GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Dương Tường Huy Student ID number: 31201029125

Student name: Lâm Tuyết Ngân (Report) Student ID number: 31201028713

Student name: Huỳnh Tấn Khải (Report) Student ID number: 31201028672

Student name: Phan Quỳnh Hà (report) Student ID number: 31201028646

Student name: Nguyễn Hữu Thắng Student ID number: 31201028760

Student name: Nguyễn Hữu Thịnh Student ID number: 31201028771

Nguyễn Trần Nhật Linh
Student name: (report) Student ID number: 31201029017
Trịnh Hoàng Linh Trang
Student name: (repor) Student ID number: 31201028788

Student name: Phan Minh Triết Student ID number: 31201028908

UNIT AND TUTORIAL DETAILS

Unit name: Financial Accounting Unit number:

Tutorial/Lecture: Huynh Thi Ngoc Anh Class day and time: Thursday morning class
Lecturer or Tutor
name:

ASSIGNMENT DETAILS
Title: Group Project Report

Length: 2,600 words Due date: 25th December, 2022 Date submitted: 25th December, 2022

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ANALYSIS OF HOA PHAT GROUP’S
FINANCIAL STATEMENTS
Group 1
Financial Accounting – FA_S1(2022-2023)DH46ISB-1
Lecturer: Huynh Thi Ngoc Anh
International School of Business - University of Economics HCM City
COMPANY INTRODUCTION

Hoa Phat Group Joint Stock Company (HPG) is a multi-industry

HOA PHAT GROUP
industrial production group in Vietnam. Starting from a company
specializing in trading construction machines in August 1992, it
has gradually expanded its business and engages in 5 sectors: STEEL
Iron and steel (construction steel, hot rolled coil) - Steel
STEEL PRODUCT
products (including steel pipes, galvanized steel, drawn steel
wire, and prestressed steel) - Agriculture - Real estate – Home AGRICULTURE
appliances.
REAL ESTATE
SWOT ANALYSIS
COMPANY INTRODUCTION
Summary

The ROE and ROCE ratios of HPG truly reflect its business investment cycle. The years 2017-2019 witnessed a
considerable decrease in ROE and ROA. The deployment of Hoa Phat Dung Quat Iron and Steel Integrated
Complex in 2017 has made total assets increase significantly, together with the surge in equity to afford this
project. Especially in 2019, HPG has made a substantial investment in its assets, whereas the profit was lower
than that of 2018 as there were many projects that had not yet to be in operation. The year 2020 had turned to
a new page, when those projects started to show their value, initiating giant revenue from 2020 onwards.

HPG's D/E ratio was quite stable in 2016-2017, which shows a certain safety in its business operations, when
HPG can utilize its capital to finance its business without using much debt. In contrast, 3 years later, this ratio
rose to greater than 1, which means that Hoa Phat is using more debt. This is also compatible with the plans to
build and implement many new Hoa Phat projects in the following years from 2017.

FINANCIAL ANALYSIS
1. Profitability
Revenue growth
Hoa Phat Group experienced a strong rising trend in net revenue, outperforming the industry when compared
with peers thanks to its dominant position in the steel industry. In 2019-2020, the widespread of COVID-19
has left many difficulties on the World economy in general and on Vietnam’s Steel industry in particular.
Therefore, HPG’s overall performance in this period was also negatively influenced, when this “big player”
only lived up to 92% of its expected revenue for the year 2019.

From mid-2019, the steel industry began to face difficulties of excess domestic capacity and trade protection
barriers from the oversea market affected its export ability. The growth rate decreased from 2 digits (21%) in
2017 to only 10% in 2018 and continued to fall profoundly and bottomed out in 2019 when gross profit growth
dropped to 4%.
But in comparison to the industry index, gross profit margin of HPG is very outperforming thanks to 2 key reasons:
(1) Closed steel production process (Appendix 7); BOF technique helps HPG reduce its costs as compared with
peers (Appendix 8). And in the following time, with the new acquire fuel ore mine in Australia, HPG will be able to
control largely of its raw materials to save cost and hedge the risk of input price volatility (Appendix 8).

During COVID-19 epidemic 2020-2021, HPG has

excellently revived its business situation and
achieved gross profit growth. The key driver for this
is the new revenue stream with the higher quantity
sold from HRC, since the furnace at HPG Dung Quat
Steel Integrated Complex was fired up in Q4 2020
(hoaphat, 2020). For 2021, the government’s public
investment at the Q3 (baochinhphu.vn, 2022) to
stimulate the economy has enhanced the industry's
consumption volume. HPG will continue to benefit
the most thanks as the one chosen for many large
projects in following time (Appendix 9).

Net profit margin

In 2021, the company achieved a tremendous profit after taxes growth, with a profit for the year 2021 4.3
times higher than in 2017. As mentioned, 2019 was a challenging year for the whole steel industry, in which
the skyrocketing capital and financial expenses also made a profit before tax was reduced to 10.3%.
But in general, net profit margin has always been maintained above 10%. And HPG has showed a very good
cost management when operating expense growth is maintained lower than that of operating income (Fig.6),
especially in 2021, which contributed significantly profit of the firm.

In fact, in 2022, Hoa Phat will encounter many challenges. First, the continuous decline of steel prices, along
with the sharp increase in financial expenses under exchange rate pressure, is reducing the profit margins of
HPG. Thus, HPG had to suffer further losses from the exchange rate difference and the revaluation of foreign
currency debt items as FED increased interest rate. Domestic demand also shows no positive sign as the real
estate and construction industry are under tight control. But, in the long run, we believe that the current
headwinds will be removed soon when China plans to reopen its borders, the real estate market recovers after
the purification period, and the global supply chain returns. Back to a normal pace, Hoa Phat leverage on
tailwind of Vietnam and global macroeconomy.
2. Working capital management

Although the working capital cycle in days tended to have unstable fluctuation in the period 2017-2021, this
index was always lower than the average days in the industry. The main reason for this is that HPG delay the
suppliers' receivables and sped up the customers' payables.

A solid and quick receivable turnover days of HPG compared to its peer group over the last five years
revealing HPG’s fast ability in debt collection, as well as its capacity to turn receivables into cash swiftly. The
quick receivables turnover days also implied that HPG had an effective credit policy and strong collection
mechanism. The high payable turnover compared to average industry indicated that HPG delayed payment to
suppliers, but this is not the big problem as Hoa Phat focused its capital for the Dung Quat Project. In terms of
asset turnover, it declined continuously from 2017 to 2019. This is because in this period, HPG had projects in
the investment stage, their new assets had not yet been placed into service and had not produced any new
revenue stream. The year 2020 was a turning point when those initiatives began to demonstrate their worth,
resulting in massive income, which means that the HPG generated a lot of revenue per unit of assets.

HPG’s inventory turnover in days fluctuated over the last

five years and was relatively lower than its competitors
and the average industry. A low inventory turnover ratio
indicated a stagnant percentage of HPG’s inventory,
which resulted from inadequate inventory management
and weak sales. Specifically, from 2017 to 2018, this ratio
increased, illustrating HPG’s consumption rate and sales
surged over the years. In 2018, the inventory turnover
ratio peaked at 3.13 because of the impressive exported
consumption, up nearly 51% compared to 2017. After
that, this ratio dropped slightly in the next 2 years,
demonstrating that the company's sales were having
some difficulties partly due to the outbreak of COVID-19.
However, HPG still maintained a pretty high ratio in the manufacturing sector due to its unique BOF production
process and the expansion of the Dung Quat project and the introduction of HRC in 2021. For the peers, Hoa
Phat’s inventory turnover witnessed a plateau in the period 2017-2020, but it was not until 2020, that Hoa Phat
started to outperform the industry. This can be explained by the fact that the sale revenue of Hoa Phat started
to bounce back in 2020, and witnessed a boom in 2021, mainly due to the introduction of the hot-rolled coil.
And this increase in sale revenue of Hoa Phat also is also in line with the increase in inventory.

And in fact, the market trend in 2022 has confirmed our viewpoint. When the price of input materials goes up,
but the steel price goes down, HPG has to make provisions for its inventory, and it is also one of the things
that cause a very high COGS for Hoa Phat in 2022, which decreases its profit. But Hoa Phat will soon have
quick responses to this bad trend.

3. Liquidity
Over the courses, HPG current ratio outperformed the industry average standard, with all ratios exceeding 1,
translating to the business having sufficient current assets to cover the company’s current liabilities
throughout the period (Hayes, 2021). In 2017, the ratio stood at 1.79, which is exceptionally high even
compared to the industry standard. Liquidity tends to decline since 2017 for HPG put all its efforts into
investment of Dung Quat Complex project (BSC, 2020), thereby the need of external investment led to a
sharper increase in current liabilities compared to current assets. The dip in 2020 can be attributed to the
Covid-19 pandemic, which made it challenging for businesses to maintain their systems and pay their short-
term debt. In general, HPGs ability to meet short-term obligations had decreased significantly and just
recovered in 2021, but with current ratios always stay above 1, HPG still face little liquidity pressure.

While the number of short-term receivables increased by

219.97% or VND 5,267 billion over the period, the provision
for short-term doubtful debts remained negligible over time,
ranging under 0.12% of total assets, endangering the
company's asset structure if the receivables turn out to be
bad debt.

Cash and cash equivalents of Hoa Phat quadrupled in 5

years, maintained a stable growth rate. Having enough cash
on hand guarantees that short-term spending requirements
are met, suggesting that the business has been growing
healthier and poses less of a risk of defaulting on its short-
term payments (Nguyen, 2021).
The quick ratio of HPG in 2017 is 1.15, greater than 1, showing that the company easily paid debts and had
high liquidity. But from 2017 to 2020, the quick ratio decreased sharply from 1.15 to 0.59, then increased
steadily again and ended up at 0.71 in 2021. Hoa Phat's performance was significantly superior to other
businesses in the sector as HPG has the highest quick ratio in 2017, 2020 and 2021. Other companies’ ratios
were also low, mostly under 0.6 through the years, showing that this is industry-specific considering the
nature of a business dealing in building materials is to keep significant inventories (ABS - An Binh Securities,
2021).

The discrepancy between HPG’s current ratios and quick ratios can be attributed to the large portion of
inventories account, which accounts for at least 18% of total assets. Within 2017-2019, steel consumption in
the market faced many difficulties, while Hoa Phat increased investment in Dung Quat complex to boost
production scale, serving the plan of capturing the market share in the South (Dang, 2019). As from 2020
onward, inventories continued to increase, yet the quick ratio got better since steel prices have increased
sharply due to the recovery of world demand and supply disruptions post Covid-19 epidemic (Manh Duc,
2022a).

In 2022, the market faces many difficulties when world steel prices plunge, putting great pressure on domestic
steel prices. In addition, the armed conflict between Russia and Ukraine, along with the difficulties of the world
economy, led to a decline in market demand, accompanied by fierce competition in the domestic market
(Manh Duc, 2022b). Hoa Phat has a large amount of "liquid money" - ready-to-use money to ensure
immediate payment and purchase raw materials for production when needed - because the company's priority
is to ensure safety, production business and secure capital for Dung Quat 2 project (Viet Hung, 2022).
Therefore, we believe that the company's liquidity will still be well maintained, however, high raw material
prices push up the cost of inventory, yet steel prices continue to fall rapidly and demand for steel decreases
(Nguyen, 2022), HPG’s quick ratio might decrease in the future.
LIMITATIONS

Hoa Phat is a multi-industry corporation, so it is quite difficult to build an industry average ratio system for the
whole company. This also makes the analysis and comparison between Hoa Phat and its competitors become
inaccurate. Steel and agriculture are the two biggest contributors to HPG, but they are very different in nature,
too low the gross profit margin of agriculture can lead to a decrease in the company's gross profit margin and
make Investors misunderstand HPG's steel business.

Steel and agriculture are the two biggest contributors to HPG, but they are very different in nature, too low the
gross profit margin of agriculture can lead to a decrease in the company's gross profit margin and make
Investors misunderstand HPG's steel business. Currently, agriculture only contributes 5% of the profit, but if in
the future, agriculture becomes the main segment of the group, continuing to combine both segments will
make the analysis data when compared with the steel industry to be seriously skewed.

HPG officially entered the agriculture industry in 2016. In the first 5 years, the revenue growth rate of this
segment reached more than 70%, and in 2020, contributed to 12% of the total revenue of the whole company.
. 2020 and 2021 is a special times, causing sales prices to drop and raw material prices to escalate, making
this segment pale in comparison to the steel industry. However, in the opposite situation of 2022, when the
steel market is stagnant, the record agricultural output will have a larger contribution to the group's revenue.
In the third quarter of 2022, the agricultural segment is contributing VND 1,743 billion in revenue and VND 99
billion in profit after tax. This is the first quarter the profit of the agricultural segment surpassed steel (loss of
2,556 billion dongs).

The situation is also showing that the agricultural industry will become the main profit growth driver of HPG in
the near future, so separating the two different business segments will help investors have a better view of the
profit. HPG's profit compared to competitors.
 APPENDIX 1: BALANCE SHEET

TITLE 2016 2017 2018 2019 2020 2021

A. Current asset 18,182,787 33,068,060 25,308,725 30,436,937 56,747,258 94,154,860
I. Cash and cash equivalents 4,558,661 4,264,642 2,515,617 4,544,900 13,696,099 22,471,376
Cash 556,923 764,397 1,822,302 1,678,314 2,094,314 6,316,300
Cash equivalents 4,001,738 3,500,245 693,315 2,866,586 11,601,785 16,155,076
II. Short - term financial
693,499 9,936,707 3,724,563 1,374,340 8,126,993 18,236,153
investments
Trading securities - - - - - -
Provisions for devaluation of
- - - - - -
trading securities
Held to maturity investments 693,499 9,936,707 3,724,563 1,374,340 8,126,993 18,236,153
III. Short-term receivables 2,394,831 6,555,419 3,210,279 3,561,397 6,124,790 7,662,681
Short-term trade receivables 1,546,607 1,999,844 2,281,761 2,699,937 3,949,487 4,973,096
Short-term repayments to suppliers 705,742 4,007,003 810,319 757,833 1,303,038 1,722,372
Other short-term receivables 182,963 583,181 150,952 139,273 910,366 981,799
Provision for short-term doubtful
(41,339) (35,985) (37,694) (37,146) (39,336) (39,275)
debts
Shortage of assets awaiting
857 1,376 4,940 1,500 1,236 1,168
resolution
Short-term loan receivables - - - - - 23,522
IV. Inventories 10,247,176 11,748,873 14,115,139 19,411,923 26,286,822 42,134,494
Inventories 10,391,476 11,893,184 14,188,336 19,480,667 26,373,361 42,370,012
Allowances for decline in value of
(144,300) (144,311) (73,197) (68,744) (86,539) (235,518)
inventories
V. Other current assets 288,621 562,419 1,743,128 1,544,376 2,512,554 3,650,157
Short-term prepaid expenses 24,180 118,434 122,420 118,551 141,398 296,697
Deductible VAT 255,637 421,916 1,601,957 1,400,160 2,357,339 3,335,690
Taxes and other receivables from
8,804 22,068 18,750 25,665 13,817 17,769
the State
B. Long-term assets 15,043,766 19,954,124 52,914,282 71,339,093 74,764,176 84,081,563
I. Long-term receivables 18,173 21,811 22,302 27,718 305,166 809,235
Other long-term receivables - - - - - -
II. Fixed Assets 12,670,460 13,197,797 12,782,561 31,249,494 65,561,657 69,280,842
Tangible fixed assets 12,487,811 13,012,259 12,565,364 30,980,122 65,307,820 68,744,126
Cost 18,855,209 21,244,527 22,992,664 43,804,940 82,616,601 91,026,106
Accumulated depreciation (6,367,398) (8,232,268) (10,427,300) (12,824,818) (17,308,781) (22,281,980)
Financial leased fixed assets - - - - - -
Cost - - - - - -
Accumulated depreciation - - - - - -
Intangible fixed assets 182,649 185,538 217,197 269,371 253,837 536,716
Cost 215,971 225,393 268,392 339,571 342,995 618,322
Accumulated depreciation (33,322) (39,856) (51,195) (70,199) (89,158) (81,606)
III. Investment property 202,757 191,191 179,741 576,617 564,297 548,211
IV. Long-term assets in process 1,154,980 5,468,751 38,107,321 37,435,320 6,247,214 -
Construction-in-progress 1,107,961 4,726,078 37,196,900 36,685,174 5,328,743 9,698,699
Long-term work in progress 47,019 742,674 910,420 750,146 918,471 8,289,285
V. Long-term financial investments 78,864 16,952 66,585 45,794 171,085 1,409,414
Investments in associates 3,271 - - (1,431) 385 6,716
Held to maturity investments 59,891 1,252 65,885 46,526 170,000 6,016
Investments in equity of other
15,702 15,700 700 700 700 700
entities
VI. Other long-term assets 918,531 1,057,623 1,755,774 2,004,150 1,914,758 3,737,860
Long-term prepaid expenses 716,374 832,464 1,461,312 1,650,739 1,646,095 3,171,382
Goodwill 74,834 54,405 88,234 61,185 43,110 37,122
Deferred income tax assets 127,323 170,753 206,228 292,227 225,553 529,356
TOTAL ASSETS 33,226,552 53,022,185 78,223,008 101,776,030 131,511,434 178,236,422
 APPENDIX 1: BALANCE SHEET

C. Liabilities 13,376,291 20,624,605 37,600,058 53,989,394 72,291,648 87,455,797

I. Curent liabilities 11,985,020 18,519,723 22,636,149 26,984,198 51,975,217 73,459,316
Short-term trade payables 3,733,635 4,226,438 8,706,913 7,507,199 10,915,753 23,729,143
Short-term advances from
1,036,124 824,276 361,444 408,692 1,257,273 788,003
customers
Taxes and other obligation to the
744,423 378,252 481,510 478,426 548,579 796,022
State Budget
Payables to employees 262,346 294,643 252,288 247,937 313,100 816,457
Short-term accrued expenses 159,606 308,755 261,634 429,777 640,130 772,615
Other short-term payables 140,603 442,135 300,070 237,392 328,061 1,047,159
Short-term borrowings and
5,488,171 11,328,519 11,494,717 16,837,653 36,798,466 43,747,643
financial leases
Bonus and welfare funds 399,761 705,691 761,404 806,604 1,133,445 1,740,567
Short-term provisions 14,918 8,151 6,239 3,111 5,847 4,756
Short-term unearned revenues 5,433 2,863 9,930 27,406 34,564 16,952
- - - - - -
II. Long-term liabilities 1,391,271 2,104,882 14,963,908 27,005,196 20,316,431 13,996,481
Long-term trade payables - - 1,647,092 6,652,492 2,637,988 -
Long-term accrued expenses 280,768 386,454 451,101 427,329 223,664 410,408
Other long-term payables 118,559 46,660 36,481 58,387 68,736 63,027
Long-term borrowings and finance
972,200 1,651,495 12,810,997 19,842,099 17,343,248 13,464,932
lease liabilities
Deferred income tax liabilities 909 323 - 1,105 666 -
Long - term provision 18,835 19,950 18,238 20,414 26,001 49,311
Long-term unearned revenue - - - 3,370 16,128 8,803
- - - - - -
D. Owner’s equity 19,850,261 32,397,580 40,622,950 47,786,636 59,219,786 90,780,626
I. Owner’s equity - - - - - -
Contributed capital 8,428,750 15,170,790 21,239,072 27,610,741 33,132,827 44,729,227
- Ordinary shares with voting rights 8,428,750 15,170,790 21,239,072 27,610,741 33,132,827 44,729,227
Capital surplus 674,149 3,202,199 3,211,560 3,211,560 3,211,560 3,211,560
Treasury Stocks - (1,693) - - - -
Development and investment funds 1,156,416 518,642 918,642 923,642 928,642 923,549
Other equity funds - - - - - -
Undistributed profit after tax 9,486,352 13,397,029 15,126,438 15,876,914 21,792,443 41,763,426
- Undistributed profit after tax
3,317,122 8,006,672 8,573,014 7,527,443 13,450,300 34,478,143
brought forward
- Undistributed profit after tax for
6,169,229 5,390,357 6,553,424 8,349,471 8,342,143 7,285,283
the current year
Exchange rate differences - - 277 566 5,568 (1,926)
Non-controlling interest 104,595 110,614 126,961 163,214 148,747 154,789
II. Funding sources and other
- - - - - -
funds
TOTAL OWNER'S EQUITY AND
33,226,552 53,022,185 78,223,008 101,776,030 131,511,434 178,236,422
LIABILITIES
 APPENDIX 2: INCOME STATEMENT

TITLE 2016 2017 2018 2019 2020 2021

Revenues from sales and services
33,884,892 46,854,826 56,580,424 64,677,907 91,279,042 150,865,360
rendered
Revenue deductions 601,682 693,134 743,965 1,019,714 1,160,538 1,185,570
Net revenues from sales and
33,283,210 46,161,692 55,836,458 63,658,193 90,118,503 149,679,790
services rendered
Cost of goods sold 24,532,650 35,536,121 44,165,626 52,472,820 71,214,454 108,571,380
Gross profit from sales and
8,750,560 10,625,571 11,670,832 11,185,372 18,904,050 41,108,410
services rendered
Financial income 197,181 186,215 294,408 471,054 1,004,790 3,071,441
Financial expenses 367,987 555,757 772,317 1,181,676 2,837,406 3,731,542
- In which: interest expenses 279,952 479,708 539,861 936,710 2,191,681 2,525,823
Gain/ loss from joint ventures and
(535) (160) - (1,431) 1,965 4,465
associates
Selling expenses 489,954 594,708 676,809 873,334 1,090,796 2,120,068
General administration expenses 404,587 409,038 444,025 569,006 690,299 1,324,262
Net profits from operating
7,684,678 9,252,124 10,072,089 9,030,980 15,292,304 37,008,443
activities
Other income 434,468 432,792 488,857 657,681 654,081 796,666
Other expenses 417,322 396,546 489,873 591,998 589,418 748,332
Other profits 17,146 36,245 (1,016) 65,682 64,663 48,334
Total net profit before tax 7,701,824 9,288,370 10,071,073 9,096,662 15,356,967 37,056,778
Current corporate income tax
1,138,490 1,317,629 1,506,320 1,603,308 1,784,568 2,855,306
expenses
Deferred corporate income tax
(42,869) (44,016) (35,798) (84,894) 66,235 (319,484)
expenses
Profits after enterprise income tax 6,606,203 8,014,757 8,600,551 7,578,248 13,506,164 34,520,955
Minority interest 4,101 8,084 27,536 50,805 55,864 42,812
Profits after tax of parent company 6,602,102 8,006,672 8,573,014 7,527,443 13,450,300 34,478,143
APPENDIX 3: Ratio calculation

ROE 2017 2018 2019 2020 2021

HPG 31% 23% 17% 25% 46%
Industry 11% 2% 1% 6% 15%

D/E 2017 2018 2019 2020 2021

HPG 106% 137% 157% 134% 115%
Industry 72% 74% 66% 64% 58%

Liquidity Ratio
2017 2018 2019 2020 2021
(times)

HPG 1.8 1.1 1.1 1.1 1.3

Industry 1.1 1.1 1.0 1.0 1.2

Quick Ratio
2017 2018 2019 2020 2021
(times)
HPG 1.15 0.49 0.41 0.59 0.71
Industry 0.43 0.43 0.37 0.44 0.39

ROCE 2017 2018 2019 2020 2021

HPG 23% 15% 10% 17% 33%
Industry 11% 1% 1% 6% 18%

Net profit margin 2017 2018 2019 2020 2021

HPG 17% 15% 12% 15% 23%
Industry 4% 9% 16% 48% 19%

Gross profit
2017 2018 2019 2020 2021
margin
HPG 23% 21% 18% 21% 27%
Industry 10% 6% 5% 9% 11%
 APPENDIX 3: Ratio calculation

Working capital
2018 2019 2020 2021 2021
cycle (days)
HPG 95.51 67.43 74.5 83.37 67.65
Industry 111.73 103.42 114.43 133.39 130.64

Inventory turnover in
2018 2019 2020 2021 2021
days
HPG 112.96 106.87 116.61 117.11 115.01
Industry 102.49 92.13 107.95 126.96 132.99

Accounts payable
2017 2018 2019 2020 2021
turnover in days
HPG 31.47 53.44 56.39 47.21 58.24
Industry 20.11 17.07 27.58 32.97 32.77

Accounts receivable
2017 2018 2019 2020 2021
turnover in days
HPG 14.02 13.99 14.28 13.47 10.88
Industry 24.46 23.63 28.38 32.84 25.36

Fixed assets turnover 2017 2018 2019 2020 2021

HPG 3.57 4.3 2.89 1.86 2.22

Industry 3.61 3.41 2.9 2.68 4.58

Net assets turnover

2017 2018 2019 2020 2021
(times)

HPG 1.77 1.53 1.44 1.68 2

Industry 3.65 4.1 3.55 3.02 4.36
APPENDIX 4: SWOT ANALYSIS

Strength Weakness
• Cost advantage from a closed steel production • Depending heavily on the global steel market
process
Coal prices experienced considerable fluctuations in the
Hoa Phat is Vietnam's only construction steel enterprise first nine months of the year, tripling the average level in
that succeeds with closed-loop blast furnace technology two peaks in March and May. The conflict between
from iron ore to finished steel, also known as upstream Ukraine and Russia has raised concerns about supply
steel production. The complexes are built synchronously shortages, leading to a shock in coal prices to the rest of
to help optimize the value-added chain in the stages of the the market (vnfinance, 2022). Regarding demand side,
metallurgical cycle and are now the most organized, China's "Zero-Covid" implementation policy have caused
synchronous, and modern in Vietnam. steel demand in this market to decrease, which negatively
• Geographical advantages: impact to Vietnam steel industry and HPG in specific.

Until now, Hoa Phat Group has 12 member companies
with about 14,200 officers and employees. And dozens of
factories across the country. A wide distribution network
allows the company to centralize it business model and
maximize the capital management efficiency (vnr500,
2017). The establishment of Dung Quat complex allows
more steel to be transported to the southern by seaway
as well as exported while saving a lot of transportation
cost (hoaphat, 2020).
• Excess inventories
The steel industry is witnessing difficulties due to a sharp
drop in demand, slowing consumption of enterprises, and
increasing inventories.
Moreover, the inventory provisions in the previous quarter
have also not yet been reversed. The company may face a
thinner profit margin due to the provisioning burden given
the following time.

• State-of-the-art production line

Most steel plants in Vietnam currently use EAF (Electric
Arc Furnace) to melt scrap steel to manufacture steel.
However, Hoa Phat Group uses BOF (Basic Oxygen
Furnace) as its primary method, which can produce more
steel products along the vertical value chain at a 15%
lower cost than the EAF method (Fig.5).
Opportunities Threats
• Export opportunities: • Difficulties in export activities

The tension between the US-China and Russia - Ukraine Under the global slowed-down economy, steel demand
conflict has threatened the global supply chain. This has from many export markets has declined considerably.
brought many difficulties for the worldwide economy and Additionally, The Ministry of Finance proposed that the
an exporting opportunity for the Vietnam steel industry. Government increase the export tax on steel billet from
Given EU and the US are now the top 4 and 5 most 0% to 5%, which may negatively affect HPG.
prominent markets for HPG, the firm can utilize this
• Price volatility
chance to meet the demand of these potential areas
(Fig.6). The financial costs of Hoa Phat have climbed sharply due
to hiking in exchange and interest rates (Vietnam Insider,
• Government support
2022). With coal and iron ore materials mainly coming
Domestic steel consumption is predicted to increase from imported sources and a part of the loan balance in
significantly in 2022 because of rising public investment USD, HPG continued to record in this quarter the total
disbursement public works, a focus on infrastructure, and realized net exchange rate difference loss.
a recovery in civil construction activities once the
epidemic is under control (BSC Securities, 2021).
Specifically, the National Assembly approved an economic
recovery support package, of which 113,850 billion VND
is allocated for infrastructure development leading to
increase demand for iron and steel (Phùng et al., n.d.).
APPENDIX 4:SWOT Analysis
Construction steel market share (2021) HPG main export markets

HPG 2020
Southeast Asia
VNSteel
China
Formosa
EU
Vina Kyoei 2019
Taiwan
Pomina US
Others Others

Source: Shinhan Bank Securities Source: VSA, 2020

Dung Quat geographical advantages

Export

Export

Shipment

Source: Mirae Asset Vietnam

Coking Coal price (USD/ton) HPG and Chinese Steel price correlation

14,000
210 Source: FiinPro, Custeel
13,500
200
13,000 China
190
12,500
180 HPG
170 12,000

160 11,500
150 11,000
APPENDIX 5:HPG VISION-MISSION-CORE VALUES and Subsidiaries

VISION
To become an industrial manufacturer with a leading product quality as its steel production being its core
business sector.

MISSION
To provide leading products, contribute to improved life quality and gain customers’ trust

POSITION
Hoa Phat – Vietnamese brand, global standard

MISSION
The core value of Hoa Phat Group is the philosophy of Harmony for Joint Development. This is reflected in
the relationship among the 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. Especially, Hoa Phat Group has built a long-term, sustainable and trusting
partnership with the sales agents who have been with the Group since the beginning of its establishment.
APPENDIX 6: PESTLE ANALYSIS
1. Political

Difficulties and challenges are increasing on a global scale due to social, regional, and global geopolitical
issues. However, Vietnam maintains political stability, social order, and safety; External relations and
integration are expanded. Vietnam sets up risk management tools in recession and crisis; prepare for
cooperation and healthy competition (dangcongsan.vn, 2022).

Vietnam promotes the review, amendment, and completion of regulations to eliminate difficulties in practice by
reviewing and cutting taxes and fees. Specifically, the preferential import tax reduction for finished steel
products is carefully considered to contribute to the domestic steel industry's input costs reduction,
sustainable development, stabilize the market, and ensure compliance with the principles specified in the law
(baochinhphu.vn, 2021). Additionally, the Ministry of Construction suggested relevant localities and agencies to
monitor, promptly update the announcement of construction material prices and construction price indexes in
line with reality; proposed related industries to boost production and increase steel supply in the market.

The US, EU, and China aim to lower carbon emissions in the steel and aluminum industry in order to protect
the environment; and take actions to minimize steel dumping practices that contribute to oversupply
worldwide.

2. Economic

At the beginning of 2022, when the COVID-19 epidemic tends to stabilize, the world situation constantly
appears new factors, which are fast, intense, unpredictable, and have a significant impact on developing
countries, which are dependent on imported inputs. In the context of the Russia-Ukraine conflict, the world
economy's growth slowed down, increasing the possibility of a recession in the short term . Electricity, gas
prices, and inflation will likely peak in 2022, which risks the financial market stability and global fuel price crisis
(dangcongsan.vn, 2022). Vietnam maintains a stable macroeconomic environment, indicated by the fact that
GDP in 9 months of 2022 increased by 8.83% over the same period last year, which is the highest increase in
2011 - 2022. The inflation rate is well controlled at less than 4% (thoibaotaichinhvietnam.vn, 2022).

However, export activities in the last months of 2022 and the coming year will face many difficulties and
challenges when major import markets of Vietnam's goods, such as the United States and the EU, are affected
by inflation and an economic downturn, leading to a decrease in demand. It will significantly affect the
Vietnamese economy such as exchange rate, interest rates, and inflation risks, which affect the capital, input
costs, and output prices of goods, services, and production and business activities of enterprises (vtv.vn,
2022).

3. Social

Vietnam maintains social order and safety. The labor force, the number of employed people, and the average
monthly income in the third quarter of 2022 continued to increase. The unemployment rate decreased
compared to last year's previous quarter and the same period (gso.gov.vn, 2022). Production and business
activities in some areas still have difficulties, and the number of enterprises withdrawing and dissolving is still
high. The life of a fraction of the population in remote and isolated areas, border areas, and islands is still in
difficulty. Potential risks exist in social security and order, including the online environment, traffic accidents,
and increasing fire, and explosion (baochinhphu.vn, 2022).

4. Technology

The fast-and-complicated-changing world situation causes difficulties in capital and investments, which delays
and hinders the development of science and technology markets. Therefore, compared with different markets,
especially developed countries and some regions, our country's science and technology market is still growing
slowly; institutions and policies to develop the science and technology market are inadequate and inconsistent
(moit.gov.vn, 2022). Besides, there are still factories with small capacities, outdated equipment, energy
consumption, and environmental concerns (moit.gov.vn, 2022).
APPENDIX 7: Cost advanage from a closed steel production process

Hoa Phat Iron and Steel Complex has closed production from iron ore processing, coking coal, and iron. refining
to finished products, and finished product billet to construction, becoming a unique competitive advantage of
HPG taking advantage of natural resources. The closed cycle steel production process from iron ore to finished
steel is a long cycle, in which the output of one stage is the input of another. During that process, the recovery
and reuse of waste gas, waste water, residual heat, and even solid waste are treated in a cyclical sequence
without discharging into the environment, helping save energy and protect the environment, optimizing
production efficiency and product competitiveness (HPG, 2020). Iron material is abundant in the country,
reducing intermediaries, transportation costs, and exchange rate risks when importing, and actively controlling
the cost of production stages. With first-mover advantages investing in the steel production complex, HPG has
become the largest supplier of domestic construction steel and steel pipes.

Vietnam construction steel market shares Vietnam steel pipe market shares 2021 [%]
2021 [%]

HPG HPG
25%
33% TVN 42%
HSG
45%
Vina Kyoei Minh Ngọc
POM 16% TVP Steel
6% 13%
Others 6% NKG
4% 5% 7% Others
APPENDIX 8: BOF technique helps HPG reduce its costs compared to peers

Steel Cost Breakdown by two technology

• There are 2 main methods to convert liquid iron into steel
techniques [VND Million]
in the primary steel-making process, namely the Basic
12
Oxygen Furnace (BOF) and Electric Arc Furnace (EAF).
10 1.5 • Currently, the majority of steel manufacturers in Vietnam
1
Million VND

8 utilize EAF to produce steel by melting steel scrap.

2.1 However, Hoa Phat Group uses BOF as their primary
6 0
1 technique, which is regarded as the greatest approach to
4 0.9 8 generate more vertical value chain steel products at a 15%
2 3.9 cheaper cost than the EAF method.
0 • As a result, Hoa Phat Group is expected to expand its steel
BOF EAF consumption and run its steel-making process at max
Iron Ore Coke Steel Scrap
capacity in the next few years.
Electricity Others
Source: HPG, 2020

Hoa Phat Group successfully acquires Australia's Roper Valley iron ore mine
Source: HPG News, 2021

Vietnamese steel maker Hoa Phat Group on Monday announced that it has acquired the Roper Valley iron ore
mine project in Australia. The Australia’s Foreign Investment Review Board (FIRB) has approved the deal. The
project is estimated to have 320 million tonnes of reserves, with mining capacity at 4 million tonnes per year.

The Roper Valley iron ore mine is estimated to have 320 million tonnes of reserves

After a period of searching and preparing, Hoa Phat Group has firmly set its first step into the world largest
iron ore supply market.
It is continuing to research to invest in purchasing some other new iron mines in Australia to ensure a long-
term supply of at least 50 per cent of its iron ore demand (equivalent to 10 million tonnes a year).
In addition, the raw material that constitutes up to 30 per cent of the steel price is coking coal, which is
currently imported from Australia - the world's largest coking coal supplier market. The group is also studying
to buy some Australian coking coal mines in the future to gradually become self-sufficient in this important
production material.
APPENDIX 9: Public Investment increase 2020 helped HPG to revive revenue

50%
350
22% 25% 40%
20%
300 9% 8% 7% 7%
7… 0% 4% 4% 20%
250
200 0%
200
150 160 -20%
135 140
150 120 125 -40%
110 110
90
100 70 75 -60%
50 -80%
0 -100%
7M2009 7M2010 7M2011 7M2012 7M2013 7M2014 7M2015 7M2016 7M2017 7M2018 7M2019 7M2020

Public investment capital % of the year plan

Source: HPG, 2020

A series of public investment projects using Hoa Phat steel

Renovating Tan San Component items

Vĩnh Tuy bridge Mỹ Thuận 2 Bridge
Nhat runway on North-South
(Ha Noi) (Can Tho)
(Ho Chi Minh) highway

General hospital General hospital General hospital Hoc

K2 Hospital (Ha Noi)
Củ Chi Binh Thuan province Mon
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