GROUP ASSIGNMENT FINANCIAL ANALYSIS SABECO

Introduction

The food and beverage industry in Vietnam is fiercely competitive, featuring a mix of both domestic and international players Major brands, alongside numerous smaller companies, are all vying for increased market share in this dynamic sector.

Nonetheless, SABECO is a distinct brand from the rest, with a century-long history, a massive balance sheet, and some desirable financial ratios.

SABECO, officially known as Saigon Beer – Alcohol – Beverage Corporation, is a prominent Vietnamese corporation headquartered on the 5th Floor of Vincom Center in Ho Chi Minh City Established in 1875 by French businessman Victor Larue, SABECO boasts a rich history of 147 years, making it the oldest Vietnamese brand across all industries While the company primarily focuses on the production and sale of beer and alcoholic beverages, its product portfolio has significantly expanded over the years For inquiries, SABECO can be contacted via email at .

As of October 22, 2021, SABECO, trading at VND156,500 per share, ranks as the 15th largest corporation in Vietnam, boasting a market capitalization of VND97,475 trillion Holding over 40 percent of the market share, SABECO is recognized as the leading alcohol producer in the country (VietnamCredit, 2020).

The Ho Chi Minh Stock Exchange (HOSE) listed SABECO, with the ticker symbol SAB, commencing trading on December 6, 2016 As of December 31, 2020, SABECO had 641,281,186 outstanding shares and a charter capital of VND 6,413 trillion Since 2018, the company has partnered with KPMG as its independent audit firm.

SABECO, previously a state-owned enterprise with 89.59% ownership by Vietnam's Ministry of Trade and Industry as of September 2012, transitioned to foreign ownership in 2018 when Vietnam Beverage Company Limited, a subsidiary of ThaiBev, acquired a majority stake of 62.71% The company's board of directors consists of seven members, including three foreign nationals, with Koh Poh Tiong, a prominent businessman from Singapore, serving as chairman.

SABECO has 26 subsidiaries and 18 associates and joint ventures The three biggest subsidiaries are Sai Gon Beer Trading Company Limited, Sai Gon - Ha Tinh Beer One Member Company

Limited and Sa Be Co Mechanical Company Limited (Appendix 2).

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Analysis of Profit/Loss and Balance Sheet

Balance Sheet

SABECO Current Assets HABECO Current Assets SABECO YOY Growth

Cash and cash equivalents Short-term financial investments Short-term receivables Inventories

Figure 2: SABECO current assets in 2020

Between 2017 and 2020, SABECO's total current assets increased significantly from VND 13.6 trillion to VND 19.5 trillion, reflecting a consistent growth in short-term financial investments over the years.

Noticeably, current assets increased by a dramatic 30.46 percent in 2019 Meanwhile, there was a

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat downward pattern in HABECO’s total short-term assets with its lowest number of VND4.1 trillion in 2019.

SABECO Long-term Assets SABECO YOY Growth

Figure 3: Long-term assets comparison

SABECO has shown a limited investment in long-term assets, resulting in a notable decline of 7.82%, with the value decreasing from VND8.3 trillion to VND7.8 trillion over the years This reduction is attributed to the lack of new fixed asset acquisitions and the continuous rise in accumulated depreciation Similarly, HABECO has also experienced a downward trend in its long-term assets.

VND4.2 trillion to VND3.2 trillion.

SABECO Current Liabilities SABECO YOY Growth

SABECO’s current liabilities decreased throughout the years with its most significant decline of

19.94 percent from 2017 to 2018 Overall, the figure went down from VND7.4 trillion to

Over the period, there was a significant decrease of VND 5.1 trillion attributed to reductions in short-term borrowings, financial leases, and other short-term payables This trend reflects a broader decline in financial obligations.

HABECO’s current liabilities but to a greater degree.

SABECO Long-term Liabilities SABECO YOY Growth

Figure 5: Long-term liabilities comparison

Contrary to current liabilities, the long-term liabilities of SABECO grew fivefold over four years to approximately VND1 trillion due to long-term borrowings and financial leases Nonetheless, 5

SABECO's liabilities were significantly lower than its assets, indicating a strong ability to manage debt and interest expenses In contrast, HABECO experienced a consistent decrease in long-term liabilities, dropping from VND 0.5 trillion to VND 0.2 trillion from 2017 to 2020.

SABECO Equity HABECO Equity SABECO YOY Growth

As shown in Figure 6, SABECO’s stockholder increased from VND14.1 trillion to VND21.2 trillion, thanks to the accumulated retained earnings Similarly, there was an increase in

HABECO’s stockholder’s equity but at a slower rate The reason behind this trend was also due to undistributed earnings after tax, making up for declines in other accounts.

Overall, looking at the horizontal common-size analysis of the two enterprises, it is evident that

SABECO outperformed HABECO during the surveyed period, demonstrating a steady increase in total assets that surpassed total liabilities to a greater extent This indicates a healthier net worth for SABECO, reflecting lower financial risk and higher revenue potential Additionally, SABECO exhibited a faster growth in stockholder's equity, suggesting the company's capacity to sustain and enhance profits effectively.

Table 1: SABECO vertical common-size balance sheet

From 2017 to 2020, SABECO's total current assets were consistently double that of its non-current assets, indicating a strong liquidity position However, the company's high current ratio suggests potential inefficiencies in utilizing its current assets and short-term financing options.

SABECO's financial landscape revealed a predominance of short-term debts, with current liabilities decreasing from 33.62% in 2017 to 18.90% in 2020 Conversely, the company experienced a steady rise in long-term liabilities during the same timeframe.

SABECO’s stockholder equity took up the largest proportion of its total liabilities and equity in all the years studied Moreover, the figure showed a gradual increase throughout the years from

Income statement

SABECO Net revenue HABECO Net revenue

SABECO YOY Growth HABECO YOY Growth

Figure 7: Net revenue and year-on-year growth rate of SABECO

Between 2017 and 2019, SABECO experienced a steady net revenue growth of 5 percent, reflecting the performance of a mature company in a saturated market However, in 2020, the company faced a significant downturn with a negative growth rate of 26 percent Similarly, HABECO also encountered challenges in 2020, with revenue declining by 20 percent.

The Covid-19 pandemic led to restrictions on public gatherings, resulting in decreased alcohol consumption Additionally, the enforcement of Decree 100/2019/NDCP, effective January 1, 2020, prohibited driving under the influence of alcohol Furthermore, Decree 24, enacted on February 24, 2020, imposed stricter regulations on alcohol advertising, limiting its presence in film, theatre, and television, while also implementing measures to prevent access to alcohol for individuals under 18 These policies have had a significant impact on beer sales and consumption, notably affecting SABECO.

Figure 8: Common-size costs of goods sold comparison

Beers Raw materials Beverages Alcohol and wine Others

Figure 9: SABECO cost of goods sold in 2020

The cost of goods sold (COGS) is closely linked to product production, encompassing labor, materials, and manufacturing expenses In the beverage industry, COGS represents a significant portion of net revenue, highlighting its low-margin nature SABECO has shown a gradual decrease in COGS as a percentage of net revenue, reflecting improved production and purchasing efficiency over the years, while HABECO's COGS has remained relatively stable.

SABECO's primary product line is dominated by beer, which constitutes an impressive 84.15 percent of its total sales For more information or to download the latest thesis, please contact skknchat123@gmail.com.

Financial expenses Selling expenses General expenses

Figure 10: SABECO common-size operating expenses

SABECO's primary operating expenses include selling expenses, general and administrative expenses, and financial expenses In 2020, selling expenses represented a significant 10.16 percent of net revenue, predominantly allocated to advertising, promotion, and salesforce activities General and administrative expenses followed closely, averaging between 2.5 to 3 percent annually Meanwhile, financial expenses were minimal, comprising less than 1 percent, primarily due to interest expenses.

SABECO had a minimal amount of interest-bearing debt.

FInancial income Joint ventures' profit Other profit

Figure 11: SABECO common-size non-operating gains

Figure 11 describes three major non-operating gains for SABECO between 2017 and 2020.

In 2020, SABECO experienced a financial income increase, reaching 3 percent, primarily driven by interest income from bank term deposits, amounting to VND 930 billion Additionally, joint ventures and subsidiaries contributed approximately 2 percent to the net revenue Other profit was determined by subtracting other losses from other income on the income statement.

SABECO Net Profit HABECO Net Profit

Figure 12: Net profit after tax comparison

Figure 13: Earnings per share/EPS comparison

Both companies recorded fluctuating profits between 2017 and 2020 It is noteworthy that in

2020, even when SABECO recorded a 26 percent drop in revenue, its after-tax profit only fell

6.5 percent That shows the company was able to scale down its expenses to adapt to the difficult time More surprising is that HABACO recorded growth in profit at 21.5 percent in the same year The increase was due to the profitable non-operating business line of the company, which was not discussed thoroughly in its financial statements.

SABECO's earnings per share (EPS) are two to three times higher than those of HABECO, indicating greater value as investors are willing to pay a premium for stocks with higher profit potential However, SABECO's EPS has consistently hovered around VND 7,000 for four years, highlighting a lack of significant improvement in its market position.

Ratio Analysis

Liquidity ratios

Cash Ratio Quick Ratio Current Ratio

From 2017 to 2020, SABECO experienced a significant increase in its current ratio, rising from 1.85 to 3.77, primarily due to a boost in short-term assets, which grew from VND13.6 trillion to VND19.5 trillion This current ratio exceeds the ideal range of 1.5 to 2, indicating strong capacity to meet current obligations (Babalola & Abiola, 2013) Despite this, the cash ratio remained stable, reflecting minimal changes in cash and cash equivalents The notable rise in short-term assets can be attributed to an increase in short-term financial investments, which escalated from VND6.5 trillion to VND14.5 trillion, mainly comprising short-term bank deposits with maturities of less than a year.

SABECO are much higher than those of HABECO, except for the cash ratio Nonetheless, higher liquidity ratios do not translate to better ratios Notably, a current ratio at 3.77 means

SABECO may be overly focused on liquidity, which can be used for effective capital expenditure or business expansion instead.

Leverage ratios

SABECO's debt ratio has consistently decreased over the years, hitting 22.50 percent in 2020, indicating that the company's financing primarily relies on equity The significant increase in retained earnings after tax, which grew from VND5.8 trillion to VND12.3 trillion during this period, has been the key driver of this trend.

SABECO Interest Coverage SABECO Cash Coverage HABECO Interest Coverage

Figure 17: Coverage ratios comparison between SABECO and HABECO

Figure 17 highlights the interest coverage capabilities of SABECO and its competitor, revealing that SABECO holds a significantly stronger position with interest and cash coverage ratios exceeding 100 However, in 2020, SABECO experienced a notable decline in its interest coverage, primarily attributed to a substantial decrease in earnings rather than an increase in debt.

Efficiency ratios

Figure 18: Efficiency ratios by period comparison between SABECO and HABECO

Figure 18 illustrates the receivables and inventory periods for both companies, highlighting SABECO's impressive efficiency driven by robust sales and effective inventory management Meanwhile, Figure 19 depicts SABECO's operating cycle from 2018 to 2020, indicating a notable trend in its operational performance.

TIEU LUAN MOI download : skknchat123@gmail.com moi nhat longer, the cash cycle contracted from six days to one day This number is a prime ratio of efficiency.

Table 2: Comparison between SABECO and the F&B industry (Fusion Media Corp., 2021)

Efficiency ratios (Trailing 12 months) SABECO (days) Industry (days)

SABECO demonstrates a higher efficiency level compared to the broader food and beverage industry, as indicated in Table 2 Following the acquisition by Thai investors, SABECO has adopted various comprehensive strategies to enhance inventory management and sales activities, significantly boosting its business efficiency (Bao, 2021a).

Profitability ratios

SABECO Gross Profit SABECO Net Profit HABECO Gross Profit

Figure 20: Profit margins comparison between SABECO and HABECO

Both companies have had similar gross profit margin rates over the years, which remain between

The beverage industry experiences a significant cost of goods sold, averaging between 25% and 30%, affecting both large and mid-sized companies Despite these high costs, the focus on net profit margin remains crucial for understanding overall profitability in this competitive sector.

SABECO seems significantly more profitable The reason is that SABECO has a significant amount of financial income, which was approximately VND1 trillion in 2020 and accounted for

SABECO's financial income primarily stems from interest earned on bank deposits, contributing to 3.45% of its net revenue Notably, both firms experienced an increase in profit margins in 2020, highlighting a surprising trend in their financial performance.

During the Covid-19 pandemic, there was a notable decline in the prices of key alcohol ingredients, including barley, aluminum, and hops, as highlighted by Kim (2021) For more information or to download the latest thesis, please contact skknchat123@gmail.com.

2020, lowering the costs of goods sold.

Figure 21: Return ratios comparison between SABECO and HABECO

Return on assets (ROA) is a key metric that evaluates a company's ability to generate profits from its assets, with higher values indicating effective asset utilization (Rambe & Putry, 2017) Similarly, return on equity (ROE) reflects how well a company manages its capital, showcasing the profitability of shareholder investments SABECO boasts impressive ROA and ROE figures of approximately 20% and 25%, respectively, which are particularly attractive for an asset-heavy manufacturing firm (Birken, 2021).

Market value ratios

The P/E ratio indicates the market's valuation of a company's earnings, with SABECO's ratio standing at 40 in 2018, reflecting investor expectations for significant growth However, as the company's stock price declined, the P/E ratio fell to 20.02 by September 2021 This decrease was attributed to a lack of investor confidence in the hospitality sector and limited growth potential in the beer market.

SABECO P/E Ratio SABECO P/B Ratio HABECO P/E Ratio

Figure 22: Market ratios comparison between SABECO and HABECO

Figure 23: Net worth comparison between SABECO and HABECO

Figure 23 shows that SABECO had a market capitalisation of VND120 trillion, sixfold that of

HABECO's net worth has seen a gradual decline, raising concerns amidst a booming Vietnamese stock market While the VN-Index experienced a notable growth of 14.86 percent in 2020, driven by a surge in new retail investors, SABECO faced a contrasting fate with its stock price dropping by 14.48 percent during the same period This disparity highlights the challenges SABECO encountered, particularly reflected in its EV multiples, which measure enterprise value against its financial performance.

EBITDA, show the same pattern From the company perspective, a decreasing EV multiple means it is being valued less and less by the public.

Conclusion

SABECO stands out as a prominent leader in its industry, boasting a robust balance sheet and impressive net profit margins Currently, the company is in a mature phase, characterized by slow but steady growth.

Covid-19 pandemic had a heavy toll on its financial performance in 2020.

SABECO demonstrates strong liquidity with a substantial amount of current assets, effectively covering its obligations, although this excess could be redirected towards long-term investments The company maintains a low debt-to-asset ratio, primarily financing its capital through shareholders’ equity Between 2017 and 2020, SABECO enhanced its efficiency ratios, outperforming the industry average due to operational and inventory management improvements by its Thai owners While SABECO's gross profit margins align with those of its competitors, it boasts a significantly higher net profit margin, attributed to substantial financial income from bank interest deposits However, all market value ratios have gradually declined, indicating a decrease in market confidence regarding the company's growth prospects.

The video presentation of this report can be found at: https://youtu.be/cPMmv3by-Z0

Appendices

APPENDIX #2 TEN BIGGEST SUBSIDIARIES OF SABECO

No Name Type of Business Charter Capital Ownership

1 Sai Gon Beer Trading Trade beer, alcohol, and beverages 700,000,000,000 100.00% Company Limited

2 Sai Gon - Ha Tinh Beer Producing and trading beer, yeasty malt, 120,000,000,000 100.00% One Member Company mineral water, bottled purified water

3 Sa Be Co Mechanical Manufacturing equipment used in food 59,365,663,690 100.00% Co., Ltd manufacturing, install, and maintain machinery system and equipment

4 Saigon Beer Company Wholesale of beer, alcohol, and beverages 10,000,000 100.00% Limited

5 Saigon Beer Group Wholesale of beer, alcohol, and beverages 10,000,000 100.00% Company Limited

6 Sai Gon Beer Bac Trading beer, alcohol, and beverages; providing 40,000,000,000 95.07% Trung Bo Trading Joint transportation and warehousing services

7 Saigon Beer Center Wholesale of beer, alcohol drinks; wholesale of 90,000,000,000 94.45% Trading Joint Stock nonalcohol drinks, wholesale of other

Company chemicals, alcohol trading packaging; providing cargo transportation by car

8 Binh Tay Liquor Joint Producing and trading alcohol 140,000,000,000 93.32% Stock Company

9 Saigon Beer Mien Trading beer, alcohol, and beverages; providing 60,000,000,000 91.24% Trung Trading Joint warehousing and cargo transportation by car

10 Sai Gon Beer Eastern Trading beer, alcohol, and beverages; providing 40,210,000,000 90.68% Trading Joint Stock cargo transportation by road and waterway

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