................................................13

Benchmark Analysis....................................................................................................................14

1)Liquidity Ratio:......................................................................................................................14

2. Leverage Ratio.......................................................................................................................15

3. Efficiency Ratios:..................................................................................................................16

4. Profitability Ratios:................................................................................................................17

5. Market Value Ratio................................................................................................................19

WACC...........................................................................................................................................20

Capital Structure Weights..........................................................................................................20

Cost of Equity:...........................................................................................................................20

Cost of Debt:..............................................................................................................................21

Corporate Tax Rate:..................................................................................................................21

Stock Valuation............................................................................................................................21

Appendix A...................................................................................................................................23

Introduction to Steel Industry

Vietnamese steel industry is very young, established in the 60s of the 20th century. In the period
from 1975 to 1990, the steel industry of Vietnam developed slowly, mostly using the source of
steel from Eastern European countries and Soviet Union, the output at this period is maintained
at 40,000 – 80,000 tons/ year.

Nowadays, Vietnamese steel industry has many innovations and strong growth. The
establishment of the Vietnam Steel Corporation in 1990 has contributed significantly to the
stability and development of the industry. From 2002 to 2005, many private enterprises were
established, Vietnamese steel industry considerably developed with the total capacity of over 6
million tons per year.

Currently, there are over 60 steel manufacturing companies, three of them are large steel
producers in the market: Southern Steel Company with capacity of 910,000 tons per year;
Pomina Steel Corporation with the capacity of 600,000 tons/ year; and Thai Nguyen Iron and
Steel Company with the capacity of 550,000 tons/ year.

Basically, the steel products consist of two types: long steel and flat steel. At present, Vietnam is
unbalanced in production of two types of these steel.

Long steels are used in the construction industry such as bar or coil steel. Most steel
manufacturers in Vietnam produce only common products such as rebar D10- D41, rolled steel
coil f6- f10 and some types of small and medium size steel. Large long steel (larger than D41) is
used for construction of large projects which are not able to produce by themselves but have to
be imported from foreign suppliers. The current capability of Vietnam’s long steel is over 6
million tons, nearly double the demand.

Flat steel is used in industry such as shipbuilding, manufacturing machinery industry. In 2007, 4
steel plate manufacturers operated: Phu My Steel Factory with the capacity of 0.25 million tons,
Sunsco company with 0.2 million tons, Hoa Sen Group with 0.18 million tons and Vinashin with
0.5 million tons. Thus, the country’s total flat steel production capability is 1.1 million tons.
Whereas, the current demand is about 4-5 million tons, if we operate at full capacity, our country
still has to import about 80% of flat steel.

Vietnamese steel industry currently focuses on producing long steel rather than flat steel due to
the low capital investment, short time to build plants and high investment efficiency. To flat steel
products, in order to ensure the efficiency, the capacity of factories must be large, big capital
investment but the long recovery period. As a result, many large corporations are investing in
construction of large-scale steel mill. In the future, the structure of long steel and flat steel
production in Vietnam will not be as unbalanced as it is now. (According to Dao Thi Thu Hang
(2009). Bao cao nganh thep. Available at:

https://www.shs.com.vn/Handlers/DownloadReport.ashx?ReportID=797)
Company Activities

Hoa sen group

Principal activities:

 Manufacturing roofing sheets by galvanized steel, zinc alloy, paint galvanized zinc
plating and plating of other alloys

 Producing steel purlins, galvanized purlins

 Manufacturing black steel pipes, galvanized steel pipes and other alloys

 Manufacturing steel mesh, galvanized steel wire, steel wire

 Producing PVC ceiling tiles

 Producing construction materials

 Buying and selling building materials, capital goods and consumer goods

 Renting warehouse and transporting goods

 Building industrial and civil constructions

 Producing cold rolled steel coils

 Leasing machinery and equipment and other tangible belongings

History and Achievement of HSG:

8/8/2001: Hoa Sen Joint Stock Company, precursor of Hoa Sen Group Joint Stock Company, was
established
19/5/2016: Investing in the Hoa Sen Yen Bai Hotel and Residence Complex, marked ofcially the
development strategy of Hoa Sen Group in the future. 06/6/2016 Hoa Sen Nghe An Plant at
Dong Hoi Industrial Park – Nghe An province put Galvanizing line with NOF technology with
capacity of 400,000 tons/year into operation and produced successfully the rst nished steel coil.
30/11/2016: Achieving "Vietnam Value" in 2016 for three major product groups: HOA SEN STEEL
SHEET HOA SEN PLASTIC PIPE HOA SEN STEEL PIPE.
01/3/2017: Hoa Sen Group started the construction of Hoa Sen Yen Bai Steel Pipe Plant Project -
the 11th plant of Hoa Sen Group and the 5th Plant in the North market
29/5/2017: Hoa Sen Group was honorably voted for “50 Best Vietnamese Listed Companies” by
Forbes Vietnam (5 consecutive years)
6/2017: Hoa Sen Group was honorably awarded for “Top 50 Vietnam’s Best Performing
Companies awarded by Business Review Magazine (4 consecutive years)
 7/2017: Hoa Sen Group achieved “Top 30 Best Annual Reports 2017
9/2017: Hoa Sen Group was honorably awarded for “Typical South East Enterprise 2017”

With the flexible and creative management of Mr. Le Phuoc Vu and his associates, from a small
company with initial charter capital of VND 30 billion and 22 employees, Hoa Sen Group has
become one of the leading manufacturers and traders of steel sheet in Vietnam and a leading
exporter in Southeast Asia with chartered capital of VND 3,500 billion, revenues reaching
nearly VND 20,000 billion, and after-tax profits reaching over VND 1,500 billion. Hoa Sen
Group has also created jobs for about 10,000 employees. At present, Hoa Sen Group holds a
leading position in manufacturing and trading steel sheets in Viet Nam with 33.1% market share
and 20.3% market share of steel pipe (According to Vietnam Steel Association 2016).

(source: https://www.hoasengroup.vn/en/home)

Trend Analysis

I. Short-term solvency, liquidity ratios:

1. Current ratio:

Current ratio
1.06
1.04
1.04
1.02
1
0.98
0.96 0.95
0.94 0.93
0.92
0.9
0.88
0.86
2015 2016 2017

Year

It is clearly that the ability to pay debt of HSG in 2016 higher than other years (1.04) . Because
there was a big investment from owners to this company (116,396 million dong) compared to
64,722 in 2015 and 34,602 in 2017. The remarkable point is short-term liabilities in 2017 that is
double than 2015 but the ratio is the same. The reason for that is the current asset in 2017 is also
double than in 2015, especially in inventories.

2.Quick ratio:
In the first look from the theory , if quick ratio is less than 1 the company will suffer with many
trouble in dealing with debt. But in the particular industry like Hoa Sen , the situation where
having more inventories is normal or even better. For example, in 2016, Hoa Sen had a big profit
thank to inventories they store (https://infonet.vn/hoa-sen-group-trung-lon-nho-hang-ton-kho-
post205564.info)

Quick ratio
0.34
0.33
0.33
0.32
0.31
0.3
0.3
0.29
0.29
0.28
0.27
0.26
2015 2016 2017

Year

3.Cash ratio:

Cash ratio
0.09 0.085
0.08
0.07
0.06
0.05
0.05
0.04
0.03
0.022
0.02
0.01
0
2015 2016 2017

Year

Cash ratio had an increase from 2015 to 2016, but experienced a significant decrease in 2017.
Addition, the cash ratio for 2016 hold the highest position with 0,085 among the other years,
which indicates that the Hoa Sen firm had enough cash and cash equivalent to pay off 8,5 percent
of its current liabilities. There was a decline by 0.063 between 2016 and 2017, resulting from
current liabilities in 2017 (6,757,387 million dong) was twofold in 2016 (13,427,904 million
dong).

II.Levergae Ratios:

1) Total debt ratio :

Total debt ratio

0.78
0.76
0.76
0.74
0.72
0.7
0.7
0.68
0.66
0.66
0.64
0.62
0.6
2015 2016 2017

Year

Total debt ratio had a fall from 0.7 to 0.66 between 2015 and 2016 and peaked at 0.76 in 2017.
This tells that the company’s liabilities are 76 percent of its total assets in 2017. Therefore, if the
company pay all its debt by using its assets, it would put the company in a difficult position in
the future.

2. Equity multiplier:
 Equity multiplier
3.5 3.24 3.15
3

2.5
1.98
2

1.5

0.5

0
2015 2016 2017

Year

In general, the company’s equity multiplier had a slight decrease between 2015 and 2016 but this
ratio was still high (3.24 – 3.15).Furthermore, this ratio for 2016 was the lowest in 2016. This
indicates that more assets were funding by debt than equity in 2015 and 2016. When a firm’s
assets are primarly funded by debt, the firm is considered to be highly leveraged and more risky
for investors and creditors. This also means that current investors actually own less of the
company assets than current creditors.

3) Debt equity ratio :

Chart Title
3.5

2.5

1.5

0.5

0
2015 2016 2017
Year
In 2017, the debt equity ratio reached 3.14, which worried many shareholders leading to
withdraw shares of many owners. The reason for that is company borrowed money from 30
banks to open more branches and operating system were too high.( https://news.zing.vn/vi-sao-
ton-hoa-sen-co-doanh-thu-ky-luc-nhung-loi-nhuan-cham-day-post877215.html)

III. Efficient Ratios

1. Inventory turnover ratio:

Inventory turnover ratio

3.7
3.59
3.6
3.5
3.4
3.3 3.28

3.2 3.17

3.1
3
2.9
2015 2016 2017

Year

As I mentioned, it is good to have a lot of inventory for HSG because they can meet a large
number of orders in the shortest time when demand suddenly increases dramatically. Evidence is
that from 2015 to 2016 despite equal revenue but strong profit growth. The main reason is that
the company bought cheap inventories in this earlier year before prices rebounded.
(https://infonet.vn/hoa-sen-group-trung-lon-nho-hang-ton-kho-post205564.info)

During the period form 2016-2017, the Inventory Turnover decreased by 11%. This means that
the Inventories increased but at that time inventories is a problem of galvanized steel and steel
industry to cope with fluctuations of imported materials. Hoa Sen representative said that HRC
price (an input materials) has increased by 28% over the same period, but the group cannot
increase the selling price due to getting the market share purpose. (https://baomoi.com/hoa-sen-
va-ap-luc-no/c/27461957.epi)

2. Days’ sale in inventory

 Days’ sale in inventory
120

115
115
111
110

105
101.7
100

95
2015 2016 2017

Year

The rising index in 2016 and 2017 is due to the expansion of the retail distribution branch system
with 60 newly established branches. (https://hoasengroup.vn/vi/bai-viet/du-an-mo-rong-he-
thong-phan-phoi-chi-nhanh-tap-doan-hoa-sen/2280). Therefore, the number of days for
inventory to be sold out has increased. And that is the normal number of days that a company in
a large-scale heavy industry like Ton Hoa Sen to be able to sell their products.

3. Receivables Turnover

Receivables Turnover
38
37 36.6
36
35
34
33
32 31.62 31.5
31
30
29
28
2015 2016 2017

Year
In general, the company's receivables are not worrying because with the high ratio and only 50%
of that from Short-term trade accounts receivable.

IV. Profitability Ratios:

1. Gross profit margin:

Profit margin
0.25 0.23

0.2
0.16
0.15
0.15

0.1 0.08
0.05
0.05 0.04

0
2015 2016 2017

Gross Profit Margin Net Profit Margin

We can see that there is a big gap between Gross Profit Margin and Net Profit Margin. The 2017
revenue increased by 46% compared to 2016 but the gross profit remains the same. In addition,
the operating costs and the costs of loans are part of the burden leading to very low net profit
compared to the average level of companies.. (https://news.zing.vn/vi-sao-ton-hoa-sen-co-doanh-
thu-ky-luc-nhung-loi-nhuan-cham-day-post877215.html)

2.Return on assets (ROA) and Return on equity (ROE)

 ROA vs ROE
0.4
0.36
0.35
0.3
0.26
0.25 0.22
0.2
0.15
0.1 0.066 0.07 0.062
0.05
0
2015 2016 2017

ROA ROE

We can see the gap between the two indicators in 2017.The reason is that the total debt that the
company has to pay is more than double compared to the beginning of the previous year while
the equity is almost unchanged. That makes the company's shareholders disturbed to withdraw
capital, causing the share price to drop to the current level of 6200 VND/share
(https://news.zing.vn/vi-sao-ton-hoa-sen-co-doanh-thu-ky-luc-nhung-loi-nhuan-cham-day-
post877215.html)

V. Market value ratio:

1. Price-earning ratio:

Price-earning ratio
9
7.75
8
7
6
5
4 3.34
3 1.85
2
1
0
2015 2016 2017

Year

If investors usually uses P / E, they tends to invest in businesses having P/E with less than 1 /
bank interest rates.( 1/ 0.07= 14.28) (http://chungkhoanvn.vn/pe-la-gi-hieu-tu-a-den-z-ve-chi-so-
pe-va-cach-dinh-gia-co-phieu/) . So Hoa Sen is a safe and less risky company. Although in 2015
the P/E is low, each earning per share is high, so it is a good time if the investor bought it last
year.

Benchmark Analysis
Classification of ratios

The ratio analysis is grouped under four categories according to financial activity

1. Liquidity Ratio
2. Leverage Ratio
3. Activity or Turnover Ratio
4. Profitability Ratio
5. Market Value Ratio
1) Liquidity Ratio:
The ability to pay bills in the short-run, usually for a period of one year. Liquidity is a prerequisite
for the survival of the firm. These ratios are used to assess the short-term financial position of the
concern. They indicate the firm’s ability to meet its current obligation out of the current resources.
The liquidity ratio can be further classified as follows:
a) Current Ratio
This ratio explains the relationship between the current assets and current liabilities of a business.
Current asset includes those assets which can be converted into cash with in a year’s time.
Current liabilities include those liabilities which are repayable in a year’s tiem

Year 2017
Pomina 1.23
Hoa Sen 0.95

Comments: The current ratio of Pomina is higher than that of Hoa Sen. The Pomina had $1.23 in
current assets for every $1 in current liabilities while The Hoa Sen had its current liabilities
covered 0.95 times over. As a result, the Pomina firm had more ability to repay its short-term
obligation and more healthier than Hoa Sen Corporation.
b) Quick Ratio = ( Current Asset – Inventory )/Current Liabilities
This ratio measures the firm’s ability to pay off short-term obligations without relying on the sale
of inventory.

Year 2017
Pomina 0.77
Hoa Sen 0.29

Comments: the quick ration of Pomina is 0.77, which compared to the Hoa Sen of 0.29 indicates
the Pomina ‘s ability to service short-term obligation is more favorable than Hoa Sen. The
 inventory ‘s Hoa Sen Corporation (6,562,465) account for more than half its current asset
(12,763,371) resulting in that this firm had a sign of short-term trouble.
c) Cash Ratio = (Cash+ Cash Equivalents)/ Current Liabilities.
The cash ratio shows how well a company can pay off its current liabilities with only cash and
cash equivalents. This ratio shows cash and equivalents as a percentage of current liabilities.

Year 2017
Pomina 0.04
Hoa Sen 0.02

Comments: The cash ratio of Hoa Sen is 0.02 which is less than of the Pomina firm of 0.04.
This means that Pomina is more liquid and can more easily fund its debt. Creditors are
particularly interested in this ratio because they want to make sure their loans will be paid.
As you can see, Hoa Sen’s ratio is 0.02 and Pomina’s ratio is 0.04. This tells that Hoa Sen
only has enough cash and equivalents to pay off 2% of its current liabilities while Pomina
has 4% to pay off its current liabilities.

2. Leverage Ratio

Leverage ratio measure the ability of the firm to meet the cost of interest and repayment
capacity of its long-term loans. Following some of the ratios:

a) Debt equity ratio = Total debt/ total equity

This ratio measures the financial leverage of a company by indicating what proportion of debt
and equity a company is using to finance it assets. A lower number suggests there is both a lower
risk involved for creditors and strong, financial security for a company.

Year 2017
Pomina 117.25%
Hoa Sen 314.69%

Comments: the debt equity ratio for Pomina was 117.25%, which compared to the Hoa Sen of
314.69% indicates there may be some issues with the way the Hoa Sen firm was financed.
b) Total Debt Ratio = (Total Assets - Total Equity)/ Total Assets
This ratio measures what proportion of debt a company is carrying relative to its assets. A ratio
value greater than one indicates a company has more debt than assets. Naturally, companies and
creditors prefer a lower number.

Year 2017
Pomina 56%
Hoa Sen 75.89%
 Comments: The total debt ratio for Pomina is 56%, which indicates that the Pomina firm has
twice as many assets as liabilities. Meanwhile, total debt ratio for the Hoa Sen firm is 75,89%,
which indicates that this company’s liabilities are 75 percent of its total assets. As a result, the
debt ratio of Pomina is less risky than of Hoa Sen.
c) Equity Multiplier = Total Assets/ Total Equity
The equity multiplier shows the percentage of assets that are financed or owed by the
shareholders. Conversely, this ratio also shows the level of debt financing is used to acquire
assets and maintain operations.

Year 2017
Pomina 227.25%
Hoa Sen 414.7%

Comments: We can see that equity multiplier of Pomina is less than of Hoa Sen. This tells that
Pomina is more favorable because with the lower ratio is less dependent on debt financing and do
not have high debt servicing costs.
Summary:

3. Efficiency Ratios:

how efficiently or intensively a firm use its assets to generate sales.

a) Inventory Turnover Ratio = Cost of good sold/ Inventory

Inventory turnover is a measure of how efficiently a company can control its

merchandise, so it is important to have a high turn. This shows the company does not
overspend by buying too much inventory and wastes resources by storing non-salable
inventory. It also shows that the company can effectively sell the inventory it buys.

Year 2017
Pomina 5.73 times
Hoa Sen 3.17 times

Comments: As you can see, Hoa Sen’s Turnover is 3.17 times. This tells you that Hoa
Sen only depletes and replenishes its inventory 3.17 times per year to satisfy consumer
demand for its products. Meanwhile, Pomina depletes and replenishes its inventory 5.73
times per year which has more competitive advantage than Hoa Sen. This is because
COGS of Hoa Sen is too high (21,730,791million dong) and that of Pomina is only
10,265,817 million dong.
 a) Day’s sale in inventory = 365days/Inventory Turnover
The days sales in inventory calculation, also called days inventory outstanding or simply days in
inventory, measures the number of days it will take a company to sell all of its inventory. In other
words, the days sales in inventory ratio shows how many days a company’s current stock of
inventory will last.

Year 2017
Pomina 64days
Hoa Sen 115days

Comments: We can easily see that day’s sale in inventory of Hoa Sen is larger than that
of Pomina. This means that Pomina can convert its inventory into cash sooner than Hoa
Sen. This is because Hoa sen’s inventory is about eightfold Pomina

b) Receivables Turnover =Sales/Account receivable

receivable turnover ratio measures how many times a business can collect its average accounts
receivable during the year.

Year 2017
Pomina 5.13
Hoa Sen 31.5
c) Day’s sales in receivables=365days/receivable turnover

Year 2017
Pomina 71days
Hoa Sen 12days
Comments: The receivables turnover of Hoa Sen is higher than of Pomina. This means that
credit sales of Hoa Sen are more likely to be collected than Pomina. In other words, Hoa Sen
collects its receivables about 31.5 times a year or once every 12 days while Pomina has only 5.13
times or once every 71 days. This tells that when Hoa Sen makes a credit sale, it will take this
firm 12 days to collect the cash from that sale.

4. Profitability Ratios:

a Ratio measure how efficiently a firm uses its assets and manages its operations.

a) Gross Profit Margin (GPM) = Gross Profit/ Net sales * 100

Gross profit margin is a profitability ratio that calculates the percentage of sales that exceed the
cost of goods sold. In other words, it measures how efficiently a company uses its materials and
labor to produce and sell products profitably. You can think of it as the amount of money from
product sales left over after all of the direct costs associated with manufacturing the product have
been paid. These direct costs are typically called cost of goods sold or COGS and usually consist
of raw materials and direct labor.

Year 2017
Pomina 9.71%
Hoa Sen 16.9%
Comments: Hoa Sen has 16.9 profit margin and Pomina has 9.71. this tell that for every dollar of
sales Hoa Sen generates, this firm earns 16.9% in profits and 9.71% of Pomina before other
businesses are paid. In this case, Hoa Sen is earning more profit than Pomina.

b) Return On Assets (ROA) = Net Income/ Total Assets

The return on assets ratio measures how effectively a company can earn a return on its
investment in assets. In other words, ROA shows how efficiently a company can convert the
money used to purchase assets into net income or profits. Heavily depreciated assets, a large
number of intangible assets, or any unusual income or expenses can easily distort this
calculation.

Year 2017
Pomina 9%
Hoa Sen 6.2%

Comments: The percent rate of return on assets for Pomina is 9%, which compared to 6.2%
of Hoa Sen indicates that Pomina is more profitable and efficient.

c) Return On Equity

Return on equity measures how efficiently a firm can use the money from shareholders to
generate profits and grow the company. Unlike other return on investment ratios, ROE is a
profitability ratio from the investor’s point of view—not the company. In other words, this
ratio calculates how much money is made based on the investors’ investment in the
company, not the company’s investment in assets or something else.

Year 2017
Pomina 21%
Hoa Sen 25.8%
Comments: The ROE of Hoa Sen is higher than of Pomina, which indicates that Hoa Sen is using
its investors’ funds effectively.

Summary : Athough ROA of Hoa Sen is lower than of Pomina, Hoa Sen has the ratios of GRM
and ROE are higher than of Pomina. This means that investors can choose Hoa Sen when they
see about its profitability ratios. Besides, ROE is perhaps the most important to investors in the
company. It measures the return on the money the investors look at deciding whether or not to
invest in the company.

5. Market Value Ratio

Market value ratios are used to evaluate the current share price of a publicly-held company's
stock. These ratios are employed by current and potential investors to determine whether a
company's shares are over-priced or under-priced. The common market value ratio is price -
earning ratio which is used to evaluate whether the shares are over-priced or under-priced in
comparison to the same ratio results for competing companies.

Year 2017
Pomina 1.67times
Hoa Sen 6.68times
Comments: The price to earnings ratio indicates the expected price of a share based on its
earnings. As a company’s earnings per share being to rise, so does their market value per share.
According to above data, the price-earning ratio of Pomina is less than of Hoa Sen. As you can
see, the Hoa Sen’s ratio is 6.68 times. This means that investors are willing to pay 6.68 dollars
for every dollar of earnings. In other words, this stock is trading at a multiple of 6.68.This tells
that Hoa Sen with a high P/E ratio usually indicated positive future performance and investors
are willing to pay more for this company’s shares. Pomina with a lower ratio, on the other hand,
is usually an indication of poor current and future performance. This could prove to be a poor
investment.

In conclusion, in general, the Pomina firm is less risk than the Hoa Sen Corporation. Although
profitability, market value ratios of Hoa Sen is more beneficial than of Pomina, this firm will
face risks about financial health in the future. Firstly, the Hoa Sen has the large amount of
inventory and if this inventory was damaged, obsolete, or lost, there would be a cause for
concern. Addition, Hoa Sen encroaches financial leverage to expand its market share, resulting in
that debt nearly equal current asset.

WACC
Capital Structure Weights

Market value of equity:

E= the current stock price* total outstanding shares

= 7,000* 384,856,028= VND 2,693,992,196,000

( Source: http://s.cafef.vn/hose/HSG-cong-ty-co-phan-tap-doan-hoa-sen.chn, 19/12/18 )

Market value of debt:

For Market value of debt, we consider short-term borrowings and finance lease liabilities and
long-term borrowings and finance lease liabilities at the end of 2017:

D= 9,015,062,474,063 + 2,835,803,760,461 = VND 11,850,866,234,524 (The figures taken from

Appendix B)

Market value of HSG:

V= D+E = VND 14,544,858,430,524

Weights:

We=E/V = 2,693,992,196,000/ 14,544,858,430,524 0.18522

Wd=D/V= 11,850,866,234,524/ 14,544,858,430,5240.81478

Cost of Equity:

The cost of Equity of HSG is estimated based on the CAPM model:

Re = Rf + *(Rm – Rf)

While Re is the cost of equity.

Rf is the free-risk rate or the government bond rate. We use the government bond rate in Vietnam
within last 6 months: 4.3303%. (Source: https://www.hnx.vn/vi-vn/trai-phieu.html 19/12/18)

 is the systematic risk of HSG: 1.55 (Source: https://f3.vietstock.vn/HSG-ctcp-tap-doan-hoa-

sen.htm. 19/12/18)

Rm is the market return and (Rm –Rf) is the market risk premium. According to Finance and life,
the market risk premium of Vietnam is 11.7 %. (Source:
http://finandlife.com/post/2018/08/08/Equity-Risk-Premium-cap-nhat-giua-2018.aspx)

Therefore:

Re = 4.3303% + 1.55*11.7% = 22.4653%

Cost of Debt:

According to Income Statement in 2017, Interest expenses of HSG is VND 482,275,637,847.

Rd = Interest expenses/ ((market value of debts at the beginning of 2017 + market value of debts
at the end of 2017)/2) = 482,275,637,847/ (((4,366,172,782,781+ 1,418,572,001,810) +
11,850,866,234,524)/2) = 5.469% (The figures taken from Appendix B)

Corporate Tax Rate:

Profit before tax of HSG in 2017 is VND 1,642,639,473,740. Current corporate income tax
expenses in 2017 is VND 281,166,867,134. Corporate tax rate = T c = 281,166,867,134/
1,642,639,473,740 = 17.12% (The figures taken from Appendix B)

WACC = weRe + wdRd*(1-Tc) = 0.18522*22.4653% + 0.81478*5.469%*(1-17.12%)= 7.85%

Stock Valuation

Valuing stock by the relative valuation models P/E.

The value of HSG stocks are estimated at VND 15,389/share according to the method P/E below:

Market Value per share= P/E Average * Earnings per Share (EPS)

= 4.191*3,672 VND 15,389/share

In conclusion, with the WACC is quite low (7.85%) and the estimated price as well as the
current price (just VND 7,000/share), HSG is not really a good company to invest with attractive
characteristics such as VNM or BMP stocks.

Reference Resources:

Dao Thi Thu Hang (2009). Bao cao nganh thep. Available at:

https://www.shs.com.vn/Handlers/DownloadReport.ashx?ReportID=797

https://www.hoasengroup.vn/en/home

https://f3.vietstock.vn/HSG-hoa-sen-group.htm

http://s.cafef.vn/hose/HSG-cong-ty-co-phan-tap-doan-hoa-sen.chn

https://www.hnx.vn/vi-vn/trai-phieu.html

Equity Risk Premium cap nhat giua 2018. Finandlife. Available at:
http://finandlife.com/post/2018/08/08/Equity-Risk-Premium-cap-nhat-giua-2018.aspx

https://hoasengroup.vn/vi/bai-viet/du-an-mo-rong-he-thong-phan-phoi-chi-nhanh-tap-doan-hoa-
sen/2280

https://news.zing.vn/vi-sao-ton-hoa-sen-co-doanh-thu-ky-luc-nhung-loi-nhuan-cham-day-
post877215.html

https://news.zing.vn/vi-sao-ton-hoa-sen-co-doanh-thu-ky-luc-nhung-loi-nhuan-cham-day-
post877215.html
http://chungkhoanvn.vn/pe-la-gi-hieu-tu-a-den-z-ve-chi-so-pe-va-cach-dinh-gia-co-phieu/

Appendix A

POMINA Unit: million dong

Financial Ratios Calculation Values

Ratios

I.Liquidity 1. CA=5,153,756 1.23

Ratios CA
Current Ratio= CL=4,173,898
CL

2. CA=5,153,756 0.77
CA−Inventory
Quick Ratio= Inventory=1,634,959
CL

CL=4,173,898

3. Cash and Cash 0.04

Cash+Cash Equivalents equivalents=158,164
Cash Ratio=
CL
CL=4,173,898

II.Levergae 1. Total Debt= 4,290,853 127,25%

Ratios Total debt
Debt equity ratio=
total eqity
Total Equity=3,371,940

2. Total Assets=7,662,793 0,56

Total Assets – Total Equity
Total debt ratio=
Total Assets Total Equity=3,371,940

Total Assets Total Assets=7,662,793 2.27%

3. Equity Multiplier=
Total Equity
Total Equity=3,371,940

III.Efficient 1. COGS=10,265,817 5.73

Ratios Cost of good sold
Inventory Turnover Ratio= Average Inventory=
Average Inventory
1,792,233(*)

2. Inventory Turnover=5.73 64days

365 days
Da y ' s sale∈inventory=
Inventory Turnover

3. Sales= 11,383,654 5.13

Sales
Receivables Turnover= Average Account
Average Account receivable

2,319,916+ 2,110,201
Average Receivable= =2,215,05
2

4. Receivable Turnover=5.13 71days

' 365 days
Da y sale∈receivable=
Receivable Turnover
 1. Gross Profit=1,103,758 9,71%
( Gross Profit )
Gross Profit Margin= ∗100
Net Sales=11,369,575
Net Sales

IV.Profitabilit
2. Net Income= 697,703 9%
y Ratios
Net income
Return On Assets= Total Assets=7,662,793
Total assets

3. Net Income= 697,703 21%

Net income
Return On Equity= Total equity=3,371,940
Total equity

V.Market Price per sharePrice per share (31/12/17) 3.64

Price−earningratio=
Earnings per share
Value Ratio = VND 12,276 times

EPS= 3,373

(*)

1,634,959+1,949,507
Average Inventory= =1,792,233
2

HOA SEN (2017) Unit: million dong

Financial Ratios Calculation Values
Ratios

I.Liquidity 1. CA=12,763,371 0.95

Ratios CA
Current Ratio= CL=13,427,904
CL

2. CA=12,763,371 0.29
CA−Inventory
Quick Ratio= Inventory=8,898,029
CL

CL=13,427,904

3. Cash and Cash 0.02

Cash+Cash Equivalents equivalents=292,371
Cash Ratio=
CL
CL=13,427, 904

314.69%

1. Total Debt=16,268,654
Total debt
II.Levergae Debt equity ratio= Total Equity=5,169,802
total eqity
Ratios

2. Total 0,7589
Total Assets – Total Equity
Assets=21,438,456
Total debt ratio=
Total Assets
Total Equity=5,169,802

3. Total assets=21,438,456 414.7%

 Total Assets Total equity=5,169,802
Equity Multiplier=
Total Equity

III.Efficient 1. COGS=21,730,791 3.17

Ratios Cost of good sold
Inventory Turnover Ratio= Average Inventory=
Average Inventory
6,846,290 (*)

2. Inventory 115days
365 days Turnover=3.17
Da y ' s sale∈inventory=
Inventory Turnover

3. Sales= 26,149,045 31.5

Sales
Receivables Turnover= Average Account
Average Account receivable

512,883+1147,662
Average Receivable= =830,252.5
2

4. Receivable 12days
' 365 days Turnover=31.5
Da y sale∈receivable=
Receivable Turnover

IV.Profitabilit 1. Gross Profit=4,418,254

y Ratios ( Gross Profit )
Gross Profit Margin= ∗100
Net Sales=26,149,045 16,9%
Net Sales
 2. Net Income=1,331,649 6.2%
Net income
Return On Assets= Total assets=21,438,456
Total assets

3. Net Income=1,331,649 25.8%

Net income
Return On Equity= Total Equity=5,169,802
Total equity

V.Market Price per sharePrice per share 5.74

Price−earningratio=
Earnings per share
Value Ratio 31/12/2017 =VND times
21,074

Earnings per share=

VND 3,673

(*)
Inventory 2016+ Inventory 2017 4,821,501+8,871,079
Average Inventory= = =6,846,290
2 2

HSG: 2016

Financial Ratios Calculation Values

Ratios

I.Liquidity 1. CA=7,057,496 1.04

Ratios
 CA CL=6,757,387
Current Ratio=
CL

2. CA=7,057,496 0.33
CA−Inventory
Quick Ratio= Inventory=4,835,669
CL

CL=6,757,387

3. Cash and Cash 0.09

Cash+Cash Equivalents equivalents=576,621
Cash Ratio =
CL
CL=6,757,387

198.064%

1. Total Debt=8,180,013
Total debt
II.Levergae Debt equity ratio= Total
total eqity
Ratios Equity=4,129,973

2. Total 66.45%
Total Assets – Total Equity
Assets=12,309,986
Total debt ratio=
Total Assets
Total
Equity=4,129,973

3. Total 298.064%
Total Assets Assets=12,309,986
Equity Multiplier=
Total Equity
Total
Equity=4,129,973

III.Efficient 1. COGS=13,717,394 3.28

Ratios Cost of good sold
Inventory Turnover Ratio=
Average Inventory
Average Inventory=
4,182,663 (*)

2. Inventory 111days
' 365 days Turnover=3.28
Da y s sale∈inventory=
Inventory Turnover

3. Sales= 17,893,715 36.6

Sales
Receivables Turnover = Average Account
Average Account receivable

512,883+ 463,585
Average Receivable= =488,234
2

4.
' 365 days
Da y sale∈receivable=
Receivable Turnover

Receivable 10days
Turnover=36.6

IV.Profitability 1. Gross
Ratios ( Gross Profit ) Profit=4,176,322
Gross Profit Margin= ∗100 23.33%
Net Sales
Net Sales=17,893,715

2. Net Income=1,504,190 7.01%

 Net income
Return On Assets=
Total assets
Total
Assets=21,438,456

3. Net Income=1,504,190 36.42%

Net income
Return On Equity= Total
Total equity
Equity=4,129,973

V.Market Price per sharePrice per share 3.3 times

Price−earningratio=
Earnings per share
Value Ratio (31/12/2016) =VND
24,551

Earnings per share=

VND 7,350

(*)
Inventory 2016+ Inventory 2015 4,821,501+3,543,825
Average Inventory= = =4,182,663
2 2

HSG: 2015

Financial Ratios Calculation Values

Ratios

I. Liquidity 1. CA=5,169,208 93.1%

Ratios CA
Current Ratio= CL=5,554,945
CL
 2. CA=5,169,208 29.3%
CA−Inventory
Quick Ratio= Inventory=3,543,825
CL

CL=5,554,945

3. Cash and Cash 4.98%

Cash+Cash Equivalents equivalents=276,693
Cash Ratio=
CL
CL=5,554,945

224.34%

1. Total Debt=6,529,892
Total debt
II.Levergae Debt equity ratio= Total Equity=2,910,772
total eqity
Ratios

2. Total Assets=9,440,614 69.17%

Total Assets – Total Equity
Total debt ratio=
Total Assets Total Equity=2,910,722

3. Total Assets=9,440,614 324.34%

Total Assets
Equity Multiplier= Total Equity=2,910,722
Total Equity

III.Efficient 1. COGS=14,869,355 3.59

Ratios Cost of good sold
Inventory Turnover Ratio= Average Inventory=
Average Inventory
4,145,368.5 (*)
 2. Inventory 101.7days
' 365 days Turnover=3.59
Da y s sale∈inventory=
Inventory Turnover

3. Sales= 17,446,872 31.62

Sales
Receivables Turnover= Average Account
Average Account receivable

639,992+ 463,585
Average Receivable= =551,788.5
2

4. Receivable 11.5 days

365 days Turnover=31.62
Da y ' sale∈receivable=
Receivable Turnover

1. Gross Profit=2,577,516 14.77%

( Gross Profit )
Gross Profit Margin= ∗100
Net Sales=17,446,872
Net Sales

2. Net Income=652,875 6.63%

IV.Profitabilit Net income
Return On Assets= Total Assets=9,440,614
y Ratios Total assets

3. Net Income=652,875 22.4%

Net income
Return On Equity= Total Equity=2,910,722
Total equity
V.Market Price per sharePrice per share 1.85
Price−earningratio=
Earnings per share
Value Ratio 31/12/2015 =VND times
9,647

Earnings per share=

VND 5,211

(*)
Inventory 2014 + Inventory 2015 4,746,912+3,543,825
Average Inventory= = =4,145,368.5
2 2