Traphaco JSC analysis and valuation

On the other hand,free cash flow is the cash value that businesses can obtain after expanding assets forproduction and business activities.. Free cash flow to firmFCFFrepresents the amou

Over the past 20 years since the Decree No 48 / CP of the Government was signed

on July 11, 1998, Vietnam's stock market has undergone many changes, but is alsogrowing stronger and stronger many different stages Vietnam stock market hasexpanded strongly in terms of the number of securities codes, capitalization, transactionvalue In which, the total market capitalization of 3 trading íloors reached over 4million billion dong, the number of listed and registered companies traded more than1,550 codes Many industries have been developed along with economic growth Thestock market has made an important contribution to VietnanTs economic development

Currently, the pharmaceutical industry is being interested in by many investorsbecause it has a lot of potential for development The outstanding names in thepharmaceutical industry include Hau Giang Pharmaceutical JSC, Traphaco JSC, .Traphaco JSC has a quite different direction than other companies in the same industry,which is more íồcused on traditional medicine Traphaco is almost monopoly, occupying

a large market share in this segment Realizing this, I chose my thesis topic "Traphaco JSC: Analysis and valuation" to clarify the potential of this stock code.

1 Research Objective

• Research Question: How do we identify the fair value of TRA’s stock?

• General Objective: Using Literature Review and applying it to find out the intrinsic

value of TRA’s stock

• Speciíic Objective:

o Analyzing business períồrmance of TRA and forecasting the potentials of TRA

in five consecutive years (2019-2023)

o Using valuation methods to determine the intrinsic value of TRA’s stock andcomparing this value with the market price so as to whether TRA has beenovervalued or undervalued

1

o Relying on the valuation outcome and then recommending investors whetherthey should invest in this stock or not.

My thesis has been devided to 3 chapters:

- Chapter 1: Literature Reviewer

- Chapter 2: Analysis of TRA performance

Chapter 3: Valuation and Recommendations

2

CHAPTER 1: LITERATƯRE REVIEW

1.1 Deíinitions

1.1.1 Stock market

The stock market is a place for individuals or businesses to buy, sell and issueshares regularly These financial activities are carried out through official institutionalexchanges or the free trading market (OTC) operating under detined regulations Theremay be multiple stock exchanges in a certain country or region Stock markets and stockexchanges can be used to replace the same place

1.1.2 Stock

Stock is a tinancial asset, which is a type of securities issued in the form of acertiíicate or book, contirming the ownership and legitimate interests of the owner of theproperty

Stocks are bought and sold mainly on stock exchanges, although there may beprivate sales, and are the íồundation of almost every portíồlio These transactions mustcomply with Government regulations to protect investors from fraud These investmentscan be purchased from most securities brokers

1.1.3 Valuation

A valuation is an estimate of how much a business, property, or any asset is worth.There are many different tools for implementing valuations A tinancier wants toimplement valuation, they will analyze the management structure, Capital structure,market value and future prospects In tinance, things that are valued are tinancial assets(such as stocks, options, businesses, etc.) and debts such as bonds issued by a company

Valuation models: are models created by investment analysis for the purpose ofdetermining the value of tinancial assets These models have inputs that are collectedfrom avaiable information sources about assets such as tinancial reports, information onsimilarProducts, market movement, and so on Then, this information is processedthrough caculations and analysis combined with the subjective judment of the model

user, and then he output is the intrinsic value of the Tinancial asset (Bodie et all, Investment 2015)

1.1.4 Intrinsic value

Intrinsic value is the qualitative or quantitative value of an asset, an investment

or a company This term is used in basic analysis to estimate a company's value and itscash flow The intrinsic value used is the interest amount in the option contract

Intrinsic value is calculated using basic analytical techniques to assess anenterprise in all aspects such as business model, corporate govemance, market factorsaffecting businesses, goals of the business The value obtained is compared to the marketvalue to determine whether the business is overvalued or too low by the market.Typically, investors will use both qualitative measures and quantitative measures to getthe most accurate results about the intrinsic value of a business However, all is anestimate, not a sure thing

1.1.5 Valuation methods

a Net asset vahie (NA V)

Net asset value (NAV) is the value of all tinancial assets and non-financial assetsminus the value of unpaid debts, often related to tinancial funds, because of those funds

is registered with the Securities Commission The Securities Commission is acquired bytheir net asset value It is an important indicator of hedge funds and hedge funds whencalculating the value of the underlying investments in these funds of investors This may

be like the book value or equity value of a business Net asset value can represent thevalue of total equity or can be divided by the number of outstanding shares of investors

The formula for a mutual fund's NAV calculation is straightforward:

NAV = , ,

Total number of Outstanding Shares

The correct qualiíying items should be included for assets and liabilities of a fund

b Vahiation by discoìmted cash flow modeỉ (DCF)

The DCF model is a way to evaluate the value of a stock or an investment projectfor an investor Analysts use this method to determine the íuture cash flow of a speciticstock or project discounting the present value, thereby assessing the íeasibility of theinvestment project If the íuture cash flow aíter the discount is too large compared to thecurrent investment cost of the project, it can be assessed that this is a good investmentproject

DCF model is built on the íoundation of the concept of time value of money andthe relationship between proíit and risk Models can be represented as mathematicalexpressions as follows:

Where: CFt is the expected cash flow to be obtained in the íuture,

k is the discount rate used to discount the cash flow to the present value,

n is the number of periods

The DCF model is widely used in corporate tinancial decisions, especiallyinvestment decisions, specitically:

- Valuation of assets, including tangible tixed assets and tinancial assets to make

a decision to buy or sell it

- Analyzing, evaluating and deciding investment in the project is highly íeasible

- Analyzing, evaluating and deciding whether to buy or rent tixed assets

Assets - Liabilities

PV = CFo

(l+k)O

CF1 CF2 H- - - -1 - ——

(l+k)l (l+k)2

CFn (l+k)n

It allows direct comparison of the expected retum of investments with borrowingcosts that other methods cannot.

It creates a grant for the difference in the time that investments generate theirincome

This approach by recognizing the time factor provides enough for uncertainty andrisk It provides a good measure of the relative proíitability of Capital expenditure byreducing income on current values

J Disadvantages of DCF

Assumptions regarding permanent growth and discount rates make the DCFcalculated value more sensitive Valuation of DCF will íhictuate and will not calculatethe value needed if there are any smallest changes

It is best used only when there is a high degree of contidence in cash flow in thefuture Analyzing a company with a stable past cash flow, such as a food or health carecompany unaffected by changes in the economy, can make comparisons of trends stable.planning in the future easier Proíltable companies with abundant cash flow are morelikely to continue to increase cash flow in the hiture, or hold on if the recession occurs.Problems with using this model can happen to businesses with erratic cash flows, making

it difficult to predict the future New companies that tend to be unproven or immatureare also hard to judge using the DCF method

DCF model is suitable for longer term investment because it creates long-termvalue, not suitable for short-term.

c Free cash flow (FCF)

Free cash flow is a method of assessing business activities which is calculated bythe difference between operating cash flow and Capital expenditure On the other hand,free cash flow is the cash value that businesses can obtain after expanding assets forproduction and business activities If you want to maximize value for shareholders, it isimperative that businesses understand what free cash flow is, thereby buildinginvestment opportunities Businesses will find it difficult to conduct business activitiessuch as advertising, product development and paying dividends without cash Free cashflow is calculated as follows:

FCF = Net income+Depreciation-Change in Working capital-Capital expenditure

The FCF is the unit of measurement of the company's cash available by workingCapital and íìxed Capital investments, or Capital expenditure (CAPEX), over a certainperiod of time Companies want to enhance the value of shareholders, the FCF is a goodway to express it

As the free cash flow increases, the strength of the balance sheet increases.However, when negative free cash flow is not only a bad sign, it may be a sign that thecompany is investing in many different projects This valuation method can increase thevalue in the long term if the investments bring retums to investors

There are two types of free cash flow: Free Cash Flow for the Firm (FCFF) andFree Cash Flow to Equity (FCFE) In the content of this thesis, I use the Free Cash Flow

to Firm (FCFF) model

J Free cash flow to firm (FCFF)

Free cash flow to firm (FCFF) is the remaining cash flow for the entire company(those who own assets) and so it is also called free cash flow Free cash flow to firm(FCFF)represents the amount of cash flow from operations available for distributionafter depreciation, tax, working Capital and investment costs are accounted and paid.FCFF is basically a measure of the company's proílt after all costs and reinvestment.This is one of many benchmarks used to compare and analyze the tinancial health of acompany.

FCFF represents cash available to investors after a company has paid all businesscosts, invested in current assets (such as inventory) and invests in long-term assets ( asdevice) FCFF includes both bondholders and shareholders when considering theremaining amount for investors

FCFF method is a good method for company operation It is taken into accountall types of cash flows from cash, cash expenditures and reinvestments needed tomaintain business operations The remaining amount after performing all these activitiesrepresents the company's FCFF

Free cash flow for businesses - FCFF is said to be the most important tinancialindex of the stock value of the business Using FCFF is the cash flow left after dismissingall responsibilities and projections for the future will bring high accuracy

There are many formulas to determine free cash flow, one of which is:

FCFF = Net income + Non-cash charges + Interest X (1-tax) - Long-term investment

- Investment in worrking Capital

Other equations include:

FCFF = Cash Flow from Operations + Interest Expense X (1 - Tax Rate) - Capex

FCFF = EBIT X (1 - tax rate) + Depreciation - Capital expenditures - Increase in Net working Capital

ECEE = EBITDA X (1 - tax rate) + Depreciation X tax rate -Long-term investments

- Investments in working Capital

J Beneíit of Using FCFF:

The value of a stock is the sum of the expected cash flows of the business in thefuture However, stocks are not always correctly priced When understanding the FCFFmethod, investors who are allowed to check that stock investment are worth it It alsoshows the ability to pay dividends of businesses, buy back stocks or repay debts.Investors should check FCFF if they want to invest in bonds or businesses

Businesses after deducting costs still have cash to prove the FCFF value ispositive Conversely, when the negative FCFF value indicates that the firm does notgenerate enough revenue to generate proíit At that time, investors should go find outwhy it is so

J Limits of Using FCFF

One fact is not going to solve every investor problem: Free cash flow is only asgood as the accuracy of the íồrecasts that are being used to simulate future growth A lot

of things can happen to a company over the course of 365 days

It only works when there is visibility: Free cash flow metrics will only work when

a company is operating with 100% transparency If there are questions about the salespractices, cost trends, and other information that can affect the free cash flow, then there

is too much uncertainty to use this measurement as a tool for the investor

It also only works based on the projections created by the investor Free cash flow

is a good piece of information to have, but the investor is íồrced to still make assumptionsabout what will happen in the future The accuracy of those assumptions will create aprojection that either hits the nail on the head or falls fall short and hits the investorsquare on the thumb Being off by just 1 percentage point for some companies canchange the íinancial Outlook be tens of millions of dollars

d DDM modeỉ

The dividend discount model is a different model than the above This modelanalyzes based on the value of dividends that businesses pay to investors, because themain dividend is the actual amount remaining after the business that shareholders receiveregularly after each year Money will bring the company's value to shareholders.Formula calculated as follows:

Value of stocks — — - - -—- - -—

Discount rate - Discount growth rate

According to DDM theory, dividends are the income that shareholders will have

in the future To evaluate a company using DDM model, it is necessary to estimate thedividend value that the company can pay next year for investors The DDM model hastwo main types, namely, the dividend model does not grow and the dividend modelincreases over time

J Advantages of DDM

Justification: The main advantage of the model is based on theory Theory isindisputable The company's value is basically the value of never-ending permanentdividends that buyers intend to receive later over time

Consistency: dividends tend to remain stable for a long time despite how muchvolatility occurs However, dividends will only be paid from cash in the plannedcompany's annual fund Companies announce additional dividends in the form of one-time dividends

No control required: for minority shareholders holding only a few stocks, thestock is the only way to value While individuals or tinancial institutions affect thedecisions of companies by holding large amounts of stocks that minority shareholders

do not have Therefore, receiving annual dividends is the only thing they can be sure of

Mature business: a company has grown sustainably when it can pay dividendsregularly and regularly every year This shows that the company will grow more steadily

in the future This is good news for many investors who like stability

J Disadvantages of DDM

Control: DDM model does not apply to major shareholders Because a largenumber of shares in the group have been bought by them, they can control and iníluencedividend policy if they wish

Too many assumptions: because it is a theory-based model, it will have manyassumptions These factors are almost difficult to control for investors It reduces thevalidity of the model

Restrictions on use: The model applies only to stable, sustainable developmentcompanies that have proof of annual dividend payments Investors who like stabilityonly invest in mature, stable companies, but they will miss fast-growing companies

e The method of vahiation by comparabỉe

Different from discount valuation methods to determine the intrinsic value of abusiness, the method of enterprise valuation is based on a comparison between similarbusinesses (eg companies in the same industry) The comparison method is to convertthe price of proíit ratio (P / E), book value (P / BV), revenue (P / S) and compare similarcompanies to find out which company being undervalued compared to other companies

to pay for a stock on the stock market

If the p / E ratio rises, it means that the dividend rate will be high in the futureaccording to investors' wishes; satisEied investors with low risk levels along with lowmarket capitalization; predict the company has a medium growth rate and will pay highdividends.

EPS (Eamings per share) is the proíit (income) per share This is part of the proíitthat the company allocates for each common stock being circulated in the market EPS

is used as an indicator of company proíitability, calculated by the formula:

Net income-Dividend on Preíerred stock EPS = -, _ ' " -

Average Outstanding shares

J Beneíit of P/E ratio

Rate of price eamings is considered a means of standardizing the value of a dollar

of income across the stock market In theory, you can form a standardized p / E ratio byaveraging the p / E ratios for 3-5 years, which can be considered a benchmark and areused to indicate whether a stock is worth buying or not

J Limits of P/E ratio

The main drawback of using the p / E ratio is when comparing the p / E ratio ofdifferent companies Other companies in the industry will be hard to compare with eachother because it will have different pricing and growth rates Thus, only p / E should beused as acomparison tool when considering companies in the same field, because thistype of comparison is the only type that brings a deep understanding of productivity.

Moreover, leverage can also deviate the p / E ratio if the company's debt can affectstock prices

Another important limitation of the price-to-income ratio is a ratio in the p / Ecalculation formula Although the market determines the value of the stock is due tointemal information from the business, often reported by the companies themselves andthereíồre more easily manipulated Because income is an important input in calculating

p / E, adjusting them can also affect p / E

> P/B ratio

p / B is the ratio used to compare the price of a stock against the book value ofthat stock This ratio is calculated by taking the current closing price of the stock divided

by the latest quarterly book value of that stock

For investors, p / B is a tool to help them find low-priced stocks that most marketsignore If a business is selling shares at a price lower than its book value (ie having a p /

B ratio less than 1), then there are two cases that will occur: either the market is thinkingThe asset value of the company has been greatly exaggerated or the income on thecompany's assets is too low

If the first thing happens, investors should stay away from these stocks becausethe company's asset value will quickly be adjusted to true value by the market If thesecond is true, it is likely that the new leader of the company or new business conditionswill bring business prospects to the company, generate positive income streams andincrease proíits for shareholders Conversely, if a company has a market price of shareshigher than its book value, this is often a sign that the company is doing well, eaminghigh on assets

The p / B index is only really useful when you consider businesses with highCapital concentration or financial companies because their asset value is relatively large.Because accounting must comply with strict standards, the book value of assets does nottake into account intangible assets such as trademarks, trademarks, reputations, patentsand intellectual property Other wisdom created by the company Book value does notmean much to Service companies because their value of tangible assets is not large.

The tồrmula of P/B ratio:

Market price per share

To mark the company's market assets, p / B is more usehil than p / E multiples

Sometimes p / B is very useful in valuing companies that are expected to stopworking

Not very effective in fast growing companies

Can be Virtual due to accounting principles, such as underground assets, Virtualassets very much

1.2 Company analysis

1.2.1 Macroeconomic analysis

Macroeconomics is a branch of economics that studies the characteristics,structure and behavior of an economy in general Macroeconomics and microeconomicsare the two most extensive areas of economics Macroeconomics studies synergisticindicators such as GDP, unemployment, and price indicators to understand how theeconomy works

Macroeconomics looks at the overall economy, as a big picture of the economy.Understandably, it focuses on how to operate the entire economy through specitic factorssuch as inílation, unemployment, GDP, and commercial activity The mainmacroeconomic analysis is to use a model that includes these factors to assess theeconomy and thus develop appropriate economic policies The govemment willintroduce tiscal and monetary policies to control the economy through the Central bank

Each industry has its customers' differences, market share among companies,industry development, competition, regulations and business cycles Researching theindustry's activities will provide investors with a deeper understanding of the businessand tinancial situation of the company and a comparison of business relations

Industry analysis may be conducted using Michael Porter’s five forces model.Porter is a Harvard professor renowned for his work in creating a specialized industryanalysis model The five forces model reviews an industries supplier power, threat ofsubstitutes,buyer power, barriers to entry and the rivalry that is created when companiescompete for the previous four forces This Standard industry analysis tool helpsindividuals use a time-tested management procedure for generating intelligent businessanalysis.

1.2.3 Financial analysis

Financial analysis is a set of concepts, methods and tools that allow the collectionand Processing of accounting information and other management information to assessthe tinancial situation of a business, assess the risks, períồrmance levels and quality ofthe enterprise, the ability and potential of the enterprise, to help users to make appropriatetinancial decisions and management decisions

Financial analysis plays a particularly important role in corporate tinancialmanagement In business activities under the state-controlled market mechanism,enterprises of different types of ownership are equal beíồre the law in the selection ofcareers and business íields Thereíồre, there will be many people who are interested inthe íinancial situation of enterprises such as business owners, sponsors, suppliers,customers including State agencies and employees, each pay attention to the íinancialsituation of enterprises in different angles

- Solvency ratio: used to assets the ability of enterprises to meet short-term debt.

- Proportion and ability to balance Capital, Capital structure and source of Capital.This indicator reílects the level of stability and tinancial autonomy.

- Proportion of business operation capacity: this is a group of indicators specitic

to the use of resources of enterprises

- Proportion of proíltability: reílecting the overall efficiency of production andbusiness of the enterprise

Analysis and measurement of tinancial ratios (each year including past and futureprojections)

Activity ratio indicate whether the company is performing well in themanagement of account receivable, payables and inventory

- Inventory turnover: Inventory tumover is a percentage showing the number of times

the company has sold and replaced inventory in a certain period of time Calculatinginventory sales can help businesses make better decisions about prices, production,marketing and purchasing new inventories

Sales

Inventory turnover = -

Average Inventory Beginning Inventory-Ending Inventory

Where: Average Inventory = -2 -

-Liquidity ratios measure the company’s ability to repay in the short run

- Current ratio: Current ratio is the ratio of liquidity to measure the company's ability

to pay short-term obligations or due debts within a year It shows how a company canmaximize its current assets on the balance sheet to meet current debts and otherpayables

Current Assets

Current ratio = -, , —

Current Liabilities

- Ability to pay quickly (quick ratio): The quick ratio is an indicator of the company's

short-term liquidity position and measures the company's ability to meet short-termobligations with the highest liquidity assets

Cash equtvalents+Marketable Securities+Account Recetvables

Quick ratio = -——,

-Current Liabilities _ Current Assets-ỉnventory-Prepaid Expenses

Current Liabilities

- Cash ratio: Cash ratio is the ratio of the company's total cash and cash equivalents to

its current debt The data calculates the company's ability to pay short-term debt witheasily liquidated cash sources The ratio of cash refers to the ability to cover thecompany's debt

Cash

Cash ratio = -, , —

Current Liabilities

Solvency ratios measure the solvency of a company:

- Debt/Equity ratio: The ratio is used to evaluate the company's íinancial leverage.

Debt/Equity ratio is an important metric used in corporate íinance It is a measure of theextent to which a company is financing its operations through debt versus fully ownedfunds More speciíically, it reílects the equity ability of shareholders to cover alloutstanding debts in the event of a business recession

Total Equity

Debt/Equity ratio = — -—————

Shareholders' Equity

- Debt ratio: Debt ratio is the íinancial ratio that measures the company's leverage It

can be interpreted as the ratio of a company's assets íinanced by debt

- Gross proíit margin: Gross proílt margin is a data used to evaluate the company's

financial and business model by revealing the remaining amount of revenue afterdeducting cost of goods sold Gross margin is usually expressed as a percentage ofrevenue and can be called a gross margin

, Gross Profit

Gross proíit margin =

———— -Net Sales

- Operating proíit margin: Operating proíit is often used as a measure to evaluate a

company compared to similar companies in the same industry It can reveal topperformers in an industry and show the need to research more about why a particularcompany is superior or lagging behind its peers

Operating Profit

Operating Proíit Margin = _ ——

-Total Revenue

- Net proíit margin: This ratio gives a measure of net income dollars by each dollar of

sales Although it is desirable for this ratio to be high, competitive forces within anindustry, economic conditions, use of debt financing, and operating characteristics

Net income before Noncontrolling Interest Equtty Income and Nonrecurrtng Items

Net proíit margin

= -————■ -Net Sales

- Return on assets (ROA): ROA measures the firm’s ability to utilize its assets to create

proíits by comparing proíits with the assets tha generate the proíits

Net income before Noncontrolling Interest and Nonrecurring items

Average Total Assets

- Return on equity (ROE): ROE measures the retum to both common and preferred

stockholders

Net income before Nonrecurring Items Dtvtdends on Redeemable Preferred stock

Average Total Equity

Advantages and disadvantages of íinancial reporting analysis

• Advantages:

• Pattem Detection and íồrecasting: Financial statements are capable of revealingincome each year, accumulated revenue and proílts Analyzing this trend is agreat beneílt of the company because it íồrecasts the market life of about a year

to be useful, as it shows the sales model for product launches, reducing salesafter a year and demand for new Products in a year

• Budget Outline in real-time: Decision-making to plan for the future, budgetestimates, corrective actions needed to effectively budget and many suchdecisions depend heavily on tinancial statements Reports reveal how much youcan spend on marketing or product launches, strategies for marketingcampaigns, future expansion, funding requests, etc This in terms of improvingproductivity, exceeding the budget and so on to keep the company healthy andincrease annual proíits

• Disadvantages:

• Based on pattems of the market: A major disadvantage of analyzing and usingtinancial statements to make strategic decisions based on data and data regardingcurrent market conditions can be volatile Depending on the market, it maychange quickly, so we should not assume that the numbers from the previoustinancial statements will not change

• At-One-Time Analysis: Forecasting and analysis are only applied at a time Itdoes not reveal or compare past performance or future íồrecasts at a glance.People will need to be cautious by creating and reporting on a continuous basisinstead of a one-time basis

1.2.5 DuPont Analysis

To analyze the company's proíitability, people use the DuPont model witheffective management tools The DuPont model integrates many elements of theBusiness Results Report and the Balance Sheet In íinancial analysis, the DuPont modelwas applied to analyze the relationship between íinancial indicators With this method,analystswill know the cause of the current State of the business The essence of thismethod is to separate a composite index reílecting the proíitability of the achievemententerprise of other relevant indicators.

The Dupont analysis is an expanded retum on equity tồrmula, calculated bymultiplying the net proíit margin by the asset tumover by the equity multiplier

ROE = Net proíit margin X Asset tumover X Equity Multiplier

Net income Sales Total Assets

= — -X ——— -— X — -—— — -—

Revenue Total Assets Shareholder' Equity

• Net Proíit margin: Expressed as a percentage of the total revenue, net margin is the

revenue that remains after subtracting all operating expenses, taxes, interest andpreferred stock dividends from a company's total revenue

• Assets turnover: This ratio is an efficiency measurement used to determine how

effectively a company uses its assets to generate revenue The formula forcalculating asset tumover ratio is total revenue divided by total assets As a generalrule, the higher the resulting number, the better the company is performing

• Equity Multiplier: This ratio measures Tinancial leverage By comparing total

assets to total stockholders' equity, the equity multiplier indicates whether acompany Tinances the purchase of assets primarily through debt or equity The higherthe equity multiplier, the more leveraged the company, or the more debt it has inrelation to its total assets

• DuPont analysis involves examining changes in these tigures over time andmatching them to corresponding changes in retum on equity (ROE) By doing so,analysts can determine whether operating efficiency, asset use efficiency or leverage

is most responsible for retum on equity (ROE) variations

J DuPont model extends:

The expanded form of the DuPont model also analyzes similarly to the basicformat, but the analyst must look deeper into the structure of net proíit margins bylooking at theimpact of proíits other than the proíit from the main business activities ofthe business and the impact of taxes.

Looking at this indicator, analysts will assess where the proíit margin of thebusiness comes from If it comes mainly from other proíits such as liquidating assets orCorning from a temporary tax exemption or reduction, analysts should pay attention tore-evaluate the actual performance of the business

_ Net income EBT EBIT Sales Assets

ROE = -7777 X 7777- X 77-7— X , X “

EBT EBIT Sales Assets Equity

The Dupont formula differs from the three parts in how it represents the impact

of taxes on corporate proíits, and then clearly shows that interest and Insurance paymentscan also affect this proíit how The reason is that a company with higher tax rates willhave less money to pay investors when compared to companies operating in a lower taxenvironment Since then, the rate of interest rate Insurance has provided investors withadditional information about the company's leverage position If a company has lessaccess to debt than its competitors, it can be assumed that they can pay more for investorsthan othenvise

J Advantages of DuPont Analysis

To determine the strengths and weaknesses of our company use the DuPontmodel The tinancial ratios used in the model can be separated by small scales to betterunderstand the cause of the problem When causes are identiíied, businesses can performsome actions (eg, improve cost control, asset management or marketing) to improveretum on equity

J Disadvantages of DuPont Analysis

The main drawback of DuPont analysis is that it uses accounting data published

in tinancial statements, which can be manipulated to hide some weaknesses Therefore,

in order to get accurate results, you must enter accurate accounting data.

Another drawback is inherent to all íinancial ratio analysis Systems It works best

to compare companies of the same size working in the same industry

1.2.6 SWOT analysis

SWOT analysis model is a useful tool used to understand the Strengths,Weaknesses, Opportunities and Threats in a project or business organization ThroughSWOT analysis, enterprises will clearly see their goals as well as intemal and extemalfactors that can positively or negatively affect the goals set by the business In the process

of developing the strategic plan, SWOT analysis plays a role as the most basic and highlyeffective tool to help you have an overall view not only about the business itself but alsothe factors that affect and decide determine your business success

• Resources, assets, people

• Experience, knowledge, data

• Inheritance, culture, administration

> Weaknesses

The easiest way to understand, weaknesses is what you don't do well If you feelembarrassed, the way to find the weakest point is to look back on the areas that I havesuggested onthe other such as resources, assets, people ifinany "absent" strongpoint,then stay there will be weaknesses and weaknesses In addition, you ask yourself thefollowing questions: What work do you do poorly, even worst? What are you avoiding?What negative comments do you get from consumers and markets etc

> Opportunities

Opportunity is the appearance of possibilities that allow people to do something

In commerce, the opportunity to show the emergence of customers' needs and thereíồrethe ability to sell goods to satisíy the needs of both producers and consumers.Opportunities appear everywhere, it is very diverse and rich However, no matter howlarge an organization is, it is impossible to exploit all the opportunities that appear onthe market, but can only exploit opportunities appropriate to its capabilities andobjectives On the other hand, opportunities that appear on the market can beneílt thisorganization but bring disadvantages to other organizations Thereíồre, businesses andorganizations should only exploit one or more of the existing opportunities in the market,which are attractive opportunities Attractive opportunities in trade are the ability to meetthe needs of customers already and will appear on the market is considered to match theobjectives and potential of the business Thereíồre businesses have íavorable conditions

to exploit and overcome it to eam proílts

> Threats

The íactors of the extemal environment which signiílcantly affect the productionand business activities of enterprises are the risks of the environment The risk ofappearing in parallel with the opportunity of the business, strongly dominates allactivities of the business Risks include:

+ Opponents have lower prices.

+ Goods are easy to have substitutes

+ Slow market growth

+ Conversion in trade and exchange policies with íồreign countries

+ Business vulnerability of business cycle

+ Strength of customers or suppliers is increasing

+ Change the needs of buyers and their preferences

+ Demographic changes

Risks appear beyond the control of businesses, organizations, they can only avoidthe risks that may happen to them and if faced with it, try to reduce the damage to thelowest level Analyzing the risk of helping enterprises make necessary changes andadjustments to changes and íhictuations that adversely affect their production andbusiness activities

b Advcmtages of SWOT

Free: One of the biggest advantages of SWOT analysis is that it has no related

costs It is an analysis of anyone doing business that can be completed reasonably, andthereíồre, does not require the participation of experts or consultants This is an effectivemethod to analyze projects and proposals in a company in any function or industry

New idea: Another beneíit of SWOT analysis is that it can help create new ideas

for businesses By looking at the issues that appear in columns and SWOT analyzes, itnot only raises awareness of potential (and disadvantages) and threats but also helps usreact More effective in the future, plan to prepare when risks occur

Domain problem: SWOT analysis can be applied to an organization,

organizational unit, individual or group In addition, analysis can support a number ofproject objectives For example, the SWOT method can be used to evaluate a product orbrand,redeem or cooperate or outsource a business íìmction In addition, SWOT analysiscan be beneíicial in evaluating a speciíic supply, business process, product market or theimplementation of a speciíic technology

Multi-level analysis: You can get valuable information about the goal of the goal

by looking at each of the four elements of the SWOT analysis - strengths, weaknesses,opportunities and threats - independently or in combination For example, threatsidentiíied in the business environment, such as new govemment regulations on productdesign or competitive product launches, can alert business owners that an item Proposedinvestments in new production lines need to be evaluated more carefully In addition, anawareness of a company's weakness such as the lack of qualiíled staff may suggest theneed to consider outsourcing speciílc íìmctions In retum, opportunities such as theavailability of low-interest loans to startups can encourage entrepreneurs to pursue thedevelopment of a new product to meet rising customer demand On the contrary,strengths identiíìed, such as extensive experience in a fast-growing intemationalindustry, may suggest the need for cooperation with íồreign companies

Data integration: SWOT analysis requires combining quantitative and

qualitative information from a number of sources Accessing a range of data frommultiple sources helps to improve enterprise-level policy-making and planning, improvedecision-making, improve communication and help coordinate activities

c Limits of using SWOT

The results of analysis are not intensive: Usually, SWOT analysis is quite

simple, it is often not given criticism If the company only íồcuses on project preparationbased on SWOT Analysis, it is not enough to assess and orient the goals For example,

a long list of problems cannot be solved by strengths and weaknesses and they are alsoimportant and must be solved

High subịectivity: SWOT requires you to work in a limited outline and

judgments are made about positive and negative cases affecting businesses This maybeiníluenced by the foundation of SWOT or less relevant by the uncertainty of extemalfactors such as market instability, be it weaknesses or threats if a small business financialsearch For analysis to affect company performance, business decisions must be based

on reliable, relevant and comparable data However, collecting and analyzing SWOTdata can be a subjective process reílecting the bias of individuals conducting analysis Inaddition, input data for SWOT analysis may also become obsolete quite quickly

Only frame structure: As a frame, SWOT is valuable However, it does not

provide the department manager with speciíic guidance or let managers know how toidentify key aspects for itself It relies on competent managers to accurately identify andprioritize the most important factors This is not an easy task, whether you run a startup

or a large nonproíit organization Government laws and rapid market changes can have

a big impact on your business, but they require extensive market research to manage,outside the íield of SWOT analysis

There are no weighting íactors: SWOT analysis leads to four personal lists of

strengths, weaknesses, opportunities and threats However, the tool does not provide amechanism to rank the importance of this factor compared to other factors in any list.Thereíồre, it is difficult to determine the true iníluence of a factor on the goals

CHAPTER 2: ANALYSIS OF TRA PERFORMANCE

2.1 Overview of TRAPHACO (TRA)

• Type of stock: Common stock

• Stock code: TRA

• Par value: VND 10,000 per share

• Volume of shares: 41,453,673

• First trading day: 26/11/2008

• Vission 2020: By 2020, the number one pharmaceutical company in Vietnam interms of revenue growth, proílt, market capitalization

• Mission: Innovative innovations Green pharmaceuticals protect human health

• Responsibility: Commit and implement commitment to social responsibility,shareholders, customers, partners and employees on the principle of mutual beneíit.Identity: Cultural identity and people of Traphaco: Aspiration, passion,dedication.

2.1.3 History and developmentprocess

1972: The medicine production team of Raihvay Medical Company, established

on November 28, 1972 With 15 employees, the main task is to dispense prescriptiondrugs Production of serum, infusion thiid, distilled water to serve the Raihvay Hospital

in the period of resistance war against America Headquartered at 75 Yen Ninh - Hanoiwith the Raihvay Medical Bureau

1977: For a time, due to the requirements of the situation, the production team

moved to work only for drug distribution and circulation By August 31, 1977, theproduction team was rehabilitated with the function of producing medicine andsupplying medical equipment for the whole raihvay industry, at this time there were 37employees

1981: Raihvay drug production workshop, established on May 28, 1981,

upgraded from the medicine production team Raihvay production scale was expanded

1993: Raihvay Pharmaceutical Factory, established on June 1, 1993 (trading name

is RAPHACO), has legal status, Seal, has its own account, field of drug production andsupply At that time, there were 80 employees, legal Capital of 150 million, rudimentaryequipment, backward space, narrow space (the whole enterprise was 340 m2), moredifficult than favorable, but with courage and determination mind surpassing difficulties

to create a career step by step

1994: Pharmaceutical and medical supplies and medical equipment company,

established on May 16, 1994, the transaction name is TRAPHACO with functionsincluding producing and trading pharmaceutical Products, supplies and equipment.medical Thecompany rented a business shop at 18A Le Duan, No 9 Lang Ha, No 31Lang Ha, 108 Thanh Cong to be a general warehouse The direct participation in thedistribution and distribution of drugs, supplies and medical equipment has helpedbusinesses grasp the needs of the market Due to the desire to meet the quality and scale

of production, the Company built 6000 m2 workshop by renting premises at Bai Phuc

Xa, Xuan La 1, Xuan La 2 and Phu Thuong

1999: Decision on equitization into a pharmaceutical and medical equipment and

medical equipment joint stock company on September 27, 1999 with 45% of StateCapital, following the policy of renovation and enterprise reform of the House water toimprove production and business efficiency This is the most important time, theleadership and all employees have actively prepared all legal conditions for the íồundingshareholders' meeting held on November 15, 1999

2000: In January 2000, the pharmaceutical and medical equipment and medical

equipment joint stock company officially operated as a joint stock company model ByJuly 5, 2001, the Pharmaceutical and Medical Equipment Joint Stock Company changedits name to TRAPHACO Joint Stock Company, with the purpose of multi-businessbusiness in accordance with the new economic trend Main business areas:Pharmaceuticals, Pharmaceuticals, Chemicals, Medical supplies and equipment, Food,alcohol, beer, soft drinks, Cosmetics, Consulting, Scientiíic and technical Services,Public transíer technology in medicine, pharmacy and import-export business

2007: November 27, 2007 TRAPHACO Joint Stock Company Celebrated 35

years of establishment and proudly received the Second-class Labor Medal awarded bythe President of the Socialist Republic of Vietnam to the Company & Grade 3 for theCompany's Union Through 35 years of construction and development, TRAPHACOJoint Stock Company has really grown and contributed to the cause of health care andprotection as well as the development of Vietnam's pharmaceutical industry

2008: On November 26, 2008, TRA's stock code was officially traded on HOSE.

Traphaco is honored to receive Vietnam Compassion Gold Cup

2009: TRAPHACO is recognized as the most famous brand in Vietnam

Pharmaceutical Industry

Launching Traphaco Sapa Limited Company in Lao Cai, Traphaco officiallyowns 100% Capital

2010: TRAPHACO was the only Vietnamese unit to receive the WIPO Award

presented by the World Intellectual Property Organization Awarded III Socialresponsibility in the íĩeld of Environment (CSR), TOP 100 Vietnamese Gold Stars And

in particular On December 10, 2010, TRAPHACO was honored to organize theCeremony to receive the title of Labor Hero for achievements of the period ofdevelopment (2000 - 2009)

2011: In November 2011, TRAPHACO successfully acquired TRAPHACO

Hi-tech Joint Stock Company, increasing ownership in TRAPHACO CNC Ểrom 12.83% to50.96%

Establishment of 5 more branches in: Binh Thuan, Dong Nai, Quang Ngai, CanTho, Khanh Hoa

TRAPHACO is honored to receive the TOP 100 Golden Stars in Vietnam ",especially the" TOP 10 Enterprises with Corporate Social Responsibility "awards

For the íirst time, TRAPHACO participated in the "Annual Report 2010" and wonthe "Best Annual Report" award Along with this award, TRAPHACO is ranked AAA

"Annual Report of Vietnanís credit rating" for high-performing enterprises,demonstrating transparency, strong íinancial potential, long-term developmentprospects , control the source of business Capital and risks at the lowest level

In June 2011, the project "Establishing the identiíication of the Cuoc and ViocHoai Son medicinal plants" is part of the GreenPlan project (Research project onsustainabledevelopment of TRAPHACO medicinal materials), which has receivedíìmding from The World Bank, through the "Vietnam Creative Day 2011" Program.

In April 2011, the topic "Research on the production of liver tonic to detoxiíyBoganic from Vietnamese medicinal herbs" by TRAPHACO was awarded the tirst prize

by Vietnam Creative Technology Support Fund (VIFOTEC)

2012: On October 29, 2012, TRAPHACO became a major shareholder of Quang

Tri Pharmaceutical - Medical Supplies Joint Stock Company with the ownership rate of42.91% of charter Capital

On May 11, 2012, TRAPHACO officially became a major shareholder of DakLak Pharmaceutical - Medical Supplies Joint Stock Company with the ownership rate of24.5% On October 10, 2012, TRAPHACO successfully acquired shares of Dak LakPharmaceutical Joint Stock Company - Dak Lak Medical Supplies increased itsownership rate from 24.5% to 51%

Established 2 more branches in Quang Ninh and Gia Lai to increase the totalnumber of branches in the company so far to 14 branches (2 branches level 1, 12 brancheslevel 2)

In April 2012, TRAPHACO was honored to receive the "International QualityAward" in Germany In May 2012, TRAPHACO received TOP 10 typical businesses forthe community On June 19, 2012, TRAPHACO was awarded the certiticate "TOP 50most efficient business companies in Vietnam" On October 4, 2012, TRAPHACOreceived a decision to award the First-class Labor Medal of the President

2013: Best International Business Award and Excellent Manager awarded by the

European Business Association

2013 Asia-Pacitic International Quality Award

Famous Asean brand

TOP 10 Enterprises with Corporate Social Responsibility (Vietnam Gold StarAward)

TOP 10 Most Famous Brands in Vietnam

2014: General Director of Traphaco was named Top 50 best business leaders in

2013

Traphaco received a Certiíicate of Merit from Vietnam High Quality ProductInnovation Company in the framework of the Announcement Ceremony of High QualityVietnamese Goods 2014

Traphaco won the title "TOP 15 Strong Brands 2013"

2015: Started construction of Vietnam Pharmaceutical Factory with a total value

of VND 500 billion

Traphaco won the title of Top 15 Vietnam Strong Brands 2014

Traphaco won the title of Vietnamese Drug Star

Traphaco is ranked among Top 50 most effective trading companies in Vietnam

Traphaco won the title of Top 10 Famous Brands in Vietnam

2016: General Meeting of Shareholders for the term of 2016 - 2020

Traphaco continues to be awarded the National Quality Gold Award by the PrimeMinister

Traphaco achieved the Top 40 Most Valuable Brands and Top 50 Best ListedCompanies in Vietnam

Traphaco developed the company strategy for the 2017-2020 period

Traphaco - The most prestigious Pharmaceutical Company in Vietnam 2016

Traphaco continues to be selected as the National Brand - Vietnam Value

2017: Announcing Traphaco's sustainable development strategy for the period of

2017-2020

Traphaco inaugurated the most modem pharmaceutical factory in Vietnam

Traphaco for the second time in a row achieved Top 10 most prestigiouscompanies in Vietnam Pharmaceutical industry

Boganic liver tonic for the second time in a row reached "Top 10 ExcellentVietnamese Brand Products"

Traphaco - Top 50 enterprises with the most attractive employers in Vietnam

2.1.4. Business area

Traphaco is the leading company (in terms of both revenue and marketcapitalization) in the traditional medicine segment of Vietnam's pharmaceutical industry.The main business activities of the company include the production and distribution ofpharmaceuticals, especially traditional medicines

a Brandposỉtỉon

Traphaco is a brand with 37 years in the pharmaceutical industry, operating in thefield of manufacturing and trading pharmaceutical Products, Chemicals, supplies andmedical equipment In terms of key Products, taking advantage of a rich source ofmedicinal herbs and traditional medicine, Traphaco has chosen to research and producetraditional medicines in high technology

Two outstanding Products bearing Traphaco's brand name are Boganic strengthening liver function and Activation of brain-nourishing blood, bringing inrevenue mainly accounting for Vì of total revenue

-b ManufacUưe Systems

Traphaco have 4 subsidiaries and 3 factories to produce medicines,pharmaceutical Chemicals and pharmaceutical materials

Traphaco SaPa One-member Co., Ltd specializes in Processing raw materials andinput materials, practicing GACP research of Traphaco At the same time, it is the center

to develop the area for growing medicinal herbs to supply input materials for Traphacowith high extraction lines, preliminary Processing of input medicinal plants and morethan 4ha of land for testing pharmaceutical plants On March 29, 2018, the Plant wasgranted the Certiíicate of "Good Manufacturing Practice" by GMP - WH0

High-tech Traphaco JSC specializes in Processing Products and íinished Products

of Traphaco Factory with an area of 10,000 m2 of íactory, íactory including workshop:herbal medicine workshop, preliminary Processing workshop, tea workshop, medicineworkshop, outer powder Van Lam íactory specializes in producing traditional medicinesand has been registered to meet GPs standards of WH0 for Oriental medicine in 2008.This is the íirst, largest and most modem Eastem medicine íactory in Vietnam

In addition, the two remaining affiliates all produce medicines, pharmaceuticalChemicals and pharmaceutical Products distributed to shops

c Business ỉine

Traphaco's Products have two classiíìcation methods, one is by product type, theother is by use group Traphaco has 4 main product lines: pharmaceuticals, functionalfoods, cosmetics and imported Products In particular, the product line that brings bigrevenue for Traphaco is functional food, such as Boganic, which reduces liver enzymes,detoxiíies liver; or ANTOT Products have a comprehensive íồstering effect, stimulatingappetite especially for young children

According to the second classiíication, we classiíy by use, there are many differentgroups of uses, each group has drugs for each different disease, or there is also a group

to supplement nutrients for the body For example, tranquilizer group, tonic medicinegroup onmedicine, antibiotics,

2.1.5 Ownership structure

OWNERSHIP STRUCTURE

Figure 1 - Ovvnership structure of Traphaco (Source: stockbiz.vn)

At the end of 2017, Mekong Capital divested from Traphaco, and by 28 May 2018two representatives of Mekong Capital withdrew from the Board of Directors ofTraphaco Vietnam Azalea Fund Limited (fund of Mekong Capital) and VietnamHolding Ltd divesting nearly 25% and 10.43% Traphaco Capital respectively The pricethat these two investment funds retreated was quite high up to 141,500 dong / share, with

a value of more than 2,000 billion dong

Instead, Traphaco's shareholder structure appeared two new major shareholders,Magbi Fund Limited (Hong Kong), holding 24.99% Capital and Super Delta Pte Ltd(Singapore) holds 15.12% of Capital

And SCIC still owns 36% of the Capital

2.1.6 Corporation structure

TRA has 4 subsidiaries (2 of which are 100% owned by TRA)