CÁC GIẢI PHÁP NÂNG CAO NĂNG LỰC TÀI CHÍNH CHO TẬP ĐOÀN HOÀNG ANH GIA LAI INTRODUCTION In 2011 and early 2012, the macroeconomic conditions continue to be fairly bad to businesses The government had to face the problem of inflation, budget deficit, trade deficit, and foreign exchange pressure The government decided to pursue a tight monetary policy by tightening the money supply The economy in general and the commercial banks faced liquidity difficulties; the purchasing power in the market reduced; production was delayed due to slow consumption when the capital costs are high In the international market, the credit rating of Vietnam was low This affects the ability to raise capital abroad and foreign investment into Vietnam In the context of difficulties, with the loss of a series of large corporations such as Vinashin, Vinalines there are still some bright spots in Vietnam’s economy, among them, Hoang Anh Gia Lai is an example The solutions to enhance financial capabilities of Hoang Anh Gia Lai joint stock company – HAGL Goup Part I: COMPANY GENERAL INTRODUCTION Company’s Name: Hoang Anh Gia Lai Joint Stock Company Overseas Trading: HAGL Joint Stock Company Abbreviated Name: HAGL Address: 15 Truong Chinh, Phu Đong dis, Pleiku city, Gia Lai province Telephone: (84-59) 2222249 / Fax: (84-59) 2222247 Website: www.hagl.com.vn Chartered Capital (til 31/12/2011): 4.672.805.900.000 VND Company’s logo : Slogan: Unity is the strength HAGL Group’s Vision: To become the leading diversified multi-sector group in Vietnam with sustainable development operations in rubber, hydro-power, mining and real estates HAGL Group’s Mission: To maintain the continuous creativity, and strive to produce quality products, and provide good services at reasonable costs To provide the good employee benefits, both in terms of monetary remuneration and employee development in order to motivate the employees to create values for shareholders and the general society Main goals of the Company: * Fast and sustainable development In 2012, rubber, hydro-power and mining operations will be the core businesses of the Group * Become the leading real estate company in Vietnam Development History: * Establishment: Initially, the private company Hoang Anh was established in 1993, as a small wood processing factory * Transformed into joint stock form: In 2006, the private enterprise was converted to operate in the form of a joint-stock company named Hoang Anh Gia Lai Joint Stock Company So far, after 19 years of development and growth, Hoang Anh Gia Lai has become the number one multi-fielded economic group in Vietnam with the number of employees of 9842 til 2011, the charter capital of more than 4,600 billion VND and total assets of nearly 16,000 billion VND Hoang Anh Gia Lai Group’s Headquarter in Pleiku city, Gia Lai * Stock Listings: - On 22/12/2008, the company officially listed shares in the HCM City Stock Exchange (HOSE) with stock code HAG - On 23/3/2011, Hoang Anh Gia Lai became the first company in Vietnam listed in the London Stock Exchange (UK) * Summary of current operational status of the company Hoang Anh Gia Lai: - The company is currently in the phase of restructuring with five main sectors: rubber, minerals, hydropower, real estate, wood and granite manufacturing Currently, real estate business sector contributed the largest share in sales of HAGL - The company’s goal: Up to 2012, the rubber, hydropower, and mining industry should have major roles Continue to develop and become the No real estate company in Vietnam with sales from real estate contributing up 75% of total revenue; the company should own 26 major real estate projects in Vietnam, Laos, Thailand - The investment strategy of the company during the period 2010 - 2012:  Rubber Sector: planting, harvesting and processing 51,000 of rubber Of which, 11,000 hectares in Highlands, 25,000 in Laos and 15,000 in Cambodia;  Mineral Sector: Mining and processing 60 million tons of iron ore In particular, 10 million tons in Highlands and Thanh Hoa, 20 million tons in Laos and 30 million tons in Cambodia;  Hydro Power Sector: Establish and implement 17 projects with total capacity of 420 MW; 310 MW in Vietnam and 110 MW in Laos;  Real Estate Sector: Starting all real estate projects with a total of 2.5 million m2 of floor trading - Detailed Business Performance: o Real Estate:  Phu Hoang Anh project has completed Phase I in 2011 and brought the revenue of about 1.000 billion, HAGL is trying to complete Phase and offer it for sale in the first half of 2012  An Tien – Golden House were sold 50% to the Investment Bank (BIDV) and Saigon Mekong and revenue will be recorded in the third quarter of 2012  According to the plan in 2012, HAGL will start constructing and put on sales the project Phuc Bao Minh and Minh Tuan in Tan Phu District and District The sales and payment collection of this project is expected to be delayed due to general market conditions o Iron Ore Extracting: Currently, HAGL has iron ore mines in Vietnam and two mines in Laos and Cambodia with the total volume up to 60 million tons However, the export of iron ore from the early 2012 of HAGL faced some difficulties due to the fact that the Government had banned the export to limit exploitation of natural resources In addition, HAGL also had trouble in filing for the license of iron ore extracting in Laos and Cambodia o Rubber Sector: Up to the present time, HAGL has sold 36.000 of rubber and is expected to grow further 8.800 in Laos in May and June this year In addition, HAGL also owns 1.848 hectares of rubber in Attapeu - Laos and can be harvested in the second quarter 2012 o Hydropower: HAGL owns two hydroelectric power plants with the total capacity of 42MW (Daksrong and Daksrong 2A) In 2012, HAGL will complete the activation of two more hydropower projects with the capacity of 99.5MW (Ba Thuoc and Daksrong 3B) o Furniture and Granite: Revenue from furniture and granite business has been reduced along with the difficulties of real estate and construction fields, and is expected to continue slow growth - Other Information: By the end of 2011, the Company was rated by S & P from B to B-, with the negative outlook and forecast of business and liquidity of the Company will be weak in the next to 12 months due to general market situation However, analysis of assets and capital structure of the company showed that: the proportion of long-term capital assets accounted for 73% in HAGL While long-term assets accounted for only 48% Thus, the long-term fund used for short-term finance assets is 25% The long-term debt with a term consistent with the cash flow plan for each investment project will not create significant liquidity risks * The Company’s Organization Structure: Hoang Anh Gia Lai JSC is organized and operates with the parent - subsidiary model with the following structure: - The parent company with branches and representative office in Ho Chi Minh city - 50 subsidiary companies are companies in which, Hoang Anh Gia Lai Jsc has dominating shares of above 50% and/or has the controlling rights - 03 affiliating companies are companies which Hoang Anh Gia Lai Jsc has from 20% to 50% in shares Part 2: HAGL GROUP’S FINANCIAL PERFORMANCE ANALYSIS Some basic financial indicators in the financial statements audited in 2011 of Hoang Anh Gia Lai Company are as followed: Unit: million dong ASSET: Notes A Short-term Assets: 13.308.282 I Cash: II Short-term financial investment: III Short-term receivables: 5.516.981 IV Inventory: 4.448.617 V Other short-term assets: B Long-term assets: 2.896.456 97.356 348.870 12.268.228 I Fixed assets: 7.882.986 II Long-term financial investments: 3.758.363 III Other long-term assets: 304.759 IV Commercial advantages: 322.119 Total assets: 25.576.510 EQUITY: A Liabilities: I Current liabilities: 6.778.370 II Long-term liabilities 8.714.919 B Equity: 9.398.582 I Owning equity: 9.398.582 C Minority shareholders’ interest: Total equity: - Report the business results up to 31/12/2011: 15.493.289 684.639 25.576.510 Unit: million dong Sales of goods and services: 3.152.105 Notes Gross profit on sales and services: 1.423.952 Operation profit: 1.719.438 Before tax profit: 1.701.895 Net profit of the year: 1.325.317 Financial performance analysis: - Profitability: + In 2011, the ratio of profit after tax / turnover reached 42.07% with an amount of 1325.3 billion Although it is lower than in 2010, but this is fairly good in the context of economic difficulties + The ratio of Profit after tax / equity: 14,10% + The ratio of Profit after tax / Total assets: 5,18% + The ratio of Profit before tax / net sales: 54,02% - Business Capacity: The ratio of Net income / total assets reached 0.12 The ratio of net income / total assets of Hoang Anh Gia Lai reduced because the total assets of the corporation is growing very fast and most of the properties of the group is being invested for future projects such as rubber , sugar, hydropower, mineral and land of the real estate industry Total assets at the end of 2011 rose to 25,577 billion (the end of 2010 was 19,043 billion VND) - Liquidity: Regarding liquidity, cash balance and total current assets increased significantly and make the payment ratio increase Short-term liquidity ratio (Mobile assets / current liabilities) increased from 1.62 times to 1.96 times and the quick liquidity ratio (mobile assets - inventory / current liabilities) increased from 1.04 times to 1.31 times - Equity structure: According to the balance sheet, the total liabilities of Hoang Anh Gia Lai are 15,493 billion by 31/12/2011 The total assets at that time are 25,576 billion With the ratio of total liabilities over total assets of 63%, HAGL recently faced a lot of bad rumors about solvency and bankruptcy About the debt ratio of 63%, many economists considered it to be too high and alarming because it is higher than the average level compared to that of the international standards and a listed company However, we need to distinguish and recognize that the debt of Hoang Anh Gia Lai is different to the debt with credit institutions In fact, the company only has to pay interest for credit institutions of about 6,435 billion (25%) The remaining debt is converted into corporate bonds such as the 2,300 billion sold to Temasek, the long-term assets to exploit or delivery of future products without having to pay back in cash are housing projects which the company is going to hand over to customers The private tax debt of 749 billion in 2011, was completely paid by 03/31/2012… Part 3: SOME SOLUTIONS TO ENHANCE FINANCIAL CAPABILITIES OF HAGL GROUP: Hoang Anh Gia Lai is a multi-industry corporation which invests in many fields and many places, especially in Southeast Asia regions Due to investment spreading out, the company should focus on improving financial capability with some solutions as followed: - Hoang Anh Gia Lai’s board of director also found that the economy still have difficulties in short term so the company should focus on risk management, and should not be too focused on current profit results; instead, it needs to implement well investment activities and project implementation for sustainable growth in the future - Due to economic difficulties in the future the company should take measures to limit risks in the areas: + Financial risks: The Company needs to closely manage cash flows and build up an appropriate capital structure between long and short term investments For projects with long payback period, the company should raise needed fund through long-term loans with banks, bonds and shares, respectively + Exchange rate risks: Business activities of companies comprise of both export and import, therefore, the increase or decrease in exchange rates will affect profitability and cash flow The Company needs to balance their foreign currency needs to be active in import + Interest rate risks: The Company needs to actively build the appropriate structure of debt and equity which is consistent with each period of economic and business operations Aside from raising from loans and common bonds, the Company needs to raise capital from domestic and foreign investors through issuing shares, convertible bonds at low interest rates; trying to take advantage of the deposit and advance payment from the apartment buyers of the company's projects The capital cost of these items are usually lower, predetermined and not influenced by interest rate movements + Market risks: Before investing in real estate projects, the Company should focus on market research, only decides to invest in projects with high profitability and serving the real needs of customers Utilizing materials from the members, the Company should organize to build a closed model, reducing production costs + Legal risks: The Company should have qualified and experienced legal staff It should regularly update the legal changes and their impact (if any) to advise the company’s Board of Directors - The company should not continue to spreading investment, instead, it needs to complete the unfinished projects to put into use, bringing economic efficiency, taking back capital investment, such as: + Real estate projects: Phu Hoang Anh project, Hoang Anh gold house project, HAGL-Bangkok project (Thailand), economic trade center project … + Hydropower project: Dak Srong 2A, Dak Srong 3B in Highlands, Ba Thuoc in Thanh Hoa… + Projects in mineral exploitation, rubber planting, wood and stone manufacturing … - Even though real estate is the industry which gives the company the highest sales (about 56% of total revenue) However, the current situation of the real estate market is still difficult, so the Company should not be too focused in this area and need to invest more for other areas - As an economic group with 50 member units, Hoang Anh Gia Lai needs to continue restructuring the corporate units, reorganization business units in each branch to help management activities more professional and effective, and the projects to be faster and more active - Implementing arrangements and management procedures and internal controls towards modernization, investing in new information technology infrastructure After investing in human resources management software SAP, the Company needs the rapid and effective training for this software Part 2: Implement the project called: “Buying, selling or holding the stocks of Hoang Anh Gia Lai Group” Hoang Anh Gia Lai Joint Stock Company (Security Code – HAG; Listed: HOSE)  Key indicators: - Closing price of 11/5/2012 Price period: 52 weeks 10-day average trading volume Number of exising shares The value of market capitalization : 30.600 VND : 15.040-37.300 VND : 1.257.998 shares : 467.280.590 shares : 14.299 billion VND - Share holders’ structure: o Đoan Nguyen Đuc : 48,1% o Foreign Investors : 33,1% o Domestic Investors : 18,8%  Price valuation information: Price evaluation indicators Basic EPS EPS Growth Rate (%) Dividend yield (%) P/E (times) Book Value Per Share (BVPS) P/B (times) ROE (%) ROA (%) ROIC (%) Debt/Equity (%) 2008 3,895 0.0% 0.0% 6.9 20,738 1.3 18.2% 8.6% 10.5% 73.7% 2009 4,396 12.9% 2.6% 11.7 17,359 2.9 27.6% 12.2% 14.6% 102.2% 2010 4,694 6.8% 1.7% 8.4 26,298 2.1 29.3% 13.0% 16.3% 66.9% 2011 2,421 -48.4% 0.0% 7.8 20,113 1.0 14.1% 5.9% 7.3% 115.3%  Share price’s changes in year (Performance) – Source: VCBS  Analyzing the risks faced by investors when investing in HAGL shares: - Visible risks of future income flows In history, real estate activities provide the main income for HAGL Currently, the prediction activities of income from real estate become more difficult due to the freezing of the market and unclear prospects for recovery in the future Meanwhile, the iron ore mining are faced with an export ban and a list of potential customers in countries narrowed by the constraints of steel from the blast furnace steel in recent times There are still years to go until the rubber plantations can achieve considerable yields The hydropower plant is expected to contribute only about 200 billion in gross profit of the Company - Imbalance of cash flows The decline in cash flow from operations in real estate combined with large amounts of investment inflows into the hydro plant and rubber plantation project (while these projects may not create inflow immediately) will create liquidity pressure for HAGL - The increasing ratio of Liabilities /Equity might be a significant difficulty Generally, in order to solve the situation of shortage in money, a company can issue more shares or borrow more debt markets HAGL has tried to raise funds both domestically and internationally but still not able to satisfy its "thirst" of capital Meanwhile, the amount of investment of fixed assets that the Company has committed is large, the terms of the bond contract not allow the Company to be able to borrow more Accumulated debt on balance sheet increased makes the Company face many difficulties and makes it more costly to continue raising funds From the owner perspective, the current stock price and the terms of conversion together with the current debt will be the major obstacle to HAGL in issuing more shares Therefore, to improve liquidity, the Company might rely more on uncertain sources such as the sale of assets  HAGL Shares’ price evaluation and investment decision: HAGL shares’ value can be priced in different ways such as: Discounted cash flow (Discounted Cash Flow), namely FCFE, FCFF, DDM; or based on P / E, P / B etc… - For the dividend discount method: although throughout its history, HAGL paid dividends very timely over the years (in cash from 10% -15% and bonus shares at 2:1 ratio) However, with the difficulties encountered and expected in the coming years in terms of liquidity shortage, it is unrealistic to assume that the Company will continue to pay dividends as it did in the past with a given dividend growth rate - For the method using P/E; P/B ratios: The Company currently hasn’t had consolidated financial statements of the first quarter of 2012 yet Therefore there are no data to calculate P / E and book value at the end of quarter I/2012 Data on earnings and book value is assumed based on those of the end of 2011 Accordingly, HAGL share price will be calculated by the following formula: P = EPS (HAG) * P/E (industry average) P = BVPS (HAG) * P/B (industry average) The analysis used the industry combined data of Vndirect Securities Company HAGL is categorized into the financial industry, real estate industry with industry’s average P/E of 27.75; P/B of 1.8  Based on P/E, the share price is P = 2,421*27.75 = 67,182 VND/share  Based on P/B the share price is P = 20,113*1.8 = 36,203 VND/share So, the share price of HAGL is calculated to be within the range of 36,203 VND/ share - 67,182 VND/ share This method has the drawback that although HAGL is categorized into the real estate industry but other than that field (bringing the largest percentage of sales), HAGL also trades in other areas At the same time, the company also plans to redirect activities to minerals, hydropower, and rubber which led to the fact that calculation is no longer accurate just based on the real estate industry In addition, this method is to use EPS as accounting data Therefore, in the same industry, companies use different accounting methods also lead to false when using industry averages - Due to the lack of actual data to build pricing models by the method of discounted cash flow (FCFE, FCFF), and within the scope of this analysis, our group has used the reference sources and some recommendations of some securities company and chose the report of VietCapital on 09/04/2012 as a basis to calculate prices, thereby making investment decisions According to the report, VietCapital decided the targeted price to be 30,500VND/share with the suggestion of long-term investment The main assumption is that HAGL can balance its cash flows in 2012; Rubber industry contributed 1/2 cash flows of HAGL in the prediction period The result is that the price of HAGL’s share is 29,322VND/share (based on FCFE) and 31,712VND/share (based on FCFF) Investment decision: Basis: - The current trading price in the market is 30,600 VND/share - The targeted price which VietCapital calculated is 30,500VND/share; - And the share prices calculated based on P/E and P/B are 36,203 VND/share – 67,182 VND/share; - Consider the risks which can be faced; - The risk acceptance level, investment time, and expected profits from investing in HAGL shares, In the current time, our Group has decided to give the investment decision to be: HOLDING CONCLUSIONS: Despite facing many difficulties in recent times, due to accumulated experience in dealing with the economic crisis in 2008, HAGL had identified its prioritized target to be risk management and investment for sustainable development in the long term, the company remains profitable with nearly 2,000 billion VND in 2011 With the projects nearly complete, they will bring significant revenue to HAGL, ensure competitiveness and sustainable development, aims to build HAGL into a powerful economic group in Vietnam in particular and in the area, generally  ... in the form of a joint-stock company named Hoang Anh Gia Lai Joint Stock Company So far, after 19 years of development and growth, Hoang Anh Gia Lai has become the number one multi-fielded economic... 23/3/2011, Hoang Anh Gia Lai became the first company in Vietnam listed in the London Stock Exchange (UK) * Summary of current operational status of the company Hoang Anh Gia Lai: - The company... companies in which, Hoang Anh Gia Lai Jsc has dominating shares of above 50% and/or has the controlling rights - 03 affiliating companies are companies which Hoang Anh Gia Lai Jsc has from 20% to