FINANCE DISSERTATION ONIMPORTANT FINANCIAL FACTORSAFFECTING THE PROFITABILITY OFLISTED REAL ESTATE COMPANIES INVIETNAM

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON IMPORTANT FINANCIAL FACTORS AFFECTING THE PROFITABILITY OF LISTED REAL ESTATE COMPANIES IN VIETNAM NAME OF STUDENT: DUONG TUAN MINH ID No: 17047710 Intake Supervisor: Prof Dr DO THI KIM HAO September 2018 ACKNOWLEDGEMENT I would like to express my grateful attitude to Dr Do Thi Kim Hao, for her guidance and supervision She has provided many useful advices and suggestions for this dissertation Additionally, I would like to reveal my thankful to all the teachers participating in the Master of Finance program, because they have always helped me in absorbing the knowledge in the most effective way and building the logical thinking as well as the problem-solving skills Last but not least, I would like to express my sincere thankful to my family, especially my wife, for their continuing encouragement iv Chapter 1: Introduction .1 1.1 Rationale of dissertation 1.2 Conceptual Basics 1.3 Research methods of the dissertation 10 1.4 Organization of the dissertation 10 1.5 Purposes of the dissertation 12 1.6 Methods of collecting data 12 Chapter 2: Literature review 13 2.1 Review of related literature and researches 13 2.2 Review for related literature and researchesin Europe .14 2.3 Review for related literature and researchesin Asia 16 2.4 Review for related literature and researchesin Africa 19 2.5 Review for related literature and researchesin Vietnam 20 Chapter 3: Methodology of research .22 Data collection methods 22 Dependent variable and independent variables: .22 2.1 Dependent variable: .22 2.2 Independent variables: 22 Data analyzes process .26 3.1 Overview of panel data used for regression model 26 3.2 The formula of panel data .26 3.3 Techniques for estimatingpanel data: .27 3.4 Testing for the significance of statistics: 29 Chapter 4: Analyzing the researched data and presenting the findings 33 Testing for significant of statistics 34 1.1 Testing for individual significance of statistics 34 1.2 Joint significant testing 39 Testing for autocorrelation 43 Testing for multicollinearity 44 Chapter 5: Conclusion and recommendation .47 Conclusion 47 Recommendations 49 iv List of Figures Figure 1: GDP, GDP Growth and inflation of Vietnam from 2009 to 2019 .1 Figure 2: The Durbin-Watson value based on Bhargave (1983) 44 Figure 3: The result for testing of multicollinearity 46 List of table Table The highest profitable real estate firms listed in Vietnam in 2017 Table Top ten listed real estate firms with fastest increasing in profit Table Top listed real estate firms with declined profit in 2017 comparing to 2016 Table Top listed real estate firms with the highest inventory in 2017 comparing to 2016 Table 5: The regression model on independent variables .73 Table 6: The regression model after eliminating X2, Payable turnover 73 Table 7: The regression model after eliminating X4, Short term debt overtotal debt 74 Table 8: The regression model after eliminating X5, Current Ratio .75 Table 9: The regression model after eliminating X6, Gross Domestic Products 75 Table 10: Theregressionmodel after eliminating X9, Inventory Turnover 76 Table 11: Theregressionmodel after eliminating X10, Interest CoverageRatio 77 Table 12: Theregressionmodel for joint significant testing .77 Table 13: Theregressionmodel for testing of autocorrelation 78 Table 14: Theregressionmodel for testing of multicollinearity 79 iv Chapter 1: Introduction This chapter reveals the reasons for choosing the subject of the dissertation, the conceptual basic of profit and profitability, objectives of the dissertation, methods of collecting data and organization of the dissertation 1.1 Rationale of dissertation According to “Investing in Vietnam in 2018” of KPMG, since the financial crisis in 2008, Vietnam macroeconomic has experienced a swift recovery leading to considerable growth in real estate sector Specifically, Vietnam’s real GDP reached the increasing rate of 7.3% in average during the period from 2005 to 2008 before plummeted to 5.3% in 2009 due to the financial crisis in 2008 The recovery of Vietnamese economy started in 2012, with GDP growth steadily going up and achieving 6% in 2014 GDP per capita in 2017 was $2,385 and rose by 10% comparing with the numbers in 2016, based on “Q42017 Quarterly Market Briefing Viet Nam” of Savills Vietnam The growth rate is predicted to increase at practically 6.5% from 2018 to 2019 Figure 1: GDP, GDP Growth and inflation of Vietnam from 2009 to 2019 Page The consumer price index (CPI) reached a new peak at 22.9% in 2008 due to the financial crises before recovering in a slower pace at 7.4% in 2009 as the result of many solutions of the government such as tightened monetary and credit policies After that, the economy experienced a wide fluctuation in inflation rate during 2011 to 2016 from 18.1% in 2011 to 2.7% in 2016 as various inflation control methods from the Government became effective However, the swiftly rising in demand for goods and services, reducing credit and growing investment from the economic growth of the country resulting to an upsurge in inflation rate to 4.1% in 2017, according to World Bank The average rate of price rises during the period from 2016 to 2020 is predicted to keep steady at 4% In 2017, the Foreign Direct Investment (FDI) capital from foreign investors in Vietnam set a new record, 35.9 billion USD, including increased capital and newly-registered capital, increasing by 44.4% comparing to 2016 The capital from foreign investors was invested in 19 different industries and the real estate industry ranked third with $3.05 billion, after manufacturing, distribution and power generation The total trading value of merger and acquisition in real estate field was $8 billion in 2017 and the investors prefer to make investment to property companies in Ho Chi Minh City with greater transparency in financial statements The Vietnamese real estate market continues to considerably fascinate to foreign investors, roughly by merger and acquisition Joint ventures are gaining the popular among foreign investors who have robust financial equity and they will follow record then co-operate with local developers who own lands as well as have strong integration with the local government and community According to “Overview on Merger and Acquisition activities in Vietnam in 2017” of JLL company, there are many sectors in real estate industry will be invested million dollars such as office, residential, hospitality, industrial and retail Investors stay optimistic on real estate market in Vietnam with increasing number of investors searching for transparency land In 2017, Vietnam real estate market Page recorded the highest number of foreign equity investors, mainly private capital funds, searching to reimburse their capital in swift and efficient manner The demand for hiring operating office buildings in core location continue to increase The considerable need to invest in Vietnam market is in accordance with growing requests for property in Asia - Pacific in which the amount of investment in the area from January to September in 2017 rose by 12%, $97 billion, comparing with the figures in 2016 According to “1Q18 Vietnam Property Market Brief’ of JLL Company, there were approximately 127,000 newly found enterprises during 2017 which was higher by 15.2% comparing with 2016 The newly registered capital of these companies in 2017 was 45.4% higher than the figure in 2016 and the average capital in 2017, at 10.5 billion VND At the end of 2017, the number of enterprises putting an end to their business activities declined by 0.2% comparing with 2016 Moreover, Vietnam was one of the top ten fastest developing tourist destination in the world based on the numbers of visitors with many newly hospitality accommodation, according to Colliers International In 2017, there were more than 13 million international visitors and this number is 30% higher than 2016 The hospitality accommodation continued to growth swiftly with more than 25,000 accommodations with more than 100 five-star hotels, 250 four-star hotels and nearly 500 three-star hotels In general, the country’s economic growth will be strengthened by increasing consumption, rising direct investment from foreign investors, better export performance, stronger integration with international economy and enhancing in the administration and regulation system With a stable political environment, low labor and operating costs, the continuous support from the Government as well as promised development of economic, Vietnam is considered as a dynamic country and an ideal investment for both foreign and domestic private investors to contribute in the growth of economy Page This rapid recovery in economy has enabled an uptrend for the real estate industry where the demand, supply and price are continued to rise since 2012 The real estate field has increased by 4.07% which was the highest rate since 2011 and accounts for 0.21% of total GDP growth Theof highest profitable real Association, estate firms the listed in Vietnam in 2017 Based onTable the report Vietnam Real estate proportion of credit for trading and construction of real estate companies in 2017 was approximately 15% which was lower than the number in 2016, 17.1% The consumption credit of the consumers continued to grow in 2017 as the credit outstanding balance for purchasing houses for living, hiring houses, building and repairing houses for living or buying land to build houses was 52.9% in 2017, which was increased by 3.4% comparing with 2016 This indicates the growing demands from the customers in the market The real estate market has enjoyed the high liquidity from many suppliers and giant projects along with the support from City Governments There are consistency robust demand from investors in the real estate markets due to the improved income and demographic shift from countryside to modern and developed cities The number of transactions of apartments has increased dramatically along with the drop in real estate inventory The growing trend in real estate market allows real estate developers to have promising development and profitable business According to the report of Vietnam Real Estate Association, the number of real estate companies increased considerably by 62% comparing with 2016 Additionally, according to Vietnam Investment Review, in 2017, 59 large listed companies in Vietnam stock exchange had considerable profit in their financial statements, around 155.093 trillion VND (6.8 billion USD) which was higher by 39% than the numbers in 2016 Specifically, the consolidated sales revenue of Vingroup rose significantly to 3,97 billion USD and increased by 57% in comparison with 2016 The sales revenue of Vingroup accounted for 58% of the total sales revenue earned by all listed real estate companies Therefore, the consolidated net profit of Vingroup reached a new peak at 186.6 million USD and grew by 74% comparing to 2016 Company name Sales revenue (million USD) After-tax USD) profit (million Page Vingroup Joint Stock 3,970 186.6 Company Novaland 511.2 90.58 Vincom Retail 242.5 88.61 ^33 Dat Xanh Group 126.5 Kinh Bac Group 55.33 25.7 Nam Long Group 138.9 23.51 Khang Dien Housing 144.3 22.28 Phat Dien Real Estate 22.8 19.68 Quoc Cuong Gia Lai Group 35.8 18.63 Van Phu Invest 38.4 18.54 Table Top ten listed real estate firms with fastest increasing in profit Company name After-tax profit (billion VND) 2017 2016 Increase/ (decrease) (%) 78.62 2.35 3,246.91 VRC Real Estate and Investment Joint stock company Van Phat Invest 421.75 17.9 2,256.69 Source: Financial statements of listed companies and Vietnam Investment Review NovaLand Group came second in the top most profitable real estate companies with sales revenue of $511.2 million and after tax profit of $90.58 million which increased by 58% and 22.5% comparing with 2016, respectively Vincom Retail Joint Stock Company, one subsidiary of VinGroup, is listed on Ho Chi Minh Stock Exchange and ranked third in the top firms by earning around $240 million of revenue and $88 million of net profit Among these 59 companies, there were 13 companies had increased their profit in 2017 more than 100% VRC Real Estate and Investment Joint Stock Company ranked first in these 13 companies with their profit up by 33 times comparing with 2016 Van Phu Invest Company came second in the top fastest development real estate companies in Vietnam, as their profit increased by 22 times in comparison with 2016 De Tam Company ranked third in the list with the net profit was 3.6 billion VND in 2017