Topic: FIN202-Financial statement analysis

Hoa Sen Group Joint Stock Company

INDIVIDUAL ASSIGNMENT

Student name

Student code

Class:

CAN THO, 20 July, 2022

1|Page
Table of contents
I. Introduction

II. Finance statement analysis

III. Conclusion

Reference

I. Introduction

1. Overview

Hoa Sen Group, formerly known as Hoa Sen Joint Stock Company, was established onAugust 8,
2001. Over 20 years of establishment and development, Hoa Sen Group hasrisen to become the
No. 1 steel sheet manufacturer in Vietnam with more than 36% marketshare of corrugated iron,
20% market share of steel pipes nationwide in the first half of 2021. Currently, Hoa Sen
Group owns 11 large factories, a system of nearly 300 distribution and retail branches
spread across the country. Not only rising high in thedomestic market, but Hoa Sen Group also
promotes export activities and is the leadingsteel sheet exporter in Southeast Asia, present in
85countries and territories around the world, affirming the stature of a global growth enterprise
underthe World Economic Forum.

2. Core business activities

a) Principal activities of Hoa Sen Group (HSG)

- Manufacturing roofing sheets by galvanized steel, zinc alloy, paint galvanized zincplating 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.

2|Page
- 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.

b) Some well-known products and projects:

 Products:

Hoa Sen steel sheet: Cold rolled coil, aluminum-zinc alloy coated steel sheet (GL),wood pattern
steel sheet, Hoa Sen Gold, metallic steel sheet.

Hoa Sen steel pipe: Hoa Sen steel pipe, galvanized steel pipe, hot dip galvanized steelpipe.

Hoa Sen plastic pipe: UPVC plastic pipe and accessories, HDPE plastic pipe, 2 layersPPR plastic
pipe.

 Projects: Analyzing financial statements of Hoa Sen Group from 2016 to 2020.

8/8/2001: Hoa Sen Joint Stock Company, precursor of Hoa Sen Group Joint StockCompany, was
established with an initial charter capital of 30 billion dong, 22 employeesand 3 branches.

2002-2003: increasing the total number to 34 branches, located in the Mekong Delta,SouthEast
and Central Vietnam regions.

8/8/2004: Hoa Sen JSC put the first color coating line into operation with a capacity of 45,000
tons/year.

2/2005: The first galvanizing steel line with a capacity of 50,000 tons/ year was putinto
operations in Binh Duong Province.

11/2006: Establishing Hoa Sen Steel Sheet Join Stock Company with charter capital ofVND 320
billion.
3|Page
12/2007: Hoa Sen JSC was renamed as Hoa Sen Group.

5/12/2008: Stocks of Hoa Sen Group (code: HSG) were listed on Ho Chi Minh CityStock
Exchange.

2009-2010: Increasing the charter capital from 570,39 billion dong to 1.007,91 billiiondong.

2010-2011: Export sales achieved usd 101 million.

2011-2020: Receiving a series of great awards for quality and brand service.

4/2015: Hoa Sen Group is only company in Vietnam is selected in the Global Growth Company
by World Economic Forum organizes and votes.

6/8/2016: Hoa Sen Group honorably received the Second-grade Labor

Medalconferred by President of the Socialist Republic of Vietnam

29/9/2016: Hoa Sen Group was honorably awarded “The 50 Best Vietnamese Listed Companies”
by Forbes Vietnam in four consecutive years.

11/2020: Hoa Sen Group continued to achieve the National Brand for all 3 productcategories:
Hoa Sen Steel Sheet, Hoa Sen Plastic Pipe, Hoa Sen Steel Pipe (5 consecutiveyears).

2020 - now: Continuing strong growth despite the context that the world economy andVietnam
are facing many difficulties and challenges due to the impact of the Covid-19pandemic.

3. The company strategy

a) Hot-rolled coil (HRC) Price

Stage 1: from 2Q14 - 1Q17

It was a boom period in China's hot-rolled coil exports causing global HRC prices tofall deeply.
HSG's profit spiked from 1Q16. Namely, HSG's LLST reached VND418bn (vs.VND168bn of
2Q15), gross profit margin (LNG) reached 25% (vs. GPM 15.6% of 2Q15).

Stage 2: from 2Q17 – 1Q19

Since 2017, China proposed to cut 150 million tons of steel from BOF to reducepollution, and
the Vale dam failure in January 2019 had made the average HRC price from3Q17 to 3Q18 at

4|Page
US$620/mt (twice as much as compared to 1Q16). The continuousincrease in HRC price from
1Q16 - 3Q18 made HSG lose at 3Q18 VND-102bn.

Stage 3: from 1Q19 – FY21

HRC prices were stable due to weak galvanized steel demand due to the impact of theCovid-19
epidemic. HRC prices gradually cooled down when iron ore supply from Braziland Australia
recovered, helping the average HRC price in 1Q20 to drop 22% compared to3Q18. At the same
time, galvanized steel company have also tried to restructure andreduce debt, thereby helping to
bring back profits from 3Q19. Specifically, HSG's NPAT in4Q19 reached VND6.2bn (vs. VND-
101bn 2Q19).

b) Corrugated Iron Export

In 2020, five countries carried out anti-dumping investigations on coated steel sheetsand steel
pipes of Vietnam. Specifically, there are two main markets in Southeast Asia,Malaysia, and the
Philippines.

Due to the impact of the Covid-19 epidemic, export activities between countries facedmany
difficulties. In particular, in Indonesia, one of the important markets of Vietnam's flatsteel
segment, domestic exporters did not have import permits. Therefore, the companycould not
export to this country from the beginning of the year to 7/2020.

II. Finance statement analysis

 Firm’s assets and source of capital:

1. Assets:

Table 1: Hoa Sen Group’s assets between 2016 and 2020 (Figures in 1000s VND)

5|Page
The total value of assets of the firmchanged remarkably. The main reason is the firm
promotedinvestment in other current assets, fixedassets, and long-term assets in progressas the
firm invested in building newfactories. Along with that, fluctuatinginput material
prices put HSG underpressure in selling to clear inventory.This leaded to the significant
rise in the amount of inventory. In 2019, the value ofinventory was VND 8,871 billion,
accounting for 41,4% of total assets. After 2020, totalvalue of assets decreased since Hoa Sen
Group has promoted to reduce inventories welland factories construction completed. In 2021, the
amount of inventory was VND 5,524billion, accounting for 31,1% of total assets.Hoa Sen
Corporation also started investing in short-term investment and investingheavily in long-term
receivables since 2020. The number of short-term investmentsincreased sharply in 2020
and then fell down, its value in 2021 was just VND 516 million.The amount of long-term
receivable dropped noticeably in 2019 but rose tremendously in2018

2. Source of capital:

Table 2: Hoa Sen Corporation’ Liabilities and Shareholders’ Equity between 2019 and2021
(Figures in 1000s VND).

6|Page
2020 was a special year for Hoa Sen Group as its liabilities skyrocketed from VND8,180 billion
at the end of 2019 to VND 16,268 billion at the end of 2017 (an increase of 99%). This increase
aimed to invest heavily in new factories, increase working capital,expand sales branches and
increase distribution channel spending to expand customers andmarket share.

Looking at the financial statements for the year 2020 of Hoa Sen recently released, this business
achieved net revenue of sales and service provision of VND 31.7 billion in the last quarter of
2020. Revenue results in This quarter is less than half of the net revenue of VND63.5 billion that
the Company achieved in the same period last year.

In the explanation of the business results in the fourth quarter of 2020, Mr. Chairman of the Hoa
Sen Group Board of Directors, said that the main reason for the company's decrease in revenue
was due to a sharp drop in exports compared to the previous quarter. With the same period last
year. The specific reduction recorded is about more than 1.3 million USD.

The cumulative net revenue for the whole year of 2020 is also not much better, with VND 120.7
billion, down 38% compared to the same period in 2019.

The decrease in revenue in the fourth quarter of 2020 of Hoa Sen did not even make up for the
cost of goods sold, causing the profit to have been negative by nearly 5 billion dong. In addition
to other normal expenses in business, it is inevitable that the Company will lose VND 7.6 billion
in after-tax profit in the fourth quarter of 2020. In the whole year of 2020, the after-tax profit of
this seafood company was also negative by nearly 12 billion dong.

 Net cash flows from investing activities in both 2019 and 2020 are positive. Specifically,
the investment cash flow in 2019 was nearly 37 billion VND and continued to be 35
billion VND.

3. Domestic business - The foundation for sustainable development:

Table 3 Estimated consolidated business results for 10 months of the fiscal year 2020-2021.

7|Page
With the motto of takingthe domestic market as thebase, Hoa Sen Group has beenapplying
flexible businesspolicies, combined with athoughtful customer carepolicy, and at the
same timemade 4 commitments "SELLRIGHT PRICE, CORRECTSTANDARDS,
RIGHTQUALITY, WARRANTY” at all business units of the Groupnationwide.

In order to meet the needs of customers as quickly

as possible, Hoa Sen Group hasestablished and
developed a domestic business channel with 02
main forms: retail branchSYSTEM and
BUSINESS CHANNEL - WORKS. With an
extensive business system,Hoa Sen Group
ensures fast delivery, bringing products to
consumers nationwide. Hoa Senowns more than
53 provincial branches and 536 affiliated stores,
spread across regionsacross the country,
which is the most important foundation for Hoa Sen Group toimplement the strategy
of "buying at the source, selling at the top". This is also one of thecore competitive advantages of
Hoa Sen Group compared to competitors in the sameindustry.

From October 1, 2020, to June 30, 2031, with a system of factories and shops at homeand
abroad, the production and supply of goods are guaranteed in all conditions. Althoughthe
domestic market was affected by the COVID-19 pandemic, HSG still maintained stablesales, at
least 160,000 - 170,000. tons/month, bringing in about VND4,000 billion/monthin revenue.

8|Page
More specifically, HSG's sales volume is estimated at 1,694,155 tons, revenueis estimated at
32,932 billion VND, profit after tax is estimated at 3,371 billion VND, agrowth respectively
54%, 72%, 381% over the same period. With this result, HSG hasfulfilled 94% of the output
plan, 99.8% of the revenue plan, and 225% of the fiscal year2020-2021 profit plan.

4. International business:

Besides developing the domestic market, HSG also promotes export channels. Outputand export
proportion were greatly improved by HSG in the past year. Hoa Sen's exportactivities started in
2009 with an output of several hundred tons a month. At that time, themain market was only
Indonesia, Thailand, and Cambodia. After 8 years of constantstriving, the average export output
per month is currently about 60,000
tons/month. Up tothis point, it can be said that
Hoa Sen Group has achieved great success in
its strategy ofexpanding export markets while
the world steel sheet market still faces many
difficulties.

Currently, Hoa Sen Group'sproducts have

been exported to morethan 87 countries and territoriesworldwide. Export revenue
accountsfor nearly 40% of the Group's totalrevenue. In addition to traditionalexport
partners, Hoa Sen Group alsoexpands exports to potential marketssuch as the Middle East, South
Asia,Australia, America, Europe, Africa, etc.

Currently, HSG's export outputhas

exceeded 120,000 tons/month.Hoa
Sen said that it will
constantlyincrease export volume
in allmarkets and continue to
conquernew milestones in the near
future.With good internal
capacity andproactive and flexible responseplans during the Covid-19 pandemic, Hoa
Sen still maintained extremely positive business results.

9|Page
 The chart of HSG's export volume in the fiscalyear 2020-2021

(Unit: thousand tons)

 Ratios:

1. Liquidity Ratios:

a) Current ratio: Current Ratio reflects the correlation between accounts payable within 1 year
withcash on hand and cash inflows within 1 year.The chart shows the current ratioof Hoa Sen
Group and the average ofthe materials industry from 2019 to 2020

2019 2020 2021

Year
HSG
Current ratio 0.84 1.0 1.3

In 2019, HSG's current ratiowas 0.84, which means HSG hascurrent liabilities
covered 0.84 timesover. HSG's current ratio decreased to 0.84 in 2019 and in the period 2017-
2019 HSG's current ratio was lessthan 1. Due to the high-interest rate,HSG's current
liabilities has exceeded current assets, mainly inventory and factoryconstruction. In
2020, the market stabilized, and the company actively restructured itsbranch and store system to
reduce costs, so the current ratio increased to 1, this can implythat the management of the firm
last year had used the firm’s assets efficiently. From the above table, we can see that the current
ratio of companies in the sameindustry is much higher than HSG from 2019 to 2020.This could
be because the companyis heavily in debt compared to the industry average. Therefore, the
company's ability topay short-term debt is still lower than the industry average.

b) Quick ratio:

2019 2020 2021

Year

HSG
Quick ratio 0.32 0.38 0.44

10 | P a g e
Quick Ratio reflects the correlation between cash and short-term investments andfinancial
liabilities as they come due within 1 year.

The chart shows the quickratio of Hoa Sen Group and theaverage of the materials
industryfrom 2019 to 2021. The quickratio of the firm changed slightlyover the period.
Because inventoryaccounts for more than half of HoaSen Group’s current assets, thequick
ratio stayed under 0.5 whichwas not a sign of a healthy firm. In 2019, HSG's quick ratio was
0.32, which means the ability to liquidate assets HSG's assetsto meet current liabilities is only
0.29 times due to the company's inventory being toomuch. A quick ratio of 0.38 means in 2020,
Hoa Sen Group was able to settle 38% of itscurrent liabilities instantaneously. The quick ratio of
many other companies in the sameindustry is much higher than HSG from 2019 to 2020. From
the above table, we can see that the quick ratio of many other companies in thesame industry is
much higher than HSG from 2019 to 2020. Because the company's assetsdepend too much on
inventory compared to the industry average.

2. Capital Structure Ratios:

a) Total debt ratio:

2019 2020 2021

Year
HSG

Total debt ratio 0.68 0.64 0.6

In 2019, the totaldebt ratio of the business was 0.68, which means that 64% of the business's
assets werefinanced by creditors, with only the remaining 34% by owners' equity. In 2020, the
totalasset ratio increased to 0.64 and remained in 2021. From 2019 to 2021,
liabilitiesdecreased slightly so the total debt ratio decreased to 0.6. But looking at the chart
above,we can see that HSG's total debt ratio is higher than the materials industry average,
whichshows that the company exploits financial leverage better than its companies in the
sameindustry.

b) Debt-to-equity:

11 | P a g e
 2019 2020 2021
Year
HSG
Debt-to-equity 0.32 0.37 0.41

Debt/equity ratio is a financial indicator that measures a company's ability to use andmanage
debt.

The chart shows the debt/equityratio of Hoa Sen Group and theaverage of the
materials industryfrom 2019 to 2021. In 2019, theD/E ratio of the business was 0.32,a
number greater than 1 indicatingthe company is in financialdifficulty. In 2020, the ratio of
totalassets increased to 0.37 anddropped sharply to 0.04 in 2021. This shows that the
company is gradually overcoming debts and focusing on business. Butlooking at the chart above,
it can be seen that HSG's D/E ratio is higher than the materialsindustry average, which shows
that the company exploits financial leverage better than itscompanies in the same industry.

c) Equity multiplier:

2019 2020 2021

Year
HSG
Equity multiplier 3.14 2.68 2.44

The chart shows the equitymultiplier of Hoa Sen Group andthe average of the
materialsindustry from 2019 to 2021. In 2019, the equity multiplier of thebusiness was
3.14. In 2020, the equity multiplier increased to 2.68. In general, in the period from 2019 to
2021, HSG's equity multiplier is higher than theindustry average, showing that HSG's business is
more dependent on finance from debtand payables bear different interest rates than other
companies in the same industry.

 Profitability Ratios:

1. Return on assets (ROA):

12 | P a g e
 2019 2020 2021
Year
HSG

ROA 0.02 0.06 0.15

In 2019, HSG's ROA was 12%, which means that for every 1dollar invested in assets,
12 centsof net income is returned. In 2020, the company's ROA increased slightly to 6%,
showing that thecompany is gradually improving its net import revenue. According to web
investopedia,ROA greater than 6% is considered good. Compared to the industry average, in the
period 2019-2020, the company's ROA is higher than the industry average, allowing the
companyto earn more money with less investment. This gives investors an idea of how effective
thecompany is in converting the money it invests into net income.

2. Profit margin

2019 2020 2021

Year
HSG
ROA 0.01 0.04 0.18
In 20119, HSG'sprofit margin was only 1%, lowerthan the industry average, showingthat the
company's businessperformance is lower than that ofother companies in the
sameindustry. This ratio decreased to 1% in 2019 and increased to 4% in 2020.

 Dupont Equation

ROE

2019 2020 2021

Year
HSG

ROE 0.06 0.17 0.57

13 | P a g e
The chart shows the ROE of Hoa SenGroup and the average of thematerials industry
from 2019 to 2021. In 2019, the company's P / Bis 0.06, we can see that HSG sharesare having
a large growth rate,investors expect a lot from it.Investors are willing to spend $4.2
to own $ 1 HSG stock. This figure dropped rapidly to 0.06 in 2019, it was smaller than the
struggling company,investors should not invest at this time. But by 2020, this figure has
increased to 0.17 showing that HSG shares have a high growth rate.

III. Conclusion

Hoa Sen Group Joint Stock Company (HOSE: HSG) has just announced the estimated
consolidated business results for January 2021. Accordingly, revenue in January 2021 is
estimated at 3,108 billion VND, profit after tax is estimated at 175 billion VND. In Vietnam, the
4th wave of the Covid-19 pandemic that broke out from the end of April 2021 until now has
caused many negative impacts on the socio-economic situation. A representative of HSG said
that more than a month ago, HSG actively implemented plans to respond to Covid-19 epidemic
situations at the highest level. Due to the initiative in advance, the living, living and dining
conditions are good, the remuneration is suitable, so the health and spirit of the employees is
very good, ensuring the company's business and production is continuous, not interrupted by the
Covid-19 pandemic.

The sliding EPS of the last 4 quarters of HSG stock continued to increase to 7,814 dong/share at
the end of the third quarter of the fiscal year 2020-2021

If taking the price of 35,400 VND/share at the end of July 20, 2021, the PE ratio of HSG stock is
4.53 times, much lower than the steel industry average and much lower than the market average.

Refference

 https://www.wsj.com/market-data/quotes/VN/HSG/financials/annual/income-statement
 https://www.studocu.com/vn/document/truong-dai-hoc-kinh-te-dai-hoc-da-nang/tai-
chinh-doanh-nghiep/financial-statement-analysis-project-hoa-sen-group/25380873
 https://info.hoasengroup.vn/vi/bai-viet/bao-chi-dua-tin-tap-doan-hoa-sen-lai-sau-thue-
175-ty-dong-trong-thang-dau-nam-2021/8542
 https://nld.com.vn/tap-doan-hoa-sen.html

14 | P a g e
15 | P a g e