Gradute thesis traphaco jsc analysis and valuation

On the other hand, free cash flow is the cash value that businesses can obtain after expanding assets for production and business activities.. Free cash flow for businesses - FCFF is sai

PREFACE 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 also growing stronger and stronger many different stages Vietnam stock market has expanded strongly in terms of the number of securities codes, capitalization, transaction value In which, the total market capitalization of 3 trading floors reached over 4 million billion dong, the number of listed and registered companies traded more than 1,550 codes Many industries have been developed along with economic growth The stock market has made an important contribution to Vietnam's economic development

Currently, the pharmaceutical industry is being interested in by many investors because it has a lot of potential for development The outstanding names in the pharmaceutical 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 focused on traditional medicine Traphaco is almost monopoly, occupying

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

1 Research Objective

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

e General Objective: Using Literature Review and applying it to find out the intrinsic value of TRA’s stock

e Specific Objective:

o Analyzing business performance 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 and comparing this value with the market price so as to whether TRA has been

overvalued or undervalued.

© Relying on the valuation outcome and then recommending investors whether they 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

CHAPTER 1: LITERATURE REVIEW

1.1 Definitions

1.1.1 Stock market

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

1.1.2 Stock

Stock is a financial asset, which is a type of securities issued in the form of a certificate or book, confirming the ownership and legitimate interests of the owner of the property

Stocks are bought and sold mainly on stock exchanges, although there may be private sales, and are the foundation of almost every portfolio These transactions must comply with Government regulations to protect investors from fraud These investments can 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 financier wants to implement valuation, they will analyze the management structure, capital structure, market value and future prospects In finance, things that are valued are financial 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 of determining the value of financial assets These models have inputs that are collected from avaiable information sources about assets such as financial reports, information on

similar products, market movement, and so on Then, this information is processed through caculations and analysis combined with the subjective judment of the model user, and then he output is the intrinsic value of the financial 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 its cash flow The intrinsic value used is the interest amount in the option contract

Intrinsic value is calculated using basic analytical techniques to assess an enterprise in all aspects such as business model, corporate governance, market factors affecting businesses, goals of the business The value obtained is compared to the market value to determine whether the business is overvalued or too low by the market Typically, investors will use both qualitative measures and quantitative measures to get the most accurate results about the intrinsic value of a business However, all is an estimate, not a sure thing

1.1.5 Valuation methods

a Net asset value (NAV)

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

is registered with the Securities Commission The Securities Commission 1s acquired by their net asset value It is an important indicator of hedge funds and hedge funds when calculating 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 the value 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:

Assets — Liabilities

NAV = Total number of Outstanding Shares ? The correct qualifying items should be included for assets and liabilities of a fund

b Valuation by discounted cash flow model (DCF)

The DCF model is a way to evaluate the value of a stock or an investment project for an investor Analysts use this method to determine the future cash flow of a specific stock or project discounting the present value, thereby assessing the feasibility of the investment project If the future cash flow after the discount is too large compared to the current investment cost of the project, it can be assessed that this is a good investment project

DCF model is built on the foundation of the concept of time value of money and the relationship between profit and risk Models can be represented as mathematical expressions as follows:

= (1+R)0 (1+K)1 (1+k)2 + + + + (1+k)n

PV Where: CF; is the expected cash flow to be obtained in the future,

k is the discount rate used to discount the cash flow to the present value, nis the number of periods

The DCF model is widely used in corporate financial decisions, especially investment decisions, specifically:

- Valuation of assets, including tangible fixed assets and financial assets to make

a decision to buy or sell it

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

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

It allows direct comparison of the expected return of investments with borrowing costs that other methods cannot

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

income

This approach by recognizing the time factor provides enough for uncertainty and risk It provides a good measure of the relative profitability of capital expenditure by reducing income on current values

Y Disadvantages of DCF

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

It is best used only when there is a high degree of confidence in cash flow in the future Analyzing a company with a stable past cash flow, such as a food or health care company unaffected by changes in the economy, can make comparisons of trends stable planning in the future easier Profitable companies with abundant cash flow are more likely to continue to increase cash flow in the future, 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 immature are also hard to judge using the DCF method

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

c Free cash flow (FCF)

Free cash flow is a method of assessing business activities which is calculated by the 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 for production and business activities If you want to maximize value for shareholders, it is imperative that businesses understand what free cash flow is, thereby building investment opportunities Businesses will find it difficult to conduct business activities such as advertising, product development and paying dividends without cash Free cash flow 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 working capital and fixed capital investments, or capital expenditure (CAPEX), over a certain period of time Companies want to enhance the value of shareholders, the FCF is a good way 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 the company is investing in many different projects This valuation method can increase the value in the long term if the investments bring returns to investors

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

to Firm (FCFF) model

Vv 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 distribution after depreciation, tax, working capital and investment costs are accounted and paid FCFF is basically a measure of the company's profit after all costs and reinvestment This is one of many benchmarks used to compare and analyze the financial health of a company

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

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

Free cash flow for businesses - FCFF is said to be the most important financial index of the stock value of the business Using FCFF 1s the cash flow left after dismissing all responsibilities and projections for the future will bring high accuracy

There are many formulas to determine free cash flow, one of which 1s:

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

FCFF = EBITDA x (1 - tax rate) + Depreciation x tax rate -Long-term investments

- Investments in working capital

Y Benefit of Using FCFF:

The value of a stock is the sum of the expected cash flows of the business in the future However, stocks are not always correctly priced When understanding the FCFF method, investors who are allowed to check that stock investment are worth it It also shows 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 is positive Conversely, when the negative FCFF value indicates that the firm does not generate enough revenue to generate profit At that time, investors should go find out why it is so

Y Limits of Using FCFF

One fact is not going to solve every investor problem: Free cash flow is only as good as the accuracy of the forecasts 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 1s visibility: Free cash flow metrics will only work when

a company is operating with 100% transparency If there are questions about the sales practices, 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 forced to still make assumptions about what will happen in the future The accuracy of those assumptions will create a projection that either hits the nail on the head or falls fall short and hits the investor square on the thumb Being off by just 1 percentage point for some companies can change the financial outlook be tens of millions of dollars

ad DDM model

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

Dividend per share

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 the dividend value that the company can pay next year for investors The DDM model has two main types, namely, the dividend model does not grow and the dividend model

increases over time

Vv Advantages of DDM

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

Consistency: dividends tend to remain stable for a long time despite how much volatility occurs However, dividends will only be paid from cash in the planned company'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, the stock is the only way to value While individuals or financial institutions affect the decisions 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 dividends regularly 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

v Disadvantages of DDM

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

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

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

e The method of valuation by comparable

Different from discount valuation methods to determine the intrinsic value of a business, the method of enterprise valuation is based on a comparison between similar businesses (eg companies in the same industry) The comparison method is to convert the price of profit ratio (P / E), book value (P / BV), revenue (P /S) and compare similar companies 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 future according to investors' wishes; satisfied investors with low risk levels along with low market capitalization; predict the company has a medium growth rate and will pay high dividends

EPS (Earnings per share) is the profit (Income) per share This is part of the profit that the company allocates for each common stock being circulated in the market EPS

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

Net income—Dividend on Preferred Stock

EPS =

Average Outstanding shares

Y Benefit of P/E ratio

Rate of price earnings 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 by averaging the P / E ratios for 3-5 years, which can be considered a benchmark and are used to indicate whether a stock is worth buying or not

Vv Limits of P/E ratio

The main drawback of using the P / E ratio is when comparing the P / E ratio of different companies Other companies in the industry will be hard to compare with each other because it will have different pricing and growth rates Thus, only P / E should be

used as a comparison tool when considering companies in the same field, because this type 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 affect stock prices

Another important limitation of the price-to-income ratio is a ratio in the P/ E calculation formula Although the market determines the value of the stock 1s due to internal information from the business, often reported by the companies themselves and therefore more easily manipulated Because income is an important input in calculating P/E, adjusting them can also affect P/E

> P/Bratio

P / B is the ratio used to compare the price of a stock against the book value of that 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 markets ignore 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 thinking The asset value of the company has been greatly exaggerated or the income on the company's assets is too low

If the first thing happens, investors should stay away from these stocks because the company's asset value will quickly be adjusted to true value by the market If the second is true, it is likely that the new leader of the company or new business conditions will bring business prospects to the company, generate positive income streams and increase profits for shareholders Conversely, if a company has a market price of shares higher than its book value, this is often a sign that the company is doing well, earning high on assets

The P / B index is only really useful when you consider businesses with high capital concentration or financial companies because their asset value is relatively large Because accounting must comply with strict standards, the book value of assets does not take into account intangible assets such as trademarks, trademarks, reputations, patents and intellectual property Other wisdom created by the company Book value does not mean much to service companies because their value of tangible assets is not large

The formula of P/B ratio:

Market price per share

Not very effective in fast growing companies

Can be virtual due to accounting principles, such as underground assets, virtual

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 microeconomics are the two most extensive areas of economics Macroeconomics studies synergistic indicators such as GDP, unemployment, and price indicators to understand how the economy 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 specific factors such as inflation, unemployment, GDP, and commercial activity The main macroeconomic analysis is to use a model that includes these factors to assess the economy and thus develop appropriate economic policies The government will introduce fiscal and monetary policies to control the economy through the central bank 1.2.2 Industry analysis

Industry analysis is an assessment of a specific industry and related companies The industry analysis report aims to determine the advantages that a company can gain

in an industry by understanding its industry's history, trends, competitors, products, and customer base At the same time, this type of report allows investors, banks and customers to understand the fundamental points of the industry

Each industry has its customers’ differences, market share among companies, industry development, competition, regulations and business cycles Researching the industry's activities will provide investors with a deeper understanding of the business and financial 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 industry analysis model The five forces model reviews an industries supplier power, threat of

substitutes, buyer power, barriers to entry and the rivalry that is created when companies compete for the previous four forces This standard industry analysis tool helps individuals use a time-tested management procedure for generating intelligent business analysis

1.2.3 Financial analysis

Financial analysis is a set of concepts, methods and tools that allow the collection and processing of accounting information and other management information to assess the financial situation of a business, assess the risks, performance levels and quality of the enterprise, the ability and potential of the enterprise, to help users to make appropriate financial decisions and management decisions

Financial analysis plays a particularly important role in corporate financial management In business activities under the state-controlled market mechanism, enterprises of different types of ownership are equal before the law in the selection of careers and business fields Therefore, there will be many people who are interested in the financial situation of enterprises such as business owners, sponsors, suppliers, customers including State agencies and employees, each pay attention to the financial situation of enterprises in different angles

as:

- 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 reflects the level of stability and financial autonomy

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

to the use of resources of enterprises

- Proportion of profitability: reflecting the overall efficiency of production and business of the enterprise

Analysis and measurement of financial ratios (each year including past and future projections)

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

- Inventory turnover: Inventory turnover is a percentage showing the number of times the company has sold and replaced inventory in a certain period of time Calculating inventory sales can help businesses make better decisions about prices, production, marketing and purchasing new inventories

Sales

Inventory turnover = Average Inventory

Beginning Inventory—Ending Inventory

2

Where: Average Inventory =

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 can maximize its current assets on the balance sheet to meet current debts and other payables

Current Assets

Current Liabtlittes

- 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-term obligations with the highest liquidity assets

Cash equivalents+Marketable Securitites+Account Receivables

Cash Current Liabilities

Cash ratio =

Solvency ratios measure the solvency of a company:

- Debt/Equity ratio: The ratio is used to evaluate the company’s financial leverage Debt/Equity ratio is an important metric used in corporate finance It 1s a measure of the extent to which a company is financing its operations through debt versus fully owned funds More specifically, it reflects the equity ability of shareholders to cover all outstanding debts in the event of a business recession

Total Equity

Debt ratio =

Profitability ratios measure the ability of a company to generate revenue and profit from its resource

- Gross profit margin: Gross profit margin is a data used to evaluate the company's financial and business model by revealing the remaining amount of revenue after deducting cost of goods sold Gross margin is usually expressed as a percentage of revenue and can be called a gross margin

Operating Profit

Operating Profit Margin =

Total Revenue

- Net profit 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 an industry, economic conditions, use of debt financing, and operating characteristics

Net income before Noncontrolling Interest Equity Income and Nonrecurring Items

Net Sales

Net profit margin =

- Return on assets (ROA): ROA measures the firm’s ability to utilize its assets to create profits by comparing profits with the assets tha generate the profits

Net income before Noncontrolling Interest and Nonrecurring items

ROA =

Average Total Assets

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

Net income before Nonrecurring Items — Dividends on Redeemable Preferred Stock

Average Total Equity

Advantages and disadvantages of financial reporting analysis

e Advantages:

Pattern Detection and forecasting: Financial statements are capable of revealing income each year, accumulated revenue and profits Analyzing this trend is a great benefit of the company because it forecasts the market life of about a year

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

Budget Outline in real-time: Decision-making to plan for the future, budget estimates, corrective actions needed to effectively budget and many such decisions depend heavily on financial statements Reports reveal how much you can spend on marketing or product launches, strategies for marketing campaigns, future expansion, funding requests, etc This in terms of improving productivity, exceeding the budget and so on to keep the company healthy and increase annual profits

e Disadvantages:

Based on patterns of the market: A major disadvantage of analyzing and using financial statements to make strategic decisions based on data and data regarding current market conditions can be volatile Depending on the market, it may change quickly, so we should not assume that the numbers from the previous financial statements will not change

At-One-Time Analysis: Forecasting and analysis are only applied at a time It does not reveal or compare past performance or future forecasts at a glance People will need to be cautious by creating and reporting on a continuous basis

instead of a one-time basis

1.2.5 DuPont Analysis

To analyze the company's profitability, people use the DuPont model with effective management tools The DuPont model integrates many elements of the Business Results Report and the Balance Sheet In financial analysis, the DuPont model was applied to analyze the relationship between financial indicators With this method,

analysts will know the cause of the current state of the business The essence of this method is to separate a composite index reflecting the profitability of the achievement enterprise of other relevant indicators

The Dupont analysis is an expanded return on equity formula, calculated by multiplying the net profit margin by the asset turnover by the equity multiplier

ROE = Net profit margin x Asset turnover x Equity Multiplier

Revenue Total Assets Shareholder’ Equity

e Net Profit margin: Expressed as a percentage of the total revenue, net margin is the revenue that remains after subtracting all operating expenses, taxes, interest and preferred stock dividends from a company's total revenue

e Assets turnover: This ratio is an efficiency measurement used to determine how effectively a company uses its assets to generate revenue The formula for calculating asset turnover ratio is total revenue divided by total assets As a general tule, the higher the resulting number, the better the company is performing

e Equity Multiplier: This ratio measures financial leverage By comparing total assets to total stockholders' equity, the equity multiplier indicates whether a company finances the purchase of assets primarily through debt or equity The higher the equity multiplier, the more leveraged the company, or the more debt it has in relation to its total assets

e DuPont analysis involves examining changes in these figures over time and matching them to corresponding changes in return on equity (ROE) By doing so, analysts can determine whether operating efficiency, asset use efficiency or leverage

is most responsible for return on equity (ROE) variations

¥ DuPont model extends:

The expanded form of the DuPont model also analyzes similarly to the basic format, but the analyst must look deeper into the structure of net profit margins by

looking at the impact of profits other than the profit from the main business activities of the business and the impact of taxes

Looking at this indicator, analysts will assess where the profit margin of the business comes from If 1t comes mainly from other profits such as liquidating assets or coming from a temporary tax exemption or reduction, analysts should pay attention to re-evaluate the actual performance of the business

ROE =

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

of taxes on corporate profits, and then clearly shows that interest and insurance payments can also affect this profit how The reason is that a company with higher tax rates will have less money to pay investors when compared to companies operating in a lower tax environment Since then, the rate of interest rate insurance has provided investors with additional information about the company’s leverage position If a company has less access to debt than its competitors, 1t can be assumed that they can pay more for investors than otherwise

v Advantages of DuPont Analysis

To determine the strengths and weaknesses of our company use the DuPont model The financial ratios used in the model can be separated by small scales to better understand the cause of the problem When causes are identified, businesses can perform some actions (eg, improve cost control, asset management or marketing) to improve return on equity

v Disadvantages of DuPont Analysis

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

in financial 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 financial 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 Through SWOT analysis, enterprises will clearly see their goals as well as internal and external factors 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 highly effective tool to help you have an overall view not only about the business itself but also the factors that affect and decide determine your business success

e Resources, assets, people

e Experience, knowledge, data

e Inheritance, culture, administration

> Weaknesses

The easiest way to understand, weaknesses is what you don't do well If you feel embarrassed, the way to find the weakest point is to look back on the areas that I have suggested on the other such as resources, assets, people ., if in any "absent" strong point, then stay there will be weaknesses and weaknesses In addition, you ask yourself the following 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 therefore the ability to sell goods to satisfy the needs of both producers and consumers Opportunities appear everywhere, it is very diverse and rich However, no matter how large an organization is, it is impossible to exploit all the opportunities that appear on the market, but can only exploit opportunities appropriate to its capabilities and objectives On the other hand, opportunities that appear on the market can benefit this organization but bring disadvantages to other organizations Therefore, businesses and organizations 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 meet the needs of customers already and will appear on the market is considered to match the objectives and potential of the business Therefore businesses have favorable conditions

to exploit and overcome it to earn profits

» Threats

The factors of the external environment which significantly affect the production and business activities of enterprises are the risks of the environment The risk of appearing in parallel with the opportunity of the business, strongly dominates all activities 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 foreign 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 avoid the risks that may happen to them and if faced with it, try to reduce the damage to the lowest level Analyzing the risk of helping enterprises make necessary changes and adjustments to changes and fluctuations that adversely affect their production and

business activities

b Advantages 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, and therefore, does not require the participation of experts or consultants This is an effective method to analyze projects and proposals in a company in any function or industry

New idea: Another benefit 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, it not only raises awareness of potential (and disadvantages) and threats but also helps us react 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 of project objectives For example, the SWOT method can be used to evaluate a product or

brand, redeem or cooperate or outsource a business function In addition, SWOT analysis can be beneficial in evaluating a specific supply, business process, product market or the implementation of a specific 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, threats identified in the business environment, such as new government regulations on product design or competitive product launches, can alert business owners that an item Proposed investments in new production lines need to be evaluated more carefully In addition, an awareness of a company's weakness such as the lack of qualified staff may suggest the need to consider outsourcing specific functions In return, opportunities such as the availability of low-interest loans to startups can encourage entrepreneurs to pursue the development of a new product to meet rising customer demand On the contrary, strengths identified, such as extensive experience in a fast-growing international industry, may suggest the need for cooperation with foreign companies

Data integration: SWOT analysis requires combining quantitative and qualitative information from a number of sources Accessing a range of data from multiple sources helps to improve enterprise-level policy-making and planning, improve decision-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 focuses on project preparation based 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 also important and must be solved

High subjectivity: SWOT requires you to work in a limited outline and judgments are made about positive and negative cases affecting businesses This may be

influenced by the foundation of SWOT or less relevant by the uncertainty of external factors such as market instability, be 1t weaknesses or threats if a small business financial search For analysis to affect company performance, business decisions must be based

on reliable, relevant and comparable data However, collecting and analyzing SWOT data can be a subjective process reflecting the bias of individuals conducting analysis In addition, 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 specific guidance or let managers know how to identify key aspects for itself It relies on competent managers to accurately identify and prioritize the most important factors This is not an easy task, whether you run a startup

or a large nonprofit 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 field of SWOT analysis

There are no weighting factors: SWOT analysis leads to four personal lists of strengths, weaknesses, opportunities and threats However, the tool does not provide a mechanism to rank the importance of this factor compared to other factors in any list Therefore, it is difficult to determine the true influence 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

e Par value: VND 10,000 per share

e Volume of shares: 41,453,673

e _- First trading day: 26/11/2008

e Vission 2020: By 2020, the number one pharmaceutical company in Vietnam in terms of revenue growth, profit, market capitalization

e Mission: Innovative innovations Green pharmaceuticals protect human health 2.1.2 Core values

e Pioneers: Leading in the green value chain management, mnovation and application of new knowledge and technology

e Creativity: Creating perfect quality products and services with Traphaco's knowledge

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

2.1.3 History and development process

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

on November 28, 1972 With 15 employees, the main task is to dispense prescription drugs Production of serum, infusion fluid, distilled water to serve the Railway Hospital

in the period of resistance war against America Headquartered at 75 Yen Ninh - Hanoi with the Railway 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, the production team was rehabilitated with the function of producing medicine and supplying medical equipment for the whole railway industry, at this time there were 37 employees

1981: Railway drug production workshop, established on May 28, 1981, upgraded from the medicine production team Railway production scale was expanded

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

is RAPHACO), has legal status, seal, has its own account, field of drug production and supply At that time, there were 80 employees, legal capital of 150 million, rudimentary equipment, backward space, narrow space (the whole enterprise was 340 m2), more difficult 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 functions including producing and trading pharmaceutical products, supplies and equipment

medical The company rented a business shop at 18A Le Duan, No 9 Lang Ha, No 31 Lang Ha, 108 Thanh Cong to be a general warehouse The direct participation in the distribution and distribution of drugs, supplies and medical equipment has helped businesses 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 state capital, following the policy of renovation and enterprise reform of the House water to improve production and business efficiency This is the most important time, the leadership and all employees have actively prepared all legal conditions for the founding shareholders' 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 By July 5, 2001, the Pharmaceutical and Medical Equipment Joint Stock Company changed its name to TRAPHACO Joint Stock Company, with the purpose of multi-business business in accordance with the new economic trend Main business areas: Pharmaceuticals, Pharmaceuticals, Chemicals, Medical supplies and equipment, Food, alcohol, beer, soft drinks, Cosmetics, Consulting, Scientific and technical services, Public transfer 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 by the President of the Socialist Republic of Vietnam to the Company & Grade 3 for the Company's Union Through 35 years of construction and development, TRAPHACO Joint Stock Company has really grown and contributed to the cause of health care and protection 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 officially owns 100% capital

2010: TRAPHACO was the only Vietnamese unit to receive the WIPO Award presented by the World Intellectual Property Organization Awarded III Social responsibility in the field of Environment (CSR), TOP 100 Vietnamese Gold Stars And

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

2011: In November 2011, TRAPHACO successfully acquired TRAPHACO Hi- tech Joint Stock Company, increasing ownership in TRAPHACO CNC from 12.83% to 50.96%

Establishment of 5 more branches in: Binh Thuan, Dong Nai, Quang Ngai, Can Tho, 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 first time, TRAPHACO participated in the "Annual Report 2010" and won the "Best Annual Report" award Along with this award, TRAPHACO is ranked AAA

"Annual Report of Vietnam's credit rating" for high-performing enterprises, demonstrating transparency, strong financial potential, long-term development prospects , control the source of business capital and risks at the lowest level

In June 2011, the project "Establishing the identification of the Cuoc and Vioc Hoai Son medicinal plants" is part of the GreenPlan project (Research project on

sustainable development of TRAPHACO medicinal materials), which has received funding from The World Bank through the "Vietnam Creative Day 2011" Program

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

by Vietnam Creative Technology Support Fund (VIFOTEC)

2012: On October 29, 2012, TRAPHACO became a major shareholder of Quang Tri Pharmaceutical - Medical Supplies Jomt Stock Company with the ownership rate of 42.91% of charter capital

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

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

In April 2012, TRAPHACO was honored to receive the "International Quality Award" in Germany In May 2012, TRAPHACO received TOP 10 typical businesses for the community On June 19, 2012, TRAPHACO was awarded the certificate "TOP 50 most efficient business companies in Vietnam" On October 4, 2012, TRAPHACO received 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-Pacific International Quality Award

Famous Asean brand

TOP 10 Enterprises with Corporate Social Responsibility (Vietnam Gold Star Award)

TOP 10 Most Famous Brands in Vietnam

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

2013

Traphaco received a Certificate of Merit from Vietnam High Quality Product Innovation Company in the framework of the Announcement Ceremony of High Quality Vietnamese 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 Prime

Minister

Traphaco achieved the Top 40 Most Valuable Brands and Top 50 Best Listed Companies 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 modern pharmaceutical factory in Vietnam Traphaco for the second time in a row achieved Top 10 most prestigious companies in Vietnam Pharmaceutical industry

Boganic liver tonic for the second time in a row reached "Top 10 Excellent Vietnamese 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 market capitalization) in the traditional medicine segment of Vietnam's pharmaceutical industry The main business activities of the company include the production and distribution of pharmaceuticals, especially traditional medicines

a Brand position

Traphaco is a brand with 37 years in the pharmaceutical industry, operating 1n the field of manufacturing and trading pharmaceutical products, chemicals, supplies and medical equipment In terms of key products, taking advantage of a rich source of medicinal herbs and traditional medicine, Traphaco has chosen to research and produce traditional medicines in high technology

Two outstanding products bearing Traphaco's brand name are Boganic - strengthening liver function and Activation of brain-nourishing blood, bringing in revenue mainly accounting for 2 of total revenue

b Manufacture 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 and input 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 Traphaco with high extraction lines, preliminary processing of input medicinal plants and more than 4ha of land for testing pharmaceutical plants On March 29, 2018, the Plant was granted the Certificate of "Good Manufacturing Practice" by GMP - WHO

High-tech Traphaco JSC specializes in processing products and finished products

of Traphaco Factory with an area of 10,000 m2 of factory, factory including workshop: herbal medicine workshop, preliminary processing workshop, tea workshop, medicine workshop, outer powder Van Lam factory specializes in producing traditional medicines and has been registered to meet GPs standards of WHO for Oriental medicine in 2008 This is the first, largest and most modern Eastern medicine factory in Vietnam

In addition, the two remaining affiliates all produce medicines, pharmaceutical chemicals and pharmaceutical products distributed to shops

c Business line

Traphaco's products have two classification methods, one is by product type, the other is by use group Traphaco has 4 main product lines: pharmaceuticals, functional foods, cosmetics and imported products In particular, the product line that brings big revenue for Traphaco is functional food, such as Boganic, which reduces liver enzymes, detoxifies liver; or ANTOT products have a comprehensive fostering effect, stimulating appetite especially for young children

According to the second classification, we classify by use, there are many different groups 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 medicine group on medicine, antibiotics,

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

At the end of 2017, Mekong Capital divested from Traphaco, and by 28 May 2018 two representatives of Mekong Capital withdrew from the Board of Directors of Traphaco Vietnam Azalea Fund Limited (fund of Mekong Capital) and Vietnam Holding Ltd divesting nearly 25% and 10.43% Traphaco capital respectively The price that 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)

36

These subsidiaries and joint ventures are responsible for producing and distributing TRA products

2.1.7 Shareholder structure

State Capital Investment Corporation (SCIC) holds 35.67% and two foreign companies are Magbi Fund Limited and Super Delta Pte.Ltd hold 24.99% and 15.12% respectively

However, SCIC's ownership rate accounts for 35.67% of Traphaco's capital and with the control actions from SCIC may negatively affect the ambitious plan and development orientation of Traphaco recently under pressure to sell shares from the company's management

2.1.8 Business overview

Traphaco's main product is traditional medicine Traphaco has chosen to research and produce Oriental medicine products on high technology Two outstanding products bearing Traphaco's brand name are Boganic - enhancing liver function and activating blood brain, bringing about revenue mainly accounting for 50% of total revenue Traphaco has selected the main segment which is OTC distribution channel (Pharmacy system) because traditional medicines are not sold at hospitals This is also the main market of Traphaco with 86% of the company's exclusive production and distribution revenue coming from this market The company has a strong distribution channel, is present throughout the country with | distribution subsidiary, 28 branches nationwide,

AO agents and more than 27000 retail customers

2.2 Macroeconomic analysis

2.2.1 Global economy

a World economy in 2018

In 2018, the global economy is more volatile US-China trade tensions exploded

in the first half of 2018, upsetting the global economic context The tension in US-China trade relations negatively affected the growth of the world economy, increased trade disagreement hindered economic growth i both economies However, China is more affected than America

» Global growth

In 2018, global economic growth stabilized at 3.1% when calculated according to the market exchange rate, and 3.7% when calculated by PPP Rapid growth in the US compensates for slower growth in some other major economies, including Argentina, Canada, China, Japan, Islamic Republic of Iran, Turkey and the European Union ( EU) Despite the economic downturn in some developed countries, global economic growth has increased in more than half of the world economy in both 2017 and 2018 Global trade growth in manufacturing and industry has decreased since the beginning of 2018, especially commercial activities and investment prospects weaker than the previous year The annual expansion of global industrial production has dropped to 3% in 2018, compared with 3.5% growth in 2017 World commodity trade growth averaged 3.7% in

2018, down 1% compared to 2017

The growth rate of emerging economies is uneven, while some economies thrive, some economies still face certain pressures and risks Although the global economy is still recovering, the economic expansion balance has decreased, global manufacturing PMI has also gone down Under the influence of factors such as the global trade situation that tends to narrow, the monetary policy of central banks around the world returns to normal and political risks degrade the overall economic growth demand, has a significant impact on economic growth In Asia, emerging economies that are highly

dependent on foreign investment will face challenges in stabilizing exchange rates and preventing capital withdrawal from foreign investors when the world situation instability

- Asia Arabia LatinAmerica/ Incl change

Figure 3 - Contributions to change in world gross product growth, 2017-2018

(Soure: UN/DESA)

» Monetary policy across the global

39

In 2018, the Federal Reserve (Fed) raised interest rates for overnight loans among banks, mcreasing by 2.25-2.5% The Fed said the world's largest economy is still growing steadily and no longer needs support from the Fed

Meanwhile, a number of other major economies have kept interest rates at record lows for a long time The Bank of Japan on December 20, 2018 announced to maintain the target of short-term interest rate at -0.1% The European Central Bank (ECB) has just officially terminated the quantitative easing program that has lasted for the past few years, but still maintains the reference interest rate from -0.4% to 0.25%

China also announced it would continue to loosen monetary policy to reduce financial costs for private businesses and support the economy The country constantly launches new tools to pump money into the market, while keeping short-term lending rates around 2.55 - 2.7%

Bank of England has just raised interest rates once this year However, the agency also decided to remain concerned yesterday, due to concerns about the global economic outlook and instability from the UK leaving the European Union (EU)

>» Oil price peaked, dropped to the bottom in only 2 months

World crude oil prices stabilized in 6 years 2018, oil prices are about 70-75 USD per barrel By the beginning of October, prices soared to the highest level in the last 4 years, at 87 USD / barrel of Brent oil, probably because of concerns about shortage of supply in 2019 when the US restrained sanctions against Iran

In just 6 weeks, crude oil prices have lost more than 20 USD The reason is that prospects for growth in 2019 are expected to weaken, US production and Organization

of Petroleum Exporting Countries (OPEC) are at record levels, fully compensating for the shortage from Iran Besides, the US agreed to allow 8 countries to continue buying oil from [ran without violating sanctions