Group report financial analysis hoa binh construction (HBC)

Financial Analysis The given balance sheet table illustrates the figure of HBC in terms of 3 separate categories: current and current assets, current and non-current liabilities, as wel

Group Report Financial Analysis Hoa Binh Construction (HBC)

Group 1 – CF4 Lecturer: Dr Tu Thi Kim Thoa & Dr Vo Hong Duc

Presentation link: https://www.youtube.com/watch?v=SfAXH16VNPY

Calculation sheet link:

https://docs.google.com/spreadsheets/d/1rH03jDnyd5SsVLbzVbzlLQsrs6gjpplYF0sfaUwfVco/edit?usp=sharing

6 III Ratio Analysis

3.1 Liquidity Ratios

3.1.1 Current ratio 3.1.2 Quick ratio 3.1.3 Cash ratio

4.1 Efficiency Ratios

4.1.1 Inventory turnover ratio 4.1.2 Receivable turnover ratio 4.1.3 Total assets turnover 4.1.4 Fixed assets turnover

5.1 Long-term Solvency Ratio

5.1.1 Total debt ratio 5.1.2 Debt-equity ratio 5.1.3 Equity multipliers 5.1.4 Times interest earned ratio 5.1.5 Cash coverage ratio

6.1 Profitability Ratio 6.1.1 Profit margin ratio

6.1.2 Return on Assets (ROA) 6.1.3 Return on Equity (ROE)

9

9

9

10 10-11

11

11 11-12

I Introduction

The full name of the company is Hoa Binh Construction Group Joint Stock Company This firm was established

in 1987 under the name Hoa Binh Construction Office, and on December 1, 2000, it changed its name to Hoa Binh Construction and Real Estate Joint Stock Company Finally, on its 30th anniversary, the firm formally changed its name

to Hoa Binh Construction Group Joint Stock Company in 2017 Currently, this company is located in Pax Sky building,

123 Nguyen Dinh Chieu, Ward 6, District 3, Ho Chi Minh city, and its internet address is https://hbcg.vn/ The firm is operating in the construction industry, providing customers with services related to general contractions and design In the third quarter of 2021, Hoa Binh surpassed Coteccons to become the largest contractor in Vietnam with a market capitalization of up to 5,902 billion VND BDO was Hoa Binh's first audit firm in 2010 However, the company has had long-term cooperation with Ernst & Young since 2011 The Ho Chi Minh City Stock Exchange (HOSE) listed and traded Hoa Binh shares under stock exchange code HBC in 2006 This is the first construction company in the South to list on the Vietnamese stock exchange

Based on the Hoa Binh organization and operation Charter, the number of members on the Board of Directors ranges from five to eleven The total number of independent members on the Board of Directors must account for at least one-third of the total number of board members Currently, the firm is managed by an eight-person Board of Directors, including Mr Le Viet Hai, Chairman of the Board of Directors, Mr Le Viet Hieu, CEO, and Mr Le Quoc Duy, Deputy CEO

Organizations and people who own shares in a joint-stock corporation are entitled to earnings and may participate

in managing the business Mr Le Viet Hai is the current top shareholder of HBC, owning 16.05% of the company's stock, or 38,913,741 shares Hyundai Elevator Co., Ltd., Korea Investment Management Co., Ltd., and KIM Vietnam Growth Equity Fund came in second, third, and fourth, with ratios of 10.31%, 4.87%, and 4.51%, respectively These are the four largest stockholders of HBC

Hoa Binh has ten subsidiaries in the real estate and production-service industries The following is a list of the firm's four majority-owned subsidiaries, together with information on their ownership rate and authorized capital

(%)

Authorized capital (VND)

MATEC Construction Machinery One Member Joint Stock Company 100% 100,000,000,000

Hoa Binh Paint Company Limited (HBP) 100% 2,000,000,000

II Financial Analysis

The given balance sheet table illustrates the figure of HBC in terms of 3 separate categories: current and current assets, current and non-current liabilities, as well as the stock of equity over three years 2018, 2019, and 2020

non-Overall, the consequences of the Covid 19 pandemic caused significant changes in the whole figure of HBC in the balance sheet of 2020 This year witnessed a significant downward trend in the total assets compared with the previous year, which fell by 18.6% The figure remarkably decreased after a year The long-term investments were almost only 0.08% (2 billion VND) of approximately 2,300 billion of that of 2019 at the end of 2020 It is because the

In 2019, HBC reached the highest number in the total assets at 16,721 billion VND (mainly in the short-term investment) among three years, which increased by 5% compared to that of 2018 Besides, the total liabilities figure had a gradual decrease by 1.7%, while that of long-term debts accounted for the greatest one for three years with over

717 billion VND This is due to the financial burden that many customers of HBC do not pay on the schedule committed

in construction contracts Furthermore, the litigation between HBC and FLC has forced this firm to have a huge debt at the end of 2019 (Chi, 2021) In terms of stockholder's equity, there was a considerable rise of more than 35% in 2018-

2019 This indicates the trust of foreign investors in HBC's long-term prospects

Regarding the general view of HBC in 2018, this is a challenging year for HBC in the payment of debts, which recorded the most outstanding amount of total liabilities of nearly 13,000 billion VND for three years Still, HBC had higher financial leverage since its total liabilities exceeded its whole equity Despite a reduction in net profit due to fierce competition in the construction market at the beginning of 2018, HBC was steady in its overall assets at 15,900 billion VND As shown from the given balance sheet, HBC had increased significantly in the proportion of shareholder's equity throughout the years, which is a positive sign for investors in the future

2.1.1 Competitor Comparison

Coteccons Construction Joint Stock Company (CTD), established in 2004, is one of the leading construction units

in Vietnam with a series of large projects in the country with the role of the general contractor, design and construction, E&C, EPC for civil and industrial projects: high-rise residential projects, large-scale projects of commerce, education, hotels and resorts, industrial plants Besides being the largest private construction enterprise in Vietnam, Coteccons was ranked 56th in the Top 500 Largest Enterprises in Vietnam in 2020, which was organized by VNR500

Current Asset

The first chart illustrates the current assets of HBC from

2018 to 2020 compared to CTD; both firms had different trends from each other The current assets trend of HBC had

a slight increase, from 85,05% to 87,50% throughout three years This could be explained by the fact that the inventory rate of HBC has increased rapidly by 35.72% from 2018 to

2020 Meanwhile, CTD recorded a decrease from 91,09%

to 90,89% during the same period; however, it was still

higher than HBC by the end of 2020

Non-Current Asset

Yet, the growth trend of HBC and CTD in the current asset category contrasted to the current asset category just noted above In which the percentage of HBC decreased gradually, the non-current asset of HBC dropped from 14,95% to 12,50% At the same time, CTD recorded a slight increase in growth from 2018 to 2020 In particular, HBC was still higher compared to CTD; instead, it rose from 8,91% to 9,11% So, it seems that HBC is currently working its way to reduce its non-current

non-by possessing and its non-current asset decline is mainly due to a significant decline in intangible assets as it reduced by 86,52%

on the firm's financial structure At the same time, HBC stills may be spared some of its efforts and resources to its activities as the current liability, which requires short-term payment, is accounted for only 95% HBC's current liability

is lower than CTD's because they still have a long-term debt to pay

Non-Current Liabilities

There is a clear difference in the long-term liabilities category of the two companies HBC and CTD HBC recorded a rise in non-liability from 5,12% to 5,76%, while the percentage of CTD stayed at a minor of 0.10% Unlike HBC, which borrowed long-term debt, CTD's non-current liabilities are minimal They have a large gap with HBC because CTD has not borrowed any long-term debt and its non-current liability mainly comes from long-term

investment and development fund

Any non-operating gains and losses; -242,041,921,536 -139,330,086,219 -121,764,722,650

As we can see from the income statement, the company's revenue slightly increased in 2019 from 2018, but it fell dramatically in 2020 to 60% from the previous year As a result, COGS directly related to total revenue increased lightly

in 2019 and dropped significantly in 2020 like the total revenue However, during 2019, it seemed that COGS increased more than what it was supposed to at 4.52% compared to the expected 1.7% like in revenue The reason may be the unexpected increase in material price without the appropriate adjustment in price left the COGS increased significantly compared to its revenue

The total expenses are the sum of COGS and other expenses incurred during the year Because the company kept its other expenses at a constant rate and COGS took the major proportion in total expenses, the COGS pattern played a vital role in shaping the total expenses pattern Therefore, the notable increase in COGS also made total expenses increase moderately before both figures plummeted in 2020

On the other hand, at first glance, the company is having trouble with non-operating activities as non-operating gains were negative for the three years The significant losses were due to the huge amount of interest expense while interest income can not offset the cost The interest expense number was constant for three years from the income statement Therefore, other income and interest income are the major players determining the non-operating losses or gains Due to the increase in other income and interest income, the company managed to reduce the losses by 40% from figures in 2018 and 12% in 2019

With the last figure, earning per common share pattern was different from other variable patterns considered until now Even though HBG's total revenue slightly increased in 2019, the earnings per common share lost up to 40% from its previous number In 2020, things were getting worse as the earning per share reduced dramatically from 1,717 to only 340 (at a loss of 80%) The reason is that it is due to a significant amount of shares outstanding issued in HBC during 2019 at 25,000,000 shares, while the pandemic affects the EPS in 2020 (Co phieu 68, n.d.)

2.2.1 Competitor Comparison Revenue:

Overview, Hoa Binh Construction has lower revenue compared with Coteccons during the period The most obvious inference from the chart is that the gap between the two companies is getting smaller as time progresses HBG was improving slightly in

2019 while CTD fell miserably in the same period before both companies suffered heavy losses in revenue during 2020 The slight increase or significant decrease in revenue during this period reflected the construction market in the covid-19 pandemic where both companies could not attract any potential contracts, which resulted in an unchanged or decrease

in revenue Specifically, CTD was in the middle of reconstruction of its structure Therefore, it is understandable that CTD's revenue dropped significantly during 2018-2020

COGS

As said earlier, the COGS movement was reflected in the direction of total revenue Therefore, as total revenue increases or decreases, COGS will act in the same manner There is an increase in COGS proportionate to the total

revenue rate from 2018 to 2020 in both companies This may be explained by the fluctuation in material price that led

to an increase in COGS in these two companies Furthermore, one of the most significant points here is that Hoa Binh

Construction has a lower COGS over total revenue rate than CTD from 2018 to 2020 Thus, HBG was maybe more

efficient in utilizing its material and related working cost than CTD

Total expenses

As explained above, the move of total expenses is also directly affected by the move of COGS and total revenue The pattern and extent of total revenue determine the shape and size of the total expenses, while COGS increased the proportion of total expenditure to total revenue It is intriguing that although HBC had a lower COGS proportion to revenue, its total expenses proportion to total revenue was higher than CTD's numbers Thus, the reason may lie in the operating cost It appears that although revenue decreased significantly in 2020, the selling and administrative expenses

in HBC just reduced slightly As a result, HBC recorded its negative earnings in 2020 due to the inappropriate structure cost In conclusion, although having a smaller percentage of COGS in total revenue than CTD's figure, HBC's total expenses percentage in revenue was higher than CTD's amount due to improper expenses of selling and administrative

expenses Thus, HBC must be cautious in handling its costs

Non-operating gains or losses

Regarding non-operating income, HBC had a steady growth from 2018 to 2020, while CTD decreased significantly HBC grew by 42.44% in 2019 and 12.61%

in 2020 Coteccons, on the other hand, declined by 33.576% and 14.41% within the same period In particular,

in 2019, both companies experienced major changes While HBC gained from non-operating cost increased from -242,041,921,536 VND to -139,330,086,219 VND, CTD fell sharply from 447,561,020,947 VND to 297,287,683,241 VND This can be explained by the sharp increase by 586.41% in HBC net other income from 18,020,352,445 VND in 2018 to 123,693,937,042 VND in

2019 before declining to 85,736,215,661VND in 2020, whereas CTD continues to decrease in this period Thus, although HBC was doing better regarding non-operating gains, It was still lacking behind CTD in this aspect

Earnings per common share

Earnings per share perform the function of the profitability indicator of a firm; it reflects how much money a business makes per share and can be used to measure the enterprise value In general, the earnings per share of CTD was higher than that of HBC even though the proportion of both companies was gradually decreasing from 2018 to 2020 However, Coteccons's indices were constantly greater than Hoa Binh's, with the highest distinction in 2020, when Coteccons's proportion was 12.24 times higher than Hoa Binh's It is apparent that in 2020, Hoa Binh suffered a significant reduction as earnings per share plummeted by 80.20% from 1,717 to 340, whilst Coteccons drop remained consistent between 2019 and 2020, with a decrease of 51.76 percent and 52.98 percent, respectively The Covid-19 epidemic is one of the factors influencing company dividend cuts The pandemic hampered debt collection while the corporations still required a certain amount of money to sustain manufacturing and business, impacting cash flow (Mai Phuong, 2020)