(TIỂU LUẬN) GROUP ASSIGNMENT FINANCIAL ANALYSIS SABECO

200,000 0% SABECO Long-term Liabilities SABECO YOY Growth HABECO YOY Growth... Figure 5: Long-term liabilities comparisonContrary to current liabilities, the long-term liabilities of SAB

GROUP ASSIGNMENT FINANCIAL ANALYSIS

TABLE OF CONTENTS

A Introduction 3

B Analysis of Profit/Loss and Balance Sheet 4

1 Balance Sheet 4

2 Income statement 9

C Ratio Analysis 14

1 Liquidity ratios 14

2 Leverage ratios 15

3 Efficiency ratios 16

4 Profitability ratios 17

5 Market value ratios 18

D Conclusion 20

E References 21

F Appendices 22

Appendix #1 Shareholder structure 22

Appendix #2 Ten biggest subsidiaries of SABECO 23

1

A INTRODUCTION

Food and beverage is a highly competitive industry in Vietnam with many domestic and foreignactors Both big brands and many smaller brands all try to compete for a larger market share.Nonetheless, SABECO is a distinct brand from the rest, with a century-long history, a massivebalance sheet, and some desirable financial ratios

SABECO is a Vietnamese corporation, fully known as Saigon Beer – Alcohol – BeverageCorporation The company's head office is on the 5th Floor, Vincom Center, 72 Le Thanh Ton,Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam While the postal address is fixed in oneplace, the internet address can be accessed everywhere via <sabeco@sabeco.com.vn> In 1875,SABECO was founded by a French businessman named Victor Larue in Saigon, Indochina With

a history of 147 years, SABECO is the oldest Vietnamese brand of any industry Since the firstday, the primary business line has been producing and selling beer, alcohol, and other beverages,though the product portfolio has expanded dramatically

At VND156,500 per share on October 22nd, 2021, SABECO is the 15th largest corporation listed

in Vietnam, with a market capitalization of VND97,475 trillion SABECO is the largest alcoholproducer with over 40 percent market share (VietnamCredit, 2020) SABECO was listed on the

Ho Chi Minh Stock Exchange (HOSE) with the ticker symbol SAB It first started trading onDecember 6th, 2016 As of December 31st, 2020, SABECO has 641,281,186 outstanding sharesand charter capital of VND6,413 trillion SABECO has worked closely with KPMG as itsindependent audit firm since 2018

SABECO used to be a state-owned company with Vietnam's Ministry of Trade and Industryowning 89.59 percent as of September 2012 In 2018, Vietnam Beverage Company Limited, asubsidiary of ThaiBev, bought the majority of shares in SABECO Therefore, SABECO is nowforeign-owned at 62.71 percent (Appendix 1) The board of directors has seven members, three

of which are foreigners The chairman of the company is Koh Poh Tiong, a senior Singaporeanbusinessman

SABECO has 26 subsidiaries and 18 associates and joint ventures The three biggest subsidiariesare Sai Gon Beer Trading Company Limited, Sai Gon - Ha Tinh Beer One Member CompanyLimited and Sa Be Co Mechanical Company Limited (Appendix 2)

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B ANALYSIS OF PROFIT/LOSS AND BALANCE SHEET

1 BALANCE SHEET

20,000,000

30% 20%

-20% 0

Other short-term assets

74.56%

Figure 2: SABECO current assets in 2020

As shown in Figure 1, SABECO had a vast number of total current assets, gradually growingfrom VND13.6 trillion to VND19.5 trillion between 2017 and 2020 This rising pattern was due

to SABECO’s sustainable increase in short-term financial investments throughout the years.Noticeably, current assets increased by a dramatic 30.46 percent in 2019 Meanwhile, there was a

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downward pattern in HABECO’s total short-term assets with its lowest number of VND4.1trillion in 2019.

8,000,000

2% 7,000,000

2,000,000

-8%

1,000,000

-10%

SABECO Long-term Assets SABECO YOY Growth

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8,000,000 10% 7,000,000

0% 6,000,000

1,000,000

-40%

SABECO Current Liabilities SABECO YOY Growth

HABECO YOY Growth

Figure 4: Current liabilities comparison

SABECO’s current liabilities decreased throughout the years with its most significant decline of19.94 percent from 2017 to 2018 Overall, the figure went down from VND7.4 trillion toVND5.1 trillion over the period The reason was due to the fall in short-term borrowings andfinancial leases and other short-term payables There was also a similar downward trend inHABECO’s current liabilities but to a greater degree

200,000

0%

SABECO Long-term Liabilities SABECO YOY Growth

HABECO YOY Growth

Figure 5: Long-term liabilities comparison

Contrary to current liabilities, the long-term liabilities of SABECO grew fivefold over four years

to approximately VND1 trillion due to long-term borrowings and financial leases Nonetheless, 5

this amount of liabilities was much lower than its assets, which means SABECO couldcomfortably cover the debt and interest expenses In comparison, HABECO’s long-termliabilities steadily declined from VND 0.5 trillion to VND0.2 trillion between 2017 and 2020.

5% 0

0%

SABECO Equity HABECO Equity SABECO YOY Growth HABECO YOY Growth

Figure 6: Owners' equity comparison

As shown in Figure 6, SABECO’s stockholder increased from VND14.1 trillion to VND21.2trillion, thanks to the accumulated retained earnings Similarly, there was an increase inHABECO’s stockholder’s equity but at a slower rate The reason behind this trend was also due

to undistributed earnings after tax, making up for declines in other accounts

Overall, looking at the horizontal common-size analysis of the two enterprises, it is evident thatSABECO performed better than HABECO over the period surveyed In terms of assets andliabilities, SABECO’s total assets had a more gradual increase and it exceeded total liabilitieswith a greater extent than HABECO This means that SABECO had a more positive net worthand could be considered financially healthy with lower risk and more revenue Regardingstockholder's equity, SABECO also showed a more rapid growth, which indicated that thecompany might effectively sustain and grow profits

Table 1: SABECO vertical common-size balance sheet

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Most of SABECO’s debts were short-term However, the company’s current liabilitiesproportions declined from 33.62 percent in 2017 to 18,90 percent in 2020 over the yearssurveyed In contrast, the long-term liabilities showed a gradual increase over the same period.SABECO’s stockholder equity took up the largest proportion of its total liabilities and equity inall the years studied Moreover, the figure showed a gradual increase throughout the years from65.51 percent to 77.50 percent.

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SABECO YOY Growth HABECO YOY Growth

Figure 7: Net revenue and year-on-year growth rate of SABECO

The net revenue of SABECO was growing between 2017 and 2019 at a rate of 5 percent, whichwas acceptable for a mature company in a saturated market However, the growth rate was at anegative 26 percent in 2020 HABECO also faced a similar situation, in which revenue droppedsignificantly in 2020 at minus 20 percent

The first reason was the Covid-19 pandemic, which restricted public gatherings, and thus, loweralcohol consumption The second reason was the implementation of Decree 100/2019/NDCPfrom January 1, 2020, which bans driving a vehicle under the influence of alcohol In addition,Decree 24, issued on February 24, 2020, introduced stricter regulations on alcohol advertising,restricting the use of alcohol in film, theatre and television productions and taking measures toprevent people under 18 years old from accessing information and buying alcohol These policiessignificantly impacted the sales and consumption of beer, including SABECO

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Figure 9: SABECO cost of goods sold in 2020

The cost of goods sold was directly tied to the production of the products, including the cost oflabour, materials, and production Cost of goods sold accounted for a large portion of the netrevenue, indicating the beverage industry is a low-margin business According to the verticalcommon-size income statement, SABECO recorded a gradual drop in the cost of goods sold as apercentage of net revenue, indicating the efficiency in production and purchasing over the years.Meanwhile, this figure remained relatively the same for HABECO Figure 9 provides a

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breakdown of the main types of goods sold by SABECO Beer was by far the biggest product

category, accounting for 84.15 percent of SABECO's main business line

The three main operating expenses for SABECO were selling expenses, general and

administrative expenses, and financial expenses Figure 10 shows that selling expenses

accounted for a sizeable portion of net revenue, reaching 10.16 percent in 2020 SABECO spent

most of the selling expenses on advertising, promotion, and salesforce Next were general and

administrative expenses at around 2.5 to 3 percent annually Lastly, financial expenses accounted

for an indiscernible amount of less than 1 percent, mainly interest expenses This means that

SABECO had a minimal amount of interest-bearing debt

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Figure 11 describes three major non-operating gains for SABECO between 2017 and 2020.

Financial income increased over time and reached 3 percent in 2020 Financial income mainly

was interest income from term deposits at banks In 2020, SABECO received VND930 billion

from interest income at banks Joint ventures and subsidiaries also brought income for SABECO

at around 2 percent of net revenue Lastly, other profit was calculated as other income subtracted

by other losses on the income statement

0

SABECO Net Profit HABECO Net Profit

Figure 12: Net profit after tax comparison

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Both companies recorded fluctuating profits between 2017 and 2020 It is noteworthy that in

2020, even when SABECO recorded a 26 percent drop in revenue, its after-tax profit only fell6.5 percent That shows the company was able to scale down its expenses to adapt to the difficulttime More surprising is that HABACO recorded growth in profit at 21.5 percent in the sameyear The increase was due to the profitable non-operating business line of the company, whichwas not discussed thoroughly in its financial statements

SABECO recorded higher EPS over HABECO two to three times A higher ratio suggestsgreater value because investors will pay more for its stock if they think the company has higherprofits relative to its share price Nonetheless, SABECO's EPS remained around VND7,000 overfour years, suggesting it did not improve its market position a lot

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Figure 14: SABECO liquidity ratios

2.58 2.24 1.80

Figure 15: HABECO liquidity ratios

From 2017 to 2020, SABECO doubled its current ratio from 1.85 to 3.77, mainly due to anincrease in short-term assets from VND13.6 trillion to VND19.5 trillion This ratio was morethan enough to meet the company's current obligations since an ideal current ratio is between 1.5and 2 (Babalola & Abiola, 2013) Nonetheless, the cash ratio remained relatively stable, meaning

a slight change in cash and cash equivalents The reason for a significant increase in short-termassets was the change in short-term financial investments, from VND6.5 trillion to VND14.5trillion They are primarily short-term bank deposits of less than a year The liquidity ratios ofSABECO are much higher than those of HABECO, except for the cash ratio Nonetheless,higher liquidity ratios do not translate to better ratios Notably, a current ratio at 3.77 means

SABECO may be overly focused on liquidity, which can be used for effective capitalexpenditure or business expansion instead.

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Figure 16: SABECO debt ratio

The debt ratio of SABECO gradually fell over for years, reaching 22.50 percent in 2020 In otherwords, capital financing in the company comes mainly from equity financing The biggestcontributor was retained earnings after tax, which rose from VND5.8 trillion to VND12.3 trillionover the period

HABECO Cash Coverage

Figure 17: Coverage ratios comparison between SABECO and HABECO

Figure 17 compares the ability to cover interest expenses for both companies It shows thatSABECO is in a much stronger position, with interest coverage and cash coverage above 100multiples However, SABECO recorded a sharp decrease in interest coverage in 2020 Thereason was due to a substantial fall in earnings rather than an increase in debt

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Figure 19: SABECO operating cycle

Figure 18 shows receivables and inventory periods for both companies SABECO posts a highlevel of efficiency due to strong sales and good inventory management Figure 19 shows theoperating cycle of SABECO throughout 2018 and 2020 Even though the operating cycle became

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longer, the cash cycle contracted from six days to one day This number is a prime ratio ofefficiency.

Table 2: Comparison between SABECO and the F&B industry (Fusion Media Corp., 2021)

Efficiency ratios (Trailing 12 months) SABECO (days) Industry (days)

Besides, as shown in Table 2, SABECO is slightly more efficient than the food and beverageindustry SABECO has a high level of efficiency According to Bao (2021a), after the Thaiinvestors bought SABECO, they implemented many comprehensive solutions to optimiseinventory management and sales activities, improving business efficiency

HABECO Net Profit

Figure 20: Profit margins comparison between SABECO and HABECO

Both companies have had similar gross profit margin rates over the years, which remain between

25 and 30 percent This shows that the portion of the cost of goods sold in the beverage industry

is high, whether for large or mid-sized companies However, when regarding net profit margin,SABECO seems significantly more profitable The reason is that SABECO has a significantamount of financial income, which was approximately VND1 trillion in 2020 and accounted for3.45% of net revenue The financial income of SABECO is mainly from the interest income ofbank deposits One surprising trend is that profit margins of both firms increased in 2020, which16

was supposed to fall in the context of the Covid-19 pandemic According to Kim (2021), onereason was that alcohol ingredients such as barley, aluminium, and hops decreased in price in

2020, lowering the costs of goods sold

Figure 21: Return ratios comparison between SABECO and HABECO

According to Rambe and Putry (2017), the return on assets (ROA) is a metric that assesses acompany's ability to generate profits by utilising its assets A high ROA indicates that the firmcan profit from relatively high-value assets Similarly, a high return on equity (ROE)demonstrates how well a firm manages its capital and measures the profitability of theinvestment made by company shareholders SABECO has ROA and ROE at around 20 and 25percent, respectively These rates of return are considered highly attractive for a manufacturingfirm like SABECO, according to Birken (2021), since they are asset-heavy companies

5 MARKET VALUE RATIOS

The P/E ratio reflects how much the market is willing to pay for a company now based on itsprevious or projected profits (Easton, 2004) In 2018, SABECO had a P/E ratio of 40, whichmeans it traded 40 times its earnings The high multiple shows that investors expected the firm togrow much faster than the market However, the P/E ratio gradually decreased over time, as itsmarket stock price dropped significantly As of September 2021, SABECO had a P/E of 20.02(Bao, 2021b) Its stock was traded at a historically low price for two reasons (1) investors do nothave confidence in the hospitality industry and (2) the beer market had little room to grow

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