Da Nang University of Economics

Faculty of Accounting

FINANCIAL STATEMENT ANALYSIS AND

BUSINESS VALUATION OF
HOA PHAT GROUP
Group 3 – 47K06.1

Instructor: Ha Phuoc Vu
Members:
1. Vo Ngoc Quynh Anh
2. Nguyen Ho Yen Nhi
3. Le Trung Kien
4. Tran Anh Thu

Da Nang, November 30, 2024

GROUP 3 – 47K06.1

TABLE OF CONTENTS
I. INTRODUCTION ABOUT HOA PHAT GROUP ....................................................................4
1. GENERAL INFORMATION .........................................................................................................4
2. MILESTONES ................................................................................................................................4
3. OPERATION SCOPE.....................................................................................................................5
4. POSITION ......................................................................................................................................5
5. DEVELOPMENT ORIENTATION ...............................................................................................5
II. STRATEGY ANALYSIS .............................................................................................................6
1. THREAT OF NEW ENTRANTS ...................................................................................................6
2. THREAT OF SUBSTITUTE PRODUCTS ....................................................................................6
3. RIVALRY AMONG EXISTING FIRMS ......................................................................................7
4. BARGAINING POWER OF BUYERS..........................................................................................7
5. BARGAINING POWER OF SUPPLIERS .....................................................................................8
III. ACCOUNTING ANALYSIS ........................................................................................................8
IV. FINANCIAL ANALYSIS .............................................................................................................9
1. FINANCIAL STRUCTURE ANALYSIS ......................................................................................9
1.1. ASSET STRUCTURE ANALYSIS ........................................................................................9
1.2. CAPITAL/ RESOURCES STRUCTURE ANALYSIS ........................................................11
1.3. FINANCIAL BALANCE ......................................................................................................13
2. FINANCIAL PERFORMANCE ANALYSIS ..............................................................................14
2.1. OVERALL FINANCIAL PERFORMANCE ANALYSIS ...................................................14
2.2. ANALYSIS OF CURRENT ASSET USE EFFICIENCY ....................................................15
2.3. ANALYSIS OF OPERATING PROFITABILITY ...............................................................16
3. BUSINESS RISK ANALYSIS .....................................................................................................22
3.1. BUSINESS RISK ASSESSMENT........................................................................................22
3.2. FINANCIAL RISK ANALYSIS ...........................................................................................23
V. BUSINESS FORECAST AND VALUATION..........................................................................30
1. BUSINESS FORECAST ..............................................................................................................30
1.1. BALANCE SHEET FORECAST .........................................................................................30
1.2. INCOME STATEMENT FORECAST .................................................................................31
1.3. CASH FLOW FORECAST ...................................................................................................33
2. BUSINESS VALUATION ...........................................................................................................34
2.1. BUSINESS VALUATION BASED ON DIVIDENDS ........................................................34
2.2. BUSINESS VALUATION BASED ON RESIDUAL EARNINGS .....................................35
2.3. BUSINESS VALUATION BASED ON MARKET VALUE OF SHARES ........................36
VI. CONCLUSION............................................................................................................................37
References ...................................................................................................................................................38

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TABLE OF FIGURES
Figure 1: Assets structure analysis (VND) ................................................................. 9

Figure 2: Analysis of financial autonomy ................................................................ 11

Figure 3: Analysis of funding stability ..................................................................... 12

Figure 4: Financial Balance ..................................................................................... 13

Figure 5: Return on Sales.......................................................................................... 14

Figure 6: Analysis Of Current Asset Use Efficiency ............................................... 15

Figure 7: Return on Assets ....................................................................................... 16

Figure 8: Return on Equity ....................................................................................... 17

Figure 9: Return on Capital Employed ..................................................................... 18

Figure 10: Profitability Analysis .............................................................................. 19

Figure 11: Cash flow based ratios ............................................................................ 21

Figure 12: Variance, standard deviation, coefficient of variation ............................ 22

Figure 13: Degree of operating leverage .................................................................. 23

Figure 14: Financial leverage ................................................................................... 23

Figure 15: Short-term liquidity risk .......................................................................... 24

Figure 16: Debt ratio ................................................................................................. 27

Figure 17: Interest coverage ratio ............................................................................. 29

Figure 18: Altman Z-score........................................................................................ 29

Figure 19: Balance Sheet Forecast ........................................................................... 30

Figure 20: Income Statement Forecast ..................................................................... 31

Figure 21: Cash Flow Forecast ................................................................................. 33

Figure 22: Business Valuation Based On Dividends ................................................ 34

Figure 23: Business Valuation Based On Residual Earnings ................................... 35

Figure 24: Business Valuation Based On Market Value Of Shares ......................... 36

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I. INTRODUCTION ABOUT HOA PHAT GROUP

1. GENERAL INFORMATION

− NAMES:
+ Official name: Hoa Phat Group Joint Stock Company
+ Abbreviated name: Hoa Phat Group
− FINANCIAL AND LISTING INFORMATION:
+ Charter Capital: 58,147,857,000,000 VND
+ Securities Code: HPG
+ Shares outstanding: 6,396,250,200 shares
− BUSINESS LICENSE:
+ Date of business establishment: 08/1992
+ Business license code: 0900189284, issued on 26/10/2001
+ Certificate of Business registration number: No. 0503000008 issued by the
Department of Planning and Investment of Hung Yen Province, issued on
26/10/2001
− CONTACT INFORMATION:
+ Head office Address: Pho Noi A Industrial Park, Giai Pham Commune, Yen My
District, Hung Yen Province.
+ Telephone: (84.24) 6284 8666
+ Fax: (84.24) 6283 3456
+ Email: hoaphatgroup@[Link]
+ Website: [Link]

2. MILESTONES

1992: Established Hoa Phat Equipment and Spare Parts Co., Ltd. – The first
company under the Hoa Phat brand.

1/2007: Restructuring according to the Group model, with the parent company being
Hoa Phat Group Joint Stock Company and member companies.

15/11/2007: Listing of HPG stocks on the Vietnam stock market.

8/2012: Hoa Phat celebrated its 20th anniversary of establishment and development,
receiving the Third-class Labor Medal from the President.

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In 2021: Hoa Phat Real Estate Corporation and Hoa Phat Household Electronics
Corporation were established, respectively, completing the restructuring process of the
Group's operating model according to the 05 Corporations in charge of each field: Iron
and Steel – Steel Products – Agriculture – Real Estate – Household Appliances.

3. OPERATION SCOPE

The Group operates in 05 fields: Iron and steel (construction steel, hot-rolled steel
coils) - Steel products (including steel pipes, galvanized sheets, wire-drawn steel,
container shells, prestressed steel) - Agriculture - Real estate - Household electrical
appliances.

Steel production is the core sector, accounting for 90% of the Group's revenue and
profit.

4. POSITION

With a capacity of 8.5 million tons of crude steel per year, Hoa Phat is the largest
steel producer in Southeast Asia. The Group holds the No. 1 market share in Vietnam
in construction steel, steel pipes, Top 5 largest manufacturers of galvanized steel in
Vietnam.

For many years in a row, Hoa Phat has been recognized as a National Brand, in the
Top 10 largest private enterprises in Vietnam, the Top 10 most profitable enterprises,
the Top 10 most effective listed enterprises in Vietnam, the Top 30 typical taxpayers,
... In 2023, Hoa Phat Group was ranked by Vietnam Report as the largest private
enterprise in Vietnam for the 2nd consecutive year and ranked 8th in the Top 10 largest
enterprises in the country.

HPG's market capitalization reached 11 billion US dollars, ranking in the top 15

steel companies with the largest capitalization in the world steel industry.

5. DEVELOPMENT ORIENTATION

Hoa Phat will enter the top 30 largest steel enterprises in the world from 2025.

Vision: To become an industrial manufacturing group with leading quality, with

steel as the core field.

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Mission: Providing leading products, contributing to improving the quality of life,

and gaining the trust of customers.

Positioning: Hoa Phat - Vietnamese brand, global class.

Core values: The core value of Hoa Phat Group is the philosophy of Harmony and
Development. This is reflected in the relationship between employees, the Group and
partners, agents, shareholders, and the social community, ensuring the harmony of
interests of stakeholders in the same boat, towards sustainable development. Hoa Phat
Group has built a sustainable, long-term, and trusting partnership with sales agents
accompanying the Group from the early days of its establishment.

II. STRATEGY ANALYSIS

1. THREAT OF NEW ENTRANTS

According to the Vietnam Steel Association, Hoa Phat leads the market with a
34.7% share in construction steel and 28.27% in steel pipes, securing its top position in
Vietnam. Its galvanized steel ranks in the Top 5 domestically, and it exports to 30
countries across 5 continents.

Steel production is capital-intensive, requiring significant investment in technology,

labor, inventory, and initial losses, creating high entry barriers. Hoa Phat's economies
of scale allow for lower production costs, further raising entry barriers. Machinery
liquidation yields low economic value, forcing companies to stay in the industry and
increasing competition. Fluctuating import and export taxes create regulatory
uncertainty, deterring new entrants. Hoa Phat's strong customer loyalty due to
consistent product quality makes it hard for new competitors to gain market share.

Overall, the threat of new entrants for Hoa Phat Group is considered medium due
to these factors.

2. THREAT OF SUBSTITUTE PRODUCTS

There is currently a lot of room for growth in our nation's steel production sector,
which provides a raw material for the shipbuilding, automotive, and industrial
industries that are in short supply. Because the state works to encourage and support
the robust growth of the domestic steel industry, Hoa Phat's steel industry constantly
invests in new product development to meet market demands and continuously studies
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and develops the most cutting-edge new technology to improve output and quality. As
a result, the risk of substitute products is extremely low.

A company called Hoa Phat was founded in 1992. With the help of its strong human
resources and many years of market experience, Hoa Phat has developed into a multi-
industry private corporation with a focus on the steel industry. It constantly strives to
develop new products and advanced production technology to stay ahead of the curve.
Its trademark and brand are well-known both domestically and internationally, and its
strong capitalization gives it a competitive edge over rivals.

3. RIVALRY AMONG EXISTING FIRMS

Currently, Hoa Phat Group is in the top 10 largest private enterprises in Vietnam,
the top 10 most profitable enterprises, and the top 5 listed enterprises in the Vietnamese
private stock market. And is in the top 15 steel companies with high capital in the
world's steel industry.

At the same time, besides that success, Hoa Phat Group confronts many other
competitors. Some competitors of Hoa Phat Group: Vina Kyoei, PY Vina, Novaland,
Tisco.... These firms all operate in the industrial sector, especially the steel industry.
These competitors compete with Hoa Phat Group Joint Stock Company in terms of
price, quality, production scale, and customer service. These companies all have
advantages and development goals to reach the world, so they compete to win the
market and customers. Therefore, the competition level between rival firms is high.

4. BARGAINING POWER OF BUYERS

Hoa Phat Group's internal customers are member companies and affiliated
companies. HPG prioritizes providing raw materials to member companies; Therefore,
HPG does not have to bear much pressure from this group of customers. HPG's
customers are also individuals, switching from using HPG products to other products
does not take much time and cost. However, fierce competition in the steel industry
leads to price differences that are not too different. This allows customers to freely
choose to use many different companies when there is a need to change to innovate for
their company.

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➨ Individual customer groups will not affect HP's selling price or revenue too
much. Instead, large customers such as member companies and affiliated companies
purchasing in large quantities will have the right to negotiate prices with HP. Because
member and affiliated companies can directly impact the purchasing decisions of
consumers (individual customers) through consulting or product introduction. In short,
this is no small pressure and has a direct impact on the total revenue of Hoa Phat Group.

5. BARGAINING POWER OF SUPPLIERS

Currently, the world's largest iron ore mine owner Vale (Brazil) is the company's
regular supplier. In addition, Hoa Phat said it has established new relationships with
other manufacturers including Rio Tinto (output of 329.5 million tons/year), BHP (227
million tons/year), and FMG (170 million tons/year). tons/year), …

Hoa Phat can proactively source 80% of steel billets for the production process, the
remaining 20% depends on imported sources. However, HPG has built a long-term
business relationship with steel billet suppliers and member companies also have good
relationships with raw material suppliers. Raw materials will be guaranteed in quality
and at a reasonable price. With a large production scale and input optimization strategy
based on proactive investment (raw materials, transportation), Hoa Phat currently holds
a great advantage in production costs in the industry.

III. ACCOUNTING ANALYSIS

The company provides voluntary disclosures through fully audited financial statements,
which are prepared following Vietnam Accounting Standards and based on the
Historical Cost principle. These consolidated financial reports typically span 70 pages
and emphasize transparency and detail. Over the past four years, the company has
maintained consistent accounting policies, including those related to inventory,
provisions, and fixed assets, ensuring uniformity in reporting practices.

The auditing process is conducted by KPMG, one of the renowned Big Four accounting
firms. KPMG offers a comprehensive range of professional services, including
auditing, tax consultation, legal advisory, management consulting, and financial
services. As part of the audit process, the firm performs procedures to identify potential
risks of material misstatements in the financial statements, whether caused by fraud or

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error. While the auditors consider the Group’s internal control systems regarding the
preparation and presentation of economic data, their evaluation does not include testing
the effectiveness of these controls. Additionally, the auditors review the
appropriateness of the company’s accounting policies, assess the reasonableness of
management’s accounting estimates, and examine the overall presentation of the
consolidated financial statements.

KPMG has been the company’s selected auditing firm from 2020 to 2024.
Throughout these four years, KPMG has consistently issued the same unqualified audit
opinion, stating: "In our opinion, the consolidated financial statements give a true and
fair view, in all material respects, of the consolidated financial position of Hoa Phat
Group Joint Stock Company and its subsidiaries, as well as their consolidated results
of operations and cash flows for the year then ended, following Vietnamese Accounting
Standards, the Vietnamese Accounting System for Enterprises, and the relevant
statutory requirements applicable to financial reporting.”

IV. FINANCIAL ANALYSIS

1. FINANCIAL STRUCTURE ANALYSIS

1.1. ASSET STRUCTURE ANALYSIS

Figure 1: Assets structure analysis (VND)

From Figure 1, we have total assets that fluctuate over the years without a direction,
in which total current assets tend to decrease in the structure of total assets, but total
long-term assets tend to increase, detail:

− Current assets: The total ratio of short-term assets to total assets tends to gradually
decrease from 2021 (from 52.83% in 2021 to 44.05% in 2023). This shows that
businesses are gradually reducing their dependence on short-term assets to operate.

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+ Cash and cash equivalents: The rate decreased quite sharply from 2021 (from
12.61% in 2021 to 6.52% in 2023), possibly because businesses have used this
money to invest in other activities or pay off debt. Reducing this ratio can affect the
short-term solvency of the business if not managed well.
+ Short-term financial investments: The rate fluctuates but in general there is no
clear trend. This shows that businesses may be flexibly adjusting their short-term
investment portfolio to suit the market situation.
+ Accounts receivable - short-term: Over the years, the company's ability to manage
debt has gradually improved, as evidenced by the decreasing trend in both short-
term and long-term receivables. The proportion of long-term accounts receivable
remains relatively small in comparison to total assets, with only a slight increase
over time. This reflects the company's effective implementation of short-term credit
policies while maintaining stability in its financial structure.
+ Inventories: The ratio made up the largest proportion of the current asset and has
remained relatively stable over the past four years, though it has decreased slightly
in 2023 (18,4%), indicating that businesses may have improved inventory
management more effectively, reducing excessive inventory.
− Long-term assets: The proportion of long-term assets in Hoa Phat's total asset base has
decreased slightly from 56.85% in 2020 to 55.95% in 2023. This decrease reflects a
change in the company's strategy, with an increasing focus on increasing liquidity and
short-term assets.
+ Accounts receivable long-term: Long-term accounts receivable had a small
proportion over the four years, much like financial investments. Long-term accounts
receivable did not constitute a significant portion of total assets since Hoa Phat
Corporation does not have many large customers who are eligible for longer
payment terms.
+ Fixed assets: The percentage of fixed assets has consistently represented the largest
share of Hoa Phat's total assets from 2020 to 2023. This is understandable given the
company's mass manufacturing operations, which require significant investments in
factories, machinery, and modern equipment to boost productivity and
manufacturing capacity. Over the four years, the fixed assets proportion fluctuated,
but by 2023, it decreased by more than 10% compared to 2020. This decline reflects

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a shift in Hoa Phat's capital allocation strategy. Between 2018 and 2020, substantial
profits were reinvested in the Dung Quat project’s construction, driving up long-
term assets. However, after completing phase 1 of the Dung Quat project in early
2021, the company reduced its investment in fixed assets, focusing more on
accumulating cash and deposits. As a result, the share of fixed assets in total assets
decreased by over 10% in 2023 compared to 2020.
+ Investment property: The percentage of investment real estate tends to decrease
by 0.11% from 0.43% at the end of 2020 to 0.32% at the end of 2023. Hoa Phat's
investment real estate includes land use rights and houses for rent. The remaining
value of houses and land use rights in 2023 is 538.2 billion and 55.7 billion,
respectively, of which real estate worth 13.7 billion VND is mortgaged at the bank
to secure loans of a subsidiary.
+ Long-term work in progress: The percentage of long-term unfinished assets
increased nearly 3 times after 4 years from 4.75% in 2020 to 13.9% in 2023. Hoa
Phat Company mainly focused on investing in the Dung Quat Iron and Steel
Complex project with 22,555.7 billion VND out of the total balance at the end of
2023 of 26,052.5 billion VND. This proves that the company is focusing more on
investing in construction projects to expand business and develop the enterprise.

1.2. CAPITAL/ RESOURCES STRUCTURE ANALYSIS

1.2.1. Analysis of financial autonomy

Figure 2: Analysis of financial autonomy

− Debt Ratio: The debt ratio of enterprises has tended to decrease from 2020 to 2022,
indicating that enterprises have made positive efforts in reducing their debt burden and
improving their capital structure. However, in 2023, the debt ratio will show signs of
increasing slightly compared to the previous year. This shows that there may be several
factors that may cause businesses to borrow more capital in 2023.

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− Self-fund Ratio: The self-fund ratio of enterprises tends to increase from 2020 to 2022,
peaking in 2022. This shows that businesses have increasingly reduced their
dependence on loans, enhancing financial autonomy. However, by 2023, the self-fund
ratio will decrease slightly compared to the previous year. This mitigation can be due
to a variety of factors, such as increased investment demand, a changing business
environment, or other strategic decisions of businesses.
− Debt/owner's equity Ratio: The debt/owner's equity ratio of enterprises is decreasing
year by year. Specifically, from 122.07% in 2020, this rate has decreased to 82.60% in
2023. This shows that businesses are improving their capital structure, reducing their
debt burden, and strengthening their financial capacity.

1.2.2. Analysis of funding stability

Figure 3: Analysis of funding stability

− Short-term resources Ratio: The short-term resources ratio of enterprises fluctuates

over the years. Specifically, this rate increased from 39.52% in 2020 to 41.21% in 2021,
then decreased to 36.63% in 2022 and increased to 38.08% in 2023. This shows that
businesses are making efforts to manage and adjust the structure of temporary capital
sources in business activities.
− Long-term resources Ratio: The long-term resources ratio of enterprises tends to
fluctuate over the years. Specifically, this index decreased from 60.48% in 2020 to
58.79% in 2021, then increased to 63.37% in 2022 and decreased again to 61.92% in
2023. This fluctuation shows that the enterprise is adjusting the equity structure
compared to total assets to meet the needs of business activities. Properly managing the
long-term resources ratio will help businesses strengthen their financial capacity and
operational ability effectively.
− Owner's equity/ long-term resources Ratio: Overall, the increasing trend in the
owner’s equity to long-term resources ratio from 2020 to 2023 reflects a positive shift

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towards greater financial stability for Hòa Phát Group. The company appears to be
reducing its reliance on debt, which can lower financial risk and interest expenses.
Maintaining a high ratio is generally favorable as it indicates a robust equity base,
providing a cushion against potential financial challenges.

1.3. FINANCIAL BALANCE

Figure 4: Financial Balance

− Net working capital: The company's net working capital has shown significant
fluctuations over the past four years. The substantial increase in 2021 and 2022
indicates periods of strong liquidity and operational efficiency. The decrease in 2023
suggests some challenges, but the company still maintains a relatively strong liquidity
position compared to 2020. Maintaining a healthy NWC is crucial for the company’s
ability to meet short-term obligations and invest in growth opportunities.

− Net working capital requirement: Overall, the increasing trend in Hòa Phát Group’s
net working capital requirement from 2020 to 2023 reflects the company’s growth and
expansion. The higher NWCR indicates that the company is investing more in its
operations, which could be a positive sign of business growth. However, it also means
that the company needs to ensure it has sufficient liquidity to meet these increased
operational demands. Maintaining a balance between NWCR and available working
capital is crucial for the company’s financial health. Hòa Phát Group needs to manage
its receivables, payables, and inventory efficiently to ensure smooth operations and
avoid liquidity issues.

− Net fund: The company's net working capital is significantly lower than its required
amount, resulting in a negative net fund. Although the value has fluctuated, the net fund
has generally worsened, growing more negative from -3,040.11 billion VND in 2021

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to -20,552.53 billion VND in 2023. This indicates that the company’s net working
capital is insufficient to meet its short-term financial needs. As a result, Hoa Phat has
increasingly relied on short-term borrowing to cover the gap, as seen in the growing
trend of short-term loans. This situation reflects an unsafe and unfavorable financial
position, putting pressure on the company to meet its short-term obligations. Therefore,
Hòa Phát Group must address these issues by improving asset management, reducing
liabilities, and possibly restructuring debt to enhance financial stability.

2. FINANCIAL PERFORMANCE ANALYSIS

2.1. OVERALL FINANCIAL PERFORMANCE ANALYSIS

Figure 5: Return on Sales

− Return on Sales (ROS) measures a company's profitability by revealing how much

profit it generates from each VND of revenue. A higher ROS generally indicates better
financial health and efficiency.
− Good Signals:
+ Exceptional Performance in 2021: Hoa Phat Group’s ROS peaked at 24.134% in
2021, significantly outperforming the industry average of 11.93%. This exceptional
profitability was driven by effective cost management and a closed production
process, despite high ore prices. The after-tax profit exceeding 192% of the target
and reaching a record VND 34,520 billion with a profit margin of 23% highlights
the company’s strong operational efficiency and strategic execution.
+ Relative Outperformance: Even as the ROS declined in 2022 and 2023, Hoa Phat
Group’s performance remained above the industry average. In 2022, the company’s
ROS was 6.795% compared to the industry average of 1.82%, and in 2023, it was
6.341% versus the industry average of 1.67%. This indicates that despite facing
industry-wide challenges, Hoa Phat Group managed to maintain a relatively
stronger position than its peers.

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− Bad Signals: The significant decrease in ROS from 24.134% in 2021 to 6.341% in
2023 indicates a downward trend in profitability. The steel industry has been under
pressure due to plummeting global steel prices, the Russia-Ukraine conflict, and the
post-Covid recession, which have reduced world steel consumption and impacted
exports. Additionally, the sluggish Vietnamese real estate market has led to decreased
domestic steel consumption. These factors have contributed to the declining ROS and
indicate ongoing challenges for the company.
− Trends: The fluctuations in ROS over the years reflect instability in the company’s
profitability. This could be influenced by external factors such as market demand, raw
material prices, and economic conditions.

2.2. ANALYSIS OF CURRENT ASSET USE EFFICIENCY

Figure 6: Analysis Of Current Asset Use Efficiency

− Inventories turnover: Overall, the inventories turnover rate for HPG from 2020 to
2023 indicates a generally stable and efficient inventory management process. While
there have been minor fluctuations, the company has maintained a consistent level of
inventory turnover, suggesting effective management of stock levels and sales.

− Inventories turnover period: Overall the company inventory turnover period has been
relatively stable over the four years, fluctuating between 110 and 117 days. Specifically
during the period 2020-2022, the company experienced a slight improvement in
inventory management efficiency. The decreasing trend in the inventory turnover
period indicates that the company was able to sell its inventory faster during this period.
This could be due to better demand forecasting, improved production planning, or more
efficient inventory management practices. From 2022-2023: However, there was a
slight increase in the inventory turnover period in 2023 compared to 2022 ( from 110.65
to 117.15). This suggests a potential slowdown in inventory turnover, which could be

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caused by various factors such as increased inventory levels, slower sales, or changes
in market demand.

− Accounts receivable from customer turnover: Receivables from customer turnover

are an important indicator reflecting HPG's debt collection efficiency. A high value
shows that the company can collect debts quickly, improve cash flow, and manage
finances well. During the period 2020-2022, HPG's receivables turnover increased from
29.82 to 39.22, reflecting improved debt collection efficiency thanks to good debt
control and strict credit policy. However, in 2023, the index decreased to 29.21,
indicating a decrease in debt collection efficiency, possibly due to customers facing
financial difficulties, a weakening steel market, or HPG having to loosen credit to
support customers in the context of economic recession.

− Accounts receivable from customer turnover period: Accounts receivable from

customer turnover period reflect the average number of days it takes HPG to collect
receivables. A low value indicates that the company is managing its receivables
effectively. During 2020-2022, the index decreased from 12.07 to 9.18, indicating that
HPG improved its ability to collect receivables, possibly due to better sales policies and
credit management. However, in 2023, it increased to 12.32, possibly related to factors
such as slowing economic growth, customers having difficulty paying, or HPG having
to loosen credit policies to maintain revenue.

2.3. ANALYSIS OF OPERATING PROFITABILITY

2.3.1. Return on Assets

Figure 7: Return on Assets

− Return on Assets (ROA) measures how efficiently a company uses its assets to
generate profits. A higher ROA generally indicates better financial performance.
− Good Signals:

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+ Outperformance Against Benchmark: Hoa Phat Group consistently

outperformed the benchmark over four years, indicating a competitive advantage in
asset utilization.
+ Strong 2021 Performance: The peak ROA in 2021 reflects the company's ability
to capitalize on favorable market conditions, supported by a 66% increase in short-
term assets to VND 37,408 billion, aimed at enhancing working capital for
expanded production.
− Bad Signals: The significant decline in ROA from 2021 to 2023 raises concerns about
the company's profitability and asset utilization. In 2022, current assets decreased by
14% to VND 13,640 billion, primarily due to an 18% drop in inventory value. This
reduction resulted from a tight inventory management policy, which lowered inventory
levels to their lowest in two years. Facing high input raw material prices, Hoa Phat
adjusted its inventory structure to minimize raw material reserves, reduce high cost
finished product production, and alleviate working capital and financial burdens.
− The trends for Hoa Phat Group indicate a company that has historically outperformed
its peers but is currently facing significant challenges in maintaining profitability and
efficient asset utilization. The peak performance in 2021 was followed by a notable
decline in ROA, driven by changes in inventory management and external market
pressures. Moving forward, the company will need to address these challenges to
stabilize its financial performance and potentially regain its competitive edge. This may
involve reassessing inventory strategies, managing input costs, and focusing on
operational efficiencies to improve ROA in the coming years.

2.3.2. Return on equity

Figure 8: Return on Equity

− Return on Equity (ROE) is a comprehensive measure of a company's success, as it

shows how effectively management is using the money that shareholders have invested
in the company to produce returns.
− The trend shows significant volatility, with a dramatic peak of 46.028% in 2021,
followed by a sharp decline to 9.037% in 2022. This fluctuation highlights instability
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in the company’s profitability, which is heavily influenced by external economic

conditions such as raw material costs and demand fluctuations in the steel industry.
− Good signs: the record-breaking performance in 2021, where every 100 VND of equity
generated 46 VND in profit after tax, demonstrating exceptional efficiency and
operational excellence. Even as ROE declined in subsequent years, Hoa Phat still
maintained a leading position in the industry, outperforming competitors who faced
similar challenges.
− Bad signs: the steep drop in ROE after 2021, reflecting significant difficulties in the
company’s core steel business. The decline in global and domestic steel demand,
compounded by rising raw material costs—particularly coal—due to the Russia-
Ukraine conflict, weighed heavily on profitability. The reliance on steel as Hoa Phat's
primary revenue driver exacerbated the impact, putting pressure on the company’s
overall financial performance. This decline underscores the challenges posed by
external market conditions and the need for Hoa Phat to adapt strategically to maintain
stability and growth.

2.3.3. Return on capital employed

Figure 9: Return on Capital Employed

The Return on Capital Employed (ROCE) ratio of Hoa Phat (HPG) has exhibited
fluctuations over the past four years, with a noticeable downward trend in the last two
years. In 2020, the ROCE stood at 22.74%, reflecting a stable and efficient use of capital.
This ratio was above the industry benchmark, highlighting the company’s ability to
generate profits effectively through its operations during that year.

In 2021, Hoa Phat achieved a significant improvement, with the ROCE peaking at
42.95%. This figure was nearly double the industry benchmark, demonstrating remarkable
enhancements in the company’s capital utilization. Such a dramatic increase could be
attributed to measures like cost-cutting initiatives, improved production efficiency, and
investments in high-profit projects, contributing to the company’s strong financial
performance.
18
GROUP 3 – 47K06.1

However, the past two years have seen a significant decline, with the ROCE dropping
to 10.15% in 2023. This reduction could stem from various factors, including heightened
competition, rising input costs, or other unfavorable conditions impacting the company’s
operations. Despite this decline, the ratio remains above the industry benchmark, indicating
that Hoa Phat continues to generate returns from its capital, albeit at a lower level compared
to its peak performance.

2.3.4. Profitability Analysis

Figure 10: Profitability Analysis

− Earnings Per Share:

+ EPS trend highlights the company's challenges in maintaining consistent growth
after a peak performance year. Overall, the highest EPS occurred in 2021, driven
by exceptional net profits. This might have been due to favorable market
conditions, operational efficiency, or other extraordinary gains. The EPS trend
shows a significant drop after 2021, with 2023 being the lowest over the period.
This suggests a decline in profitability and potentially increased challenges in
sustaining past growth.
+ In 2020, the EPS was moderate compared to the sharp increase in 2021. This
level reflects steady profitability before the significant growth seen in 2021.
+ In 2021, the EPS increased remarkably compared to 2020, driven by an
exceptional net profit after tax. This year stands out as a period of extraordinary
profitability, significantly boosting the firm EPS.
+ In 2022 and 2023, the EPS dropped significantly compared to 2021. The
decrease indicates moderate challenges in maintaining high-profit levels and
also reflects lower net profit after tax, indicating weaker profitability during the
year.
− The P/E ratio
19
GROUP 3 – 47K06.1

+ Fluctuating over the years, influenced by changes in net profit, EPS, and market
price per share. The highest P/E ratio (2023) indicates high market valuation
relative to earnings, while the lowest (2021) suggests a period of undervaluation
or adjusted expectations.
+ In 2020 the firm P/E ratio is relatively stable. The lower net profit and EPS in
2020 suggest that investors had higher expectations for future growth or that the
stock price was overvalued relative to its earnings.
+ In 2021 the ratio suffered a significant decrease from 2020, driven by a sharp
increase in EPS due to exceptionally high net profit. This indicates that the
market price did not rise proportionally to the earnings growth, possibly
signaling undervaluation during this period.
+ In 2022 and 2023 the P/E ratio increased significantly compared to 2021,
reflecting a higher market price relative to earnings. This could be due to
increased investor confidence or market expectations of future growth despite
the lower net profit compared to 2021.
− The BV ratio
+ In 2021 the BV ratio is the highest in the period, driven by significant owners'
equity about the number of shares. This year also saw high earnings, which could
have contributed to increased retained earnings and book value.
+ In 2022, the BV ratio decreased from 2021, suggesting a decline in book value
growth during the year. This might be due to slower equity growth or changes
in retained earnings.
+ The BV ratio slightly increased compared to 2022. This reflects modest growth
in the company's owners' equity relative to the number of shares outstanding.
The rise indicates an improvement in the company's book value, although the
increase is not dramatic.
+ Overall, 2021 stands out as the year with the highest BV ratio, driven by strong
equity growth, likely due to high profitability. The trend from 2022 to 2023
shows a small recovery in the BV ratio after the drop in 2022. The fluctuation in
BV over the years reflects changes in equity and share issuance. Despite this,
the firm BV ratio remains well above the industry benchmark, indicating that
HPG is still in good financial health and growth.

20
GROUP 3 – 47K06.1

2.3.5. Cash flow based ratios

Figure 11: Cash flow based ratios

− Operating Cash Flow Margin: This ratio measures the percentage of total sales
and revenue that is converted into cash from operating activities. The decline from
17.4% in 2021 to 7.0% in 2023 suggests a decrease in operational efficiency. This
could be due to factors like increased working capital requirements, and slower
collections of receivables.
− Cash Flow from Operations to Net Income: This ratio compares the cash
generated from operations to the net income reported on the income statement. A
value greater than 1 indicates that the company is generating more cash than its
reported net income. The decline from 1.254 in 2022 to 1.130 in 2023 suggests a
decrease in the company's ability to convert net income into actual cash. This could
be due to timing differences between revenue recognition and cash collection, or
changes in working capital.
− Cash Flow from Operations per Share: This metric measures the amount of cash
generated from operations per share. It provides a direct measure of the cash flow
generated for each shareholder. The decline from 5.974 in 2021 to 1.486 in 2023
indicates a significant decrease in cash flow per share. This could be due to lower
operating cash flows.

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GROUP 3 – 47K06.1

3. BUSINESS RISK ANALYSIS

3.1. BUSINESS RISK ASSESSMENT

3.1.1. Variance, standard deviation, coefficient of variation

Figure 12: Variance, standard deviation, coefficient of variation

− Variance: The variance for Hòa Phát Group (HPG) is 0.81%, which is higher than
the benchmark's 0.34%. This suggests that HPG's Return on Assets (ROA) has been
more volatile over the period analyzed. This higher variance reflects the company's
sensitivity to changing market conditions, leading to both potential higher risks and
higher rewards.
− Standard Deviation: HPG’s standard deviation stands at 7.77%, which is higher
than the benchmark’s 5.07%. This indicates that HPG’s returns have been more
unpredictable, showing greater fluctuations in profitability compared to the
benchmark. This could be due to HPG’s involvement in the cyclical steel industry
and its vulnerability to macroeconomic factors.
− Average: HPG’s average ROA over the four years is 11.78%, well above the
benchmark’s 5.89%. This demonstrates that HPG has been more effective in
generating returns on its assets. While HPG's performance has been more volatile,
its overall profitability has been consistently better than the benchmark.
− Coefficient of Variation (CV): HPG’s Coefficient of Variation (CV) is 65.96%,
which is lower than the benchmark’s 86.16%. This suggests that, although HPG’s
returns are more volatile, they are still more stable about its higher average ROA
compared to the benchmark. The higher CV of the benchmark indicates that its
lower average ROA comes with greater relative variability.

22
GROUP 3 – 47K06.1

3.1.2. Degree of operating leverage

Figure 13: Degree of operating leverage

Overall the DOL has been generally declining over the period, indicating a
decreasing sensitivity of operating income to changes in sales.

In 2020 and 2021 the DOL increased at a stable rate indicating that the company's
operating income remain rather stable to changes in sales during this period. This suggests
a moderate fixed cost structure or a leveraged business model.

In 2022 the DOL reached its peak (13.65) suggesting that the company's operating
income was highly sensitive to changes in sales during this period. This could be due to a
high fixed cost structure or a leveraged business model.

In 2023 the DOL significant decrease in DOL suggests continued efforts to reduce
operating leverage. This could be beneficial in mitigating the impact of potential sales
declines on operating income.

3.2. FINANCIAL RISK ANALYSIS

3.2.1. Financial leverage

Figure 14: Financial leverage

The Degree of Financial Leverage (DFL) illustrates the connection between operating
income (EBIT) and earnings before taxes (EBT), indicating the extent of a company’s
dependence on fixed financial costs like interest. From 2020 to 2023, the DFL rose from
1.143 in 2020 to 1.460 in 2023, signaling an increased sensitivity of EBT to changes in
EBIT and a growing reliance on debt or other fixed-cost financing.

In 2021, the DFL was at its lowest point (1.068), suggesting minimal financial risk as
EBIT changes had a lesser impact on EBT. This indicates that the company maintained a
more conservative financial structure during this period. However, by 2023, the DFL
23
GROUP 3 – 47K06.1

reached its highest level at 1.460, reflecting higher financial risk. This increase suggests
that the company took on more fixed costs, which could amplify returns in favorable
conditions but also heighten the risk of losses if EBIT declines.

The rising DFL from 2021 to 2023 indicates a shift toward greater financial leverage.
While this approach may enhance profitability when operating income rises, it also
increases the risk of financial instability in the event of falling earnings. Balancing this
strategy is crucial for the company to maintain financial stability and avoid the dangers of
excessive leverage.

3.2.2. Insolvency risk

[Link]. Short-term liquidity risk

Figure 15: Short-term liquidity risk

− Current liabilities coverage ratio

+ Current ratio:

Overall, the Hoa Phat Group’s current ratio has been fluctuating throughout 4 years.

It increased from 2020 to 2022 and then had a slight decrease in 2023. In 2020 the
company had a current ratio of 1.09, which means it had slightly more current assets than
current liabilities. This suggests a moderate liquidity position. In 2021 the current ratio
increased to 1.28, indicating a stronger liquidity position. Which means the company had
more current assets to cover its short-term obligations. In 2022 the current ratio further
improved to 1.29, suggesting a continued strong liquidity position. In 2023 the current ratio

24
GROUP 3 – 47K06.1

decreased to 1.16, indicating a slight weakening of the liquidity position. However, it

remains above 1 and is still larger than the industry benchmark, which is generally
considered a healthy level.

In short, over the past 4 years, despite Hoa Phat Group's current ratio having decreased
in recent years, it remains well above the industry benchmark which indicates that the firm
still have more asset to pay for its liabilities.

+ Quick ratio (acid-test ratio):

Over the years, Hoa Phat's quick ratio has fluctuated, reflecting variations in its short-
term liquidity management. In 2020, the ratio stood at 0.54, suggesting that the company’s
liquid assets were insufficient to cover half of its current liabilities, indicating a relatively
constrained liquidity position. By 2021, the ratio improved to 0.66, demonstrating better
coverage of short-term obligations. This upward momentum continued into 2022, reaching
0.71, which signified a strengthening liquidity capacity. However, 2023 saw a slight dip to
0.63, marking a modest decline, though it remained within an acceptable range above 0.5.

A lower quick ratio could concern lenders and investors, as it raises questions about the
company’s ability to meet immediate liabilities without relying on inventory. It might also
restrict the firm's ability to capitalize on short-term opportunities or handle unexpected
expenses, potentially impacting creditworthiness and borrowing costs. Industry
benchmarks and the composition of current assets are crucial considerations—if a
substantial share of these assets is tied up in inventory that is challenging to liquidate, the
company's actual liquidity may be overstated by the quick ratio. Observing the ratio's
trajectory over time offers valuable insights into the firm’s approach to liquidity
management and financial health.

+ Cash ratio:

The cash ratio has been fluctuating from 2020 to 2023. In 2020 and 2021 the cash ratio
was way above the industry benchmark suggesting that Hòa Phát had huge liquidity
compared to the industry average. However, in 2022 the cash ratio dropped significantly
to 0.13, which was below the industry benchmark, suggesting a weaker liquidity position.
In 2023 the cash ratio further increased to 0.17, indicating a slight recovery in liquidity.
Despite the Hoa Phat group liquidity ratio has decreased over the past 4 years, it still mostly

25
GROUP 3 – 47K06.1

remains above the industry benchmark, which implies that the company still can pay the
short-term debt by using the firm liquid asset.

+ Cash flow ratio:

The Hoa Phat Group cash flow ratio has been fluctuating from 2020 to 2023. In 2020
and 2021 the cash ratio was increasing steadily suggesting that Hòa Phát had a stable cash
flow that was ready to pay the debt of the company. However, in 2022 the cash flow ratio
dropped down to 0.2, suggesting a weaker stability in the firm cash flow from operating
activities. In 2023 the cash ratio has further decreased, indicating an even further decline
in the company's cash flow ratio. Explanation for the declining trend in the past few years
Hòa Phát Group might be investing heavily in expansion projects or research and
development, which could reduce its cash flow from operations. Since there are no industry
benchmarks for this ratio, it is hard to indicate whether or not the cash flow ratio of Hoa
Phat Group in the past 4 years was good or bad.

− Current assets turnover:

+ Inventory turnover:

Hoa Phat Group's inventory turnover is consistently lower than the benchmark,
indicating that it takes longer for Hoa Phat to sell its inventory compared to the industry
average. This could suggest less efficient inventory management or slower sales. Lower
inventory turnover means more capital is tied up in inventory, which could impact liquidity
and increase storage costs. The inventory turnover has remained relatively stable, with
slight fluctuations, but consistently below the benchmark. The benchmark shows a
decreasing trend from 2021 to 2023, but it remains higher than Hoa Phat's turnover each
year.

+ Accounts receivable turnover:

Hoa Phat consistently outperforms the benchmark across all four years, with its
accounts receivable turnover being nearly double or more than the industry standard.

This indicates that Hoa Phat collects payments from customers much faster than its
peers, suggesting strong credit control and efficient receivables management. The turnover
peaked in 2022 at 36.05, followed by a decline to 26.88 in 2023. This reduction could
indicate slightly slower collections or relaxed credit terms in the latest year.

26
GROUP 3 – 47K06.1

However, even with the decline, the 2023 figure remains significantly higher than the
benchmark. Faster turnover means quicker cash inflows, improving liquidity and reducing
the risk of bad debts. High turnover may also reflect shorter credit periods offered to
customers, potentially requiring Hoa Phat to balance between maintaining customer
satisfaction and managing cash flows.

+ Accounts payable turnover:

The Accounts Payable Turnover has shown an increasing trend from 2020 to 2023,
rising from 8.48 to 9.03.

The significant jump from 6.72 in 2022 to 9.03 in 2023 indicates improved efficiency
in managing payables. Hoa Phat's turnover is lower than the benchmark. A higher Accounts
Payable Turnover ratio indicates that a company is paying its suppliers more quickly,
which can be a sign of good cash flow management.

Hoa Phat Group's increasing turnover ratio suggests efficiency improvements, but it
still lags behind the benchmark, indicating room for improvement. Hoa Phat Group's
accounts payable turnover ratios are lower than the industry benchmark, indicating longer
payment periods to suppliers. This strategy can help with cash flow management but
requires careful handling to maintain strong supplier relationships and overall financial
stability.

[Link]. Long-term solvency risk

− Debt ratio:

Figure 16: Debt ratio

+ Liabilities to assets ratio:

HPG's Liabilities to Assets Ratio reflects the extent to which assets are financed by
debt, decreasing from 0.55 (2020) to 0.44 (2022) and increasing slightly to 0.45 (2023).
This is a positive sign, indicating that the company has reduced its dependence on debt in

27
GROUP 3 – 47K06.1

the 2020-2022 period, demonstrating its ability to control finances and increase equity.
However, the slight increase in 2023 may be due to HPG's increased debt to finance
expansion investment projects or due to increased input costs.

+ Liabilities to shareholder's equity ratio:

HPG's Liabilities to Shareholder's Equity Ratio measures the level of debt used
compared to equity. This ratio decreased from 1.22 (2020) to 0.77 (2022), then increased
slightly to 0.83 (2023). This is a positive sign, showing that HPG has significantly reduced
its reliance on debt during the 2020-2022 period, thanks to increased equity through
retained earnings or share issuance. The slight increase in 2023 may stem from the need to
finance additional debt to invest in production expansion or respond to fluctuations in input
costs.

+ Long-term debt to long-term capital ratio:

HPG's Long-term Debt to Long-term Capital Ratio measures the proportion of long-
term debt in total long-term capital (including equity and long-term debt). This index has
remained stable from 0.26 (2020), decreased slightly over the years to 0.13 (2021, 2022),
and remained at 0.12 (2023). This is a good sign, showing that HPG uses long-term capital
mainly from equity, reducing dependence on long-term debt, and helping to increase
financial stability. The gradual decrease over the years reflects HPG's strategy of
optimizing equity capital, and limiting long-term debt to reduce interest expenses and
payment risks in the context of the highly cyclical steel industry.

+ Long-term debt to shareholder's equity ratio:

HPG's Long-term Debt to Shareholder's Equity Ratio measures the level of long-term
debt used compared to equity, decreasing from 0.34 (2020) to 0.12 (2022) and increasing
slightly to 0.13 (2023). A low ratio (below 0.5) is a good sign, indicating that HPG uses
long-term capital safely, with the majority of assets financed by equity, reducing long-term
financial risks. The sharp decrease in the 2020-2022 period may be due to the company
optimizing its capital structure, reducing long-term debt, or increasing equity through
retained earnings. The slight increase in 2023 reflects that HPG increased long-term debt
to finance expansion projects or cope with higher investment costs, but still within control,
ensuring a stable financial situation.

28
GROUP 3 – 47K06.1

− Interest coverage ratio:

Figure 17: Interest coverage ratio

HPG's Interest Coverage Ratio measures the ability to pay interest on pre-tax profits.
This ratio has dropped sharply from 8.01 (2020) to a peak of 15.67 (2021), then dropped
to 4.22 (2022) and 3.17 (2023). This trend reflects fluctuations in HPG's pre-tax profits and
interest expenses. The decrease in 2022-2023 may be due to lower steel prices and higher
production costs, leading to lower profits, while interest expenses increased due to
borrowing to finance expansion projects.

[Link]. Altman Z-score

Figure 18: Altman Z-score

The Altman Z-Score is a crucial measure of financial health, used to assess the
likelihood of a company facing financial distress. Hoa Phat’s Z-Scores from 2020 to 2023
reveal fluctuating performance with periods of stability followed by emerging risks.

In 2020, the Z-Score of 2.407 placed the company in the grey zone, indicating
moderate financial risk due to low profitability and weak equity value. However, in 2021,
the company improved significantly, with a Z-Score of 3.392, entering the safe zone,
reflecting strong financial health and low bankruptcy risk. This improvement was driven
by higher profitability and a stronger equity position.

In 2022, the Z-Score slightly decreased to 3.058 but remained in the safe zone, showing
stable financial health. The situation worsened in 2023, as the Z-Score dropped to 2.111,

29
GROUP 3 – 47K06.1

returning the company to the grey zone due to several negative factors. The decline in 2023
was driven by a sharp reduction in Net Working Capital, lower retained earnings, reduced
EBIT, and a significant drop in the Market Value of Equity, signaling reduced liquidity
and investor confidence.

To address these challenges, the company must improve working capital management,
enhance profitability, and rebuild investor confidence. Reducing liabilities or refinancing
debt could also help strengthen the company’s financial position. Despite the downturn,
Hoa Phat’s risk of bankruptcy remains low, and the demand for steel, especially in
industries like renewable energy and infrastructure, is expected to rise, supporting future
growth.

V. BUSINESS FORECAST AND VALUATION

1. BUSINESS FORECAST

1.1. BALANCE SHEET FORECAST

Figure 19: Balance Sheet Forecast

Cash and cash equivalents in 2023 will decrease slightly due to investment projects. In
2024, it is expected that completed projects will need to be paid, so it is expected to

30
GROUP 3 – 47K06.1

decrease slightly. Therefore, in 2024, the average cash level in previous years will be used,
and in 2025, the forecast from 2025 to grow according to the average growth rate of
previous years of 16.10%.

Short-term financial investments have an average growth rate of 50.95% over the
years, however, in 2024, economic conditions are expected to be difficult, so this value
will not increase in 2024 and from 2025, the company is expected to return to the average
growth rate in the years.

To forecast the short-term receivables, use the average ratio of short-term

receivables/net sales over the years of 6.8%.

For an inventory, based on the cost of goods sold and average inventory turnover over
the years of 3.15, a forecast for the following years is made.

Long-term receivables are projected using the historical average ratio of long-term
receivables to net revenue, calculated at 0.77%.

The fixed assets are expected to grow in the next 3 years based on the average growth
rate of 4 previous years of 3.19%, this is due to a certain amount of finished projects which
led to the increase of the fixed assets value.

To forecast the firm's retained profits brought forward in 2024 and the next years we
need to use the average number of 4 years ago.

1.2. INCOME STATEMENT FORECAST

Figure 20: Income Statement Forecast

31
GROUP 3 – 47K06.1

In 2023, Hoa Phat’s revenue from sales of goods and provision of services decreased
by 15.7% compared to 2022. Given the ongoing challenges in the macroeconomic
environment, this trend is expected to persist in 2024, with another 15.7% decline in
revenue. However, with signs of gradual recovery anticipated in 2025 and 2026, we project
a 5% annual growth in revenue over these two years.

Revenue deductions over the past four years, from 2020 to 2023, averaged 1.04% of
total revenue, and this trend is expected to remain steady at 1.04% in the coming three
years.

The ratio of cost of goods sold (COGS) to net revenue fluctuated between 79% and
89% on average in recent years, reaching 89.124% in 2023. Since COGS is influenced by
input factors, it is essential to use the most current data for forecasting. Therefore, we
project the COGS ratio will remain at 89.124% in 2024. However, due to the uncertain
economic environment and the potential for rapid inflation, we anticipate the ratio will rise
to 90% in 2025 and 2026.

Financial income has been highly volatile, with a remarkable threefold increase in
2021, attributed to the rise in global steel prices and demand. However, in the subsequent
two years, financial revenue sharply declined, stabilizing at around 3 billion VND, with a
further decrease of 15.24% in 2023 compared to 2022. Looking ahead, we expect financial
revenue to grow steadily at a rate of 5% per year for the next three years, reflecting a
gradual market recovery.

Financial expenses, which rose from 2.8 billion VND in 2020 to 7 billion VND in
2022, declined sharply to 5.1 billion VND in 2023. This fluctuation was primarily due to
the continuous rise in USD exchange rates throughout 2022, which reached a 20-year high
before reversing sharply at the year’s end. Given that Hoa Phat sources a significant portion
of its raw materials from imports and has foreign loans in its debt structure, it faces high
financial costs tied to exchange rate fluctuations. With the USD exchange rate stabilizing
in 2023, financial costs have decreased, and we expect this trend to continue, with costs
projected to decline by 5% annually over the next three years.

Additionally, average selling expenses over the past four years have accounted for
approximately 1.54% of revenue, and this ratio is expected to remain consistent at 1.54%
over the next three years, from 2024 to 2026.
32
GROUP 3 – 47K06.1

The remaining standards are determined based on the average ratio of each account in
previous years or based on adjusted 2023 figures, ensuring a realistic and sustainable
reflection of financial performance.

In summary, while Hoa Phat faces short-term challenges, particularly with declining
revenue and fluctuating costs, the company is expected to see a gradual recovery and
improved financial conditions over the next few years, driven by a stabilized
macroeconomic environment and operational efficiencies.

1.3. CASH FLOW FORECAST

Figure 21: Cash Flow Forecast

Proceeds from borrowings and Payments to settle loan principals are expected to
grow 10% per year.

It is expected that in the following years, the dividend payment amount will remain
unchanged compared to 2023 to ensure stability and consistency in benefits for
shareholders.

To calculate the remaining indicators, we will use the average value of previous years.
This method helps the results reflect the company's financial situation and can be compared
with other years.

33
GROUP 3 – 47K06.1

2. BUSINESS VALUATION

2.1. BUSINESS VALUATION BASED ON DIVIDENDS

Figure 22: Business Valuation Based On Dividends

The Dividend Discount Model (DDM) indicates that Hoa Phat's stock is projected to
experience steady growth in dividends and share price, with the intrinsic value increasing
over time. Despite a slight rise in the discount rate, the stock appears undervalued in 2023,
as its market price is lower than its intrinsic value. The company's strong equity and
corporate value reflect a solid financial position, while the relatively high cost of equity
suggests increased market risk. Overall, the outlook is positive with gradual growth
expected.

34
GROUP 3 – 47K06.1

2.2. BUSINESS VALUATION BASED ON RESIDUAL EARNINGS

Figure 23: Business Valuation Based On Residual Earnings

The Residual Earnings (RE) model shows a mixed outlook for Hoa Phat, with stable
EPS and DPS over the forecast period. However, residual earnings are negative from 2023
to 2026, indicating that the company’s return on equity may not exceed its cost of equity.
Despite this, the intrinsic value of stocks increases, and the market price is below the
intrinsic value, suggesting potential undervaluation. The corporate value is strong, but the
negative residual earnings highlight challenges in generating value above the cost of
capital.

35
GROUP 3 – 47K06.1

2.3. BUSINESS VALUATION BASED ON MARKET VALUE OF

SHARES

Figure 24: Business Valuation Based On Market Value Of Shares

P/E Method (Price-to-Earnings Ratio): The enterprise value is estimated at 247.88

trillion VND, the highest among the three methods. This method emphasizes profitability,
relying on after-tax profits, indicating that investors place significant value on the
company’s ability to generate earnings. However, it may be influenced by short-term profit
fluctuations or non-cash factors like depreciation.

P/S Method (Price-to-Sales Ratio): The enterprise value based on P/S is 193.19
trillion VND, significantly lower than the P/E method. This method focuses on revenue,
making it less impacted by profitability, and is suitable for assessing core business
performance. The lower value compared to P/E may reflect modest profit margins or less
optimal revenue growth.

P/B Method (Price-to-Book Ratio): The enterprise value is 228.92 trillion VND,
falling between the other two methods. This method is based on book value (equity) and is

36
GROUP 3 – 47K06.1

appropriate for asset-heavy industries like steel production. The P/B value highlights the
company’s strong financial foundation but also depends on its ability to efficiently utilize
assets.

VI. CONCLUSION

Over the past four years, Hoa Phat Group's financial performance has shown both
strengths and challenges.

During 2020-2021, the company experienced significant growth, with high profits and
operating efficiency. However, in 2023, Hoa Phat Group faced significant financial
challenges, including declines in revenue, profitability, and financial stability. Liquidity
indicators, such as the current and cash ratios, revealed limited short-term financial
flexibility, while profitability metrics like ROA, ROE, and ROS showed downward trends,
highlighting the need for improved operational efficiency and cash flow management.

The Altman Z-score places Hoa Phat in a high-risk category, signaling financial
instability and raising investor concerns. While the company retains financial autonomy
and reasonable leverage, its weakened ability to generate profits and meet financial
obligations calls for urgent corrective measures from management.

For long-term investors willing to accept higher risk, Hoa Phat’s strong market position
and operational scale could offer opportunities if it successfully implements recovery
strategies. However, for conservative investors, it is not currently a safe choice.

37
GROUP 3 – 47K06.1

REFERENCES
Đức Quyền, S. N. (2023). Vì sao tổng tài sản của Hòa Phát giảm hơn 37.000 tỷ đồng trong
6 tháng cuối năm? Vietnambiz.

finance vietstock. Được truy lục từ [Link]

[Link]#:~:text=HPG%3A%20Tin%20t%E1%BB%A9c%20v%C3%A0%20d%
E1%BB%AF%20li%E1%BB%87u%20CTCP%20T%E1%BA%ADp,tin%20t%E
1%BB%A9c%2C%20s%E1%BB%B1%20ki%E1%BB%87n%2C%20h%E1%BB
%93%20s%C6%A1%20doanh%20nghi%E1%BB%87p%2

Investing. Investing. Được truy lục từ [Link]

government-bonds

Quyền, Đ. (2023). Tổng tài sản của Hòa Phát vừa tăng thêm hơn 5.000 tỷ sau hai quý suy
giảm liên tiếp. Viet Nam Moi.

stockanalysis. Được truy lục từ [Link]

TÍCH, T. T. (2023). BÁO CÁO PHÂN TÍCH CÔNG TY CỔ PHẦN TẬP ĐOÀN HÒA PHÁT
(HPG) .

38