Group report financial analysis hoa binh construction (HBC)

In 2019, HBC reached the highest number in the total assets at 16,721 billion VND mainly in the short-terminvestment among three years, which increased by 5% compared to that of 2018.. C

Group Report Financial Analysis Hoa Binh Construction (HBC)

Group 1 – CF4Lecturer: 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

4.1 Efficiency Ratios

4.1.1 Inventory turnover ratio4.1.2 Receivable turnover ratio4.1.3 Total assets turnover4.1.4. Fixed assets turnover

5.1 Long-term Solvency Ratio

5.1.1. Total debt ratio5.1.2. Debt-equity ratio5.1.3 Equity multipliers 5.1.4 Times interest earned ratio 5.1.5. Cash coverage ratio

6.1 Profitability Ratio

6.1.1 Profit margin ratio6.1.2 Return on Assets (ROA)6.1.3 Return on Equity (ROE)

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

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

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

6

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

In 2019, HBC reached the highest number in the total assets at 16,721 billion VND (mainly in the short-terminvestment) among three years, which increased by 5% compared to that of 2018 Besides, the total liabilities figurehad 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 schedulecommitted in construction contracts Furthermore, the litigation between HBC and FLC has forced this firm to have ahuge debt at the end of 2019 (Chi, 2021) In terms of stockholder's equity, there was a considerable rise of more than35% 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, whichrecorded the most outstanding amount of total liabilities of nearly 13,000 billion VND for three years Still, HBC hadhigher financial leverage since its total liabilities exceeded its whole equity Despite a reduction in net profit due tofierce competition in the construction market at the beginning of 2018, HBC was steady in its overall assets at 15,900billion VND As shown from the given balance sheet, HBC had increased significantly in the proportion ofshareholder'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 inVietnam 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 andresorts, industrial plants Besides being the largest private construction enterprise in Vietnam, Coteccons was ranked 56th inthe Top 500 Largest Enterprises in Vietnam in 2020, which was organized by VNR500

Current Asset

The first chart illustrates the current assets of HBCfrom 2018 to 2020 compared to CTD; both firms haddifferent 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 factthat the inventory rate of HBC has increased rapidly by35.72% from 2018 to 2020 Meanwhile, CTD recorded adecrease 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 non-currentasset category contrasted to the current asset category justnoted above In which the percentage of HBC decreasedgradually, the non-current asset of HBC dropped from14,95% to 12,50% At the same time, CTD recorded a slightincrease in growth from 2018 to 2020 In particular, HBCwas still higher compared to CTD; instead, it rose from8,91% to 9,11% So, it seems that HBC is currently workingits way to reduce its non-current by possessing and its non-current asset decline is mainly

due to a significant decline in intangible assets as it reduced by 86,52%

Current Liabilities

In terms of current liability, the percentage of CTD remainedhigher than HBC throughout the period, although it had aminor reduction in 2019 by 0,15% and then rose back to99,90% in 2020 In three years, the proportion of HBCcurrent liabilities declined by 0,64%, from 94,88% to94,24% In conclusion, CTD's current liabilities, accountingfor approximately 100%, will put more pressure

on the firm's financial structure At the same time, HBC stills may be spared some of its efforts and resources to itsactivities as the current liability, which requires short-term payment, is accounted for only 95% HBC's currentliability is lower than CTD's because they still have a long-term debt to pay

8

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

Non-Current Liabilities

There is a clear difference in the long-term liabilitiescategory of the two companies HBC and CTD HBCrecorded 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 current liabilities are minimal They have a large gap withHBC because CTD has not borrowed any long-term debtand its non-current liability mainly comes from long-termprovisions

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.)

10

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

2.2.1 Competitor Comparison Revenue:

Overview, Hoa Binh Construction haslower revenue compared with Coteccons during theperiod The most obvious inference from the chart

is that the gap between the two companies is gettingsmaller as time progresses HBG was improvingslightly in 2019 while CTD fell miserably in thesame period before both companies suffered heavylosses in revenue during 2020 The slight increase

or significant decrease in revenue during this periodreflected the construction market in the covid-19pandemic 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 thatCTD'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 revenueincreases or decreases, COGS will act in the same manner There is an increase in COGS proportionate to the totalrevenue 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

11

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

Construction has a lower COGS over total revenue rate than CTD from 2018 to 2020 Thus, HBG was maybe moreefficient 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 totalrevenue The pattern and extent of total revenue determine the shape and size of the total expenses, while COGSincreased the proportion of total expenditure to total revenue It is intriguing that although HBC had a lower COGSproportion to revenue, its total expenses proportion to total revenue was higher than CTD's numbers Thus, the reasonmay lie in the operating cost It appears that although revenue decreased significantly in 2020, the selling andadministrative expenses in HBC just reduced slightly As a result, HBC recorded its negative earnings in 2020 due tothe inappropriate structure cost In conclusion, although having a smaller percentage of COGS in total revenue thanCTD'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 steadygrowth from 2018 to 2020, while CTD decreasedsignificantly 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 HBCgained from non-operating cost increased from -242,041,921,536 VND to -139,330,086,219 VND, CTD fellsharply from 447,561,020,947 VND to 297,287,683,241VND This can be explained by the sharp increase by586.41% in HBC net other income from 18,020,352,445VND 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 profitabilityindicator of a firm; it reflects how much money a businessmakes per share and can be used to measure the enterprisevalue In general, the earnings per share of CTD was higherthan that of HBC even though the proportion of bothcompanies was gradually decreasing from 2018 to 2020.However, Coteccons's indices were constantly greater thanHoa Binh's, with the highest distinction in 2020, whenCoteccons's proportion was 12.24 times higher than HoaBinh's It is apparent that in 2020, Hoa Binh suffered asignificant 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 of51.76 percent and 52.98 percent, respectively The Covid-19 epidemic is one of the factors influencing companydividend 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)

13

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat

III Ratio Analysis

3.1.Liquidity Ratio

3.1.1 Current ratio

The current ratio would show how well the corporationpays its debt to creditors In this chart, the current ratio ofHBC was just above one, which means they still have theability to pay debt; as long as they made assets, most oftheir assets would pay for their liabilities Although theystill can repay, its high fixed asset ratio shows that HBChas difficulty paying off its debt This ratio has slightlyincreased its ability to pay debt from 1,098 to 1,266

Compared to CTD, they had a higher current ratio than HBC, so their debt payment ability was more favorable than HBC, which recorded a double number in 2020, 2,24 compared to 1,27

3.1.2 Quick ratio

Similar to the current ratio, HBC's quick ratio is still weakerthan CTD Quick ratio shows a company's short-termliquidity and measures its ability to meet its short-termobligations with the most liquid assets In 2018, the quickratio HBC was 0.95, which was below one, representing thestagnation of capital in cash And in the next two years,HBC's quick ratio increased slightly from 0.94 to 1.03,which shows that HBC has done a good job in maintainingliquidity at approximately 1 Besides that, the quick ratio

of CTD remained higher than HBC throughout three years, from 1.57 to 1.98 However, this index is too high thannormal Recording in 2020 was approximately equal to 2 This was not good because too much cash capital wouldlead to low working capital turnover, resulting in decreased efficiency in capital use After all, HBC has better short-term liquidity than CTD