PORTFOLIO ANALYSIS OF DHG PHARMACEUTICAL JOINT STOCK COMPANY AND HOA SEN GROUP

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM PORTFOLIO ANALYSIS OF DHG PHARMACEUTICAL JOINT STOCK COMPANY AND HOA SEN GROUP Course: Investment Portfolio Management... We divided

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM

PORTFOLIO ANALYSIS OF DHG PHARMACEUTICAL JOINT STOCK COMPANY AND

HOA SEN GROUP

Course: Investment Portfolio Management

Tutor: Mrs Pham Thi My Phuong

Student’s names and ID:

Vũ Thị Hậu - 1504000023

Nguyễn Thị Ngọc Lan - 1604010050

Nguyễn Linh Linh - 1704000072

Ngô Thị Kiều Trinh - 1704000117

Nguyễn Ngọc Quốc Khánh - 1704040054

Hanoi,2020

Table of Contents

ABTRACTS 3

1.INTRODUCTION 4

2 PORTFOLIO FORMING 4

2.1 Stock’s profile 4

2.2 Reason for selection 5

2.2.1 External 5

2.2.2 Internal motives 6

3 OPTIMAL PORTFOLIO FORMING 7

4 PORTFOLIO EVALUATION 9

4.1 Treynor ratio 9

4.2 Sharpe ratio 10

5 BUYING AND SELLING DECISIONS 10

6 LESSON FROM PROJECTS 12

REFERENCES 13

APPENDIX A: FINANCIAL RATIOS 14

APENDIX B: DAILY RETURNS 15

APENDIX C: GRAPH ILLUSTRATION 16

APPENDIX D: THE TABLE OF HSG CALCULATION IN EXCEL 17

ABTRACTS

In this report, we will summarize all the progress made in trading on the stock exchange We divided this report into five parts: Introduction, Portfolio Forming, Optimal Portfolio Forming, Trading and Analysis Lessons, as well as some of the reference sections and appendices we used to compare and analyze the stocks we exchanged Next the paper offers details on the general investment of two stocks Secondly, we include the forming of portfolios and the reasons for the selection of stocks In addition, the optimal portfolio formation used to combine the two companies is determined step by step in order to find the results of the weights, beta and graph outlines And then we use the ratio of Sharpe and Treynor to analyze the stocks

we traded, to make purchase and sale decisions Finally, we draw attention to some of the lessons we learned from the study of the two portfolios

1.INTRODUCTION

The project is based on the investment assumption provided by the use of real-time financial information in 11 weeks from the starting date of 9 September 2020 to the closing date of 25 November 2020 After making an investment effort, we are likely to research real-time financial trading, the most basic analysis methods and background details on portfolio results

In addition, we are also learning how to trade on the real stock market and how to manage the selected knowledge on the results of shares affected by our decisions The project was a precious opportunity for us to put into effect what we had learned in class

There are a range of investment options that investors might take to build value for their investment In this study, we selected two stocks in the stock exchange to measure and analyze carefully, i.e the shares of the Pharmaceutical Joint Stock Company-DHG and the Hoa Sen Group-HSG, and then analyzed those stocks in order to determine whether to purchase or sell them

2 PORTFOLIO FORMING

2.1 Stock’s profile

stock:

Listed

market:

Stock

symbol:

Industry/

Sector:

Basic

description:

Hoa Sen Group

VNindex

HSG

Steel industry

Hoa Sen group first registration on 8 August 2001 and in 19 years, Hoa Sen group has become one of the leading manufacturers and traders of steel sheet

in Vietnam and a leading exporter in Southeast Asia Hoa Sen Group is proud to be one of the most reliable steel providers in both domestic and international markets when HSG has 11 factories and about 300 distribution branches throughout the country Besides, Hoa Sen group also appears in more than 70 countries in the world

Name of

stock:

Listed

market:

Stock

symbol:

Industry/

Sector:

Basic

description:

DHG Pharmaceutical joint-stock company

VNindex

DHG

Pharmacity

DHG company used to be a pharmaceutical factory in 1974 and it was officially became DHG Pharmaceutical joint-stock company on 2 September 2004 DHG is always in the top 5 pharmaceutical enterprises with the largest market share of the pharmaceutical industry in Vietnam DHG distribution system including 12 subsidiaries, 24 branches, 68 pharmacy counters spread across the country

2.2 Reason for selection

2.2.1 External

a Hoa Sen Group

Industry: In 2019, while world markets are slowing down, the productivity of steel in Vietnam is increasing The production of steel in 2019 increased for about 11.9% compared to 2018 The amount of steel that is sold also rose 10.8% in comparison with

2018 In 2020, due to the pandemic of Covid-19; however, the production of steel in Vietnam is still stable In August 2020, Vietnam has exported 5.96 million tons of steel worth $3.11 billion to more than 30 countries around the world and the core market Vietnam focuses on is ASEAN, China, Taiwan, etc Even in the face of epidemics, this industry still brings out some impressive achievements and it remains stable

b.DHG pharmaceutical joint- ock company st

Industry: It can be seen that Vietnam pharmaceutical industry grew dramatically and became the second largest pharmaceutical market in Southeast Asia In 2019, the pharmacy group has achieved more than $2,200 billion profits and 5.5% growth compared

to the previous year Besides, the pharmaceutical industry has exported pharmaceutical products to Japan, ASEAN countries, Russia, etc and it is accounting for about 200 millions dollar

2.2.2 Internal motives

a HSG Hoa Sen Group

HSG owns 4.446.252.130.000 VND of charter capital and gains 444.298.113 outstanding shares According to table A.1 in appendix A, P/E ratio increased from 6.44 in 2014 to 9.15 in 2019 and decreased to 6.87 in 2020; in contrast, EPS from 2017 to 2019 declined from 4.830,00 to 877,00 and grow to 2.639,00 in 2020 It means that in the period of

2017-2019, although the EPS of HSG during this period decreased and the stock also decreased,

it is still greater than zero And in 2020, the EPS of Hoa Sen Group will increase because the consumption and export volume in the fourth quarter of 2019-2020 increased sharply

So despite the decrease in the P/E ratio, eps and the value of shares still increased, so it is possible that the growth rate of the company remains stable and develops dramatically in the future

Besides, according to HSG financial statement, the company ROA raised from 1.88% in

2019 to 6.58% in 2020 and ROE is increased for 12.29% in a year

b DHG pharmaceutical joint-stock company

DHG has 871.643.300 VND of charter capital and this company owns 130.746.071

outstanding shares Based on the table A.2 of appendix A, P/E ratio plummeted from about

9800 in 2016 to 19.59 in 2019 and it makes EPS low of about 4.67 thousand However,

the stock is still stable and greater than zero Looking at the table, it can be seen that P/E

has grown from 17.79% to 19.59% and BV of DHG has increased for about 1.83 thousand

This growth happens because of the cooperation between DHG and Taisho - top 5 largest

pharmaceutical corporations in Japan and in 2018, Taisho bought more stocks of DHG

with high price to increase the perceptions of their own capital The higher P/E shows that

DHG company is still doing well and this business also gains higher profit for 8.1% in

quarter II of 2019 compared to 2018

3 OPTIMAL PORTFOLIO FORMING

Step 1: Firstly, we calculate daily returns from stocks’ daily prices that we collected on

Stockbiz.vn and input data (in three years, 31/8/2018 - 31/8/2020) into an Excel worksheet

(appendix B, table B.1)

Step 2: The following formula for calculating the daily returns:

We show the output of daily returns to excel table

Step 3: After that, expected return can be calculated as the average of the daily returns of the

period being analyzed:

The result is shown: R(DHG) = 0.03%

R(HSG) = 0.01%

Step 4: Portfolios of two risky assets

We can experiment with separate portfolio proportions to see the effect on the portfolio expected return and variance (Bodie,2013) When the proportion invested in DHG varies from

0 to 1 (so that the proportion in HSG varies from 1 to 0), the portfolio expected return goes from 0.01% to 0.03% (Appendix B, table B.2)

In this case, we use the following formula to calculate the portfolio expected returns:

E(rp) = R(DHG)* W(DHG) +R(HSG)* W(HSG)

Next, we calculated the variance of the market based on return on the market which was based

on the return of VN Index We have the formula as below:

After calculating in Excel, we show the results in the B.2 of appendix B

The weights of the optimal risky portfolio given by the formula:

Where: rf = 0.01% is risk free rate which is the prime rate from State Bank of Vietnam, that is the annual rate, so we divide the rate by 360 to get to the daily rate (annual r f= 4%)

After finding the weights of optimal risky portfolio, we draw the efficient frontier curve which

is the set of portfolios minimizing the variance for any target expected return The graph in appendix C illustrates the correlation between the expected returns and standard deviation that

we calculate in the excel worksheet

Step 5: Calculating beta

Suppose that returns of two stocks follow the index model (SIM) in which they perform the dependent variables and Vn Index performs independent variables (McNulty, Daniel, n.d) The coefficient of the independent one is the beta of stock In Excel worksheet, we use SLOPE function to represent the relevant linear regression between two variables with below formula:

Therefore, the result turned out:

β (DHG) = 0.39

β (HSG) = 1.32

Beta of portfolio is the weighted average of betas of all stocks to calculate the beta of the portfolio The result is presented in the table B.3, appendix B:

β ( Portfolio) = W(DHG)* β (DHG) + W (HSG) * β (HSG) = 1.46

4 PORTFOLIO EVALUATION

4.1 Treynor ratio

The Treynor ratio (the reward to volatility ratio) is a risk assessment formula which is used to measure the volatility in the market to calculate the value of an investment adjusted risk The formula is:

T = Treynor ratio

Ri = return of the portfolio

Rf = the risk free rate of return

βp = the beta of the portfolio After calculating the formula, we have the result:

TREYNOR RATIO

Treynor ratio 0.00% -0.03%

Tp= 0.00%

T M = -0.03%

With the result, we find that the Treynor Ratio of the Portfolio is higher market’s one, thus, we can judge that it is a well performed portfolio to invest in

4.2 Sharpe ratio

The Sharpe ratio measure up the change in overall risk-return characteristics when a new asset

or asset class is added to a portfolio

It is calculated by the formula:

Using the formula, we have the result from Excel:

SHARPE RATIO

Sharpe ratio -0.15% -0.12%

Comment: The value of sharpe ratio is smaller than Sharpe value of the market, but it still is a

positive number Which shows that our portfolio’s return is higher than its risk and gives us the hope of a profitable future portfolio’s performance

5 BUYING AND SELLING DECISIONS

• Structure of portfolio: P = 20.07% DHG + 79.93% HSG

• Budget of project: VND 100 million

• Investment decision: VND 20.07 million on DHG stock, VND 79.93 million on HSG stock

• Transaction fee: 0.35% trading vollume

• Tax fee: 0.1% trading vollume, applied for selling options

➢ Buy- sell DHG decisions:

Sharpe ratio of portfolio Sp= -0.15% Sharpe ratio of market SM= -0.12%

Buy-sell options of stock DHG was taken from the beginning (7/9/2020) to closing of investment period (11/11/2020) as the following tables:

➢ Buy-sell HSG decisions

We bought HSG stock the first time in 04/09/2020

According to data from the regular III 2020 of Hoa Sen Group’s financial statements, the gross profit in the third quarter of the fiscal year 2019 - 2020 reached 1,062.9 billion dong, up to 9.5%; 9 months accumulated gross profit reached 3,092.7 billion dong, up to 31.2% Those statistics are considered as a good signal in the market with the fluctuation of COVID 2020 year Therefore, we decided to sell out our HSG stock to make profit in 19/10/2020 (Cafef, 2020)

Next, we determined to purchase HSG’s shares on 29/10/2020 because of two main reasons The first, the HSG’s stock price was suddenly low at VND14.800 which was attractive for investment The second, at the same time, the financial status of steel industry was predicted that their price will increase in the nearly time (Cafef 2020)

We finally closed our investing period in 13/11/2020 All calculation are showed in the table

D of appendix D and appendix of excel worksheet

6 LESSON FROM PROJECTS

Some important lessons as well as experiences can be drawn from this report Firstly, stock prices can be influenced by a variety of variables that need to be fully evaluated instead of relying on the analysis of the financial statements On the other hand, the limits for potential gains or losses must be defined before any investment is made In other words, stocks should

be sold if their values rise or fall to the anticipated levels Moreover, future price fluctuations cannot be predicted on the basis of previous events, which means that using only past event details for stock price predictions will be inadequate

REFERENCES

1 Duy Na, 2020 “ Doanh nghiệp ngành dược làm ăn ra sao năm 2019 “ [ Online ], Viewed

Feb, 6th,2020, https://vietstock.vn/2020/02/doanh-nghiep-nganh-duoc-lam-an- -sao-nam- ra 2019-737-729592.htm

2 Khac Lam,2019 “ DHG: Lời giải nào cho bài toán tăng trưởng” [ Online ] , Viewed Aug,

5th,2019, https://tinnhanhchungkhoan.vn/duoc-hau-giang-dhg-loi-giai-nao-cho-bai-toan-tang-truong-post217386.html

3 Chi Tin,2020 Giá “ nguyên liệu nhảy múa, HSG lại thấp thỏm” [ Online ], Viewed

Aug,31th,2020, https://tinnhanhchungkhoan.vn/gia-nguyen-lieu-nhay-mua-hoa-sen-hsg-lai-thap-thom-post249255.html

4 Do Thi Sa,2020” Thông tin dược phẩm & Trang thiết bị y tế “ [ Online ], Viewed,

Jan,20th,2020,

http://thongtincongthuong.vn/upload/vtic/Cong.nghiep/Ngoai.thuong/a34203.pdf

5 “ Thông tin cổ phiếu HSG” [ Online], viewed, Jul,23th,2019 ,

https://hoasengroup.vn/vi/bai-viet/hsg-thong- tin co - -phieu/8244

6.“ Ước tính kết quả kinh doanh quý 3 HSG “ [ Online ], viewed Oct,13th,2020,

https://s.cafef.vn/hsg-378535/hsg-uoc-k -qua-kinh-doanh-hop-nhat-quy-3- et va

-ndtc-20192020.chn

7.“ Thông tin tài chính DHG” [ Online ], Viewed Jul,3rd,2020,

http://s.cafef.vn/hose/DHG/thong- tin -tai-chinh.chn

8 “ Thông tin về SG “ [ Online ], Viewed Nov, 25th, 2020, H http://s.cafef.vn/hose/HSG-cong-ty- co -phan-tap-doan-hoa-sen.chn

APPENDIX A: FINANCIAL RATIOS

Table A.1: Financial ratio of DHG

Table A.2: Financial ratio of HSG