RETURN ON COMMON EQUITY 2017 2018 2019 2020 Profit margin for ROCE 4.74% 4.82% 4.71% 4.31%
PAC x Asset turnover 1.65 1.61 1.48 1.41 x Capital Structure Leverage 2.60 3.18 3.73 3.49
RETURN ON COMMON EQUITY 2017 2018 2019 2020 Profit margin for ROCE 1.49% 0.70% 2.11% 2.74%
TSB x Asset turnover 1.4 1.49 1.65 1.49 x Capital Structure Leverage 1.92 1.95 1.72 1.41
RETURN ON COMMON EQUITY 2017 2018 2019 2020 Profit margin for ROCE 6.16% 5.27% 6.33% 11.34%
PHN x Asset turnover 2.43 2.39 2.33 2.56 x Capital Structure Leverage 1.42 1.41 1.409 1.27
Figure 7: Comparison of ROCE Overall, PINACO’s ROCE showed an upward trend from the year 2017 to 2020 (20.29% to 21.25%) Compared to its direct competitors in the industry TSB and PHN, PINACO has the most stable fluctuation in ROCE, remaining over 20% over four years, which is greatly higher than
TSB’s and roughly the same as PHN’s Significantly noted, the ratio reached a peak at 26.06% in 2019 then dropped to 21.25% in 2020 In order to explain this suddenly unusual movement, breaking down ROCE into its three elements: Profit margin, asset turnover, and capital structure leverage is an effective way to find the reasons
Firstly for the profit margin for ROCE, it witnessed a downward trend over three years This is because the growth rate for net income was lower than revenue’s growth rate The company’s revenue was badly affected by the Covid-19 pandemic and customers’ high changes in demand
Customers have a high tendency to switch from MF battery to CMF battery Meanwhile, the company’s production capacity of CMF flasks is still limited and unable to meet market demand, which depressed the revenue However, the profit margin for ROCE showed a relatively stable trend (about 4%) over four years which is the average compared to 2 competitors since the firm’s dry cell and storage batteries are undifferentiated products, customers are price-sensitive, therefore, the price sold was not high to raise the profit margin Furthermore, the COGS comprises the largest amount in revenue (over 70%), mostly zinc and lead materials imported This figure decreased in 2020 compared to 2019 due to the materials price dropping in the world so PINACO gained benefits from this About the selling expense over revenue, it gradually increased with the biggest amount spent in 2020 because the company issued flexible sales policies, spent an appropriate budget for sales, effectively managed the distribution system, and took good care of customers so as to raise sales that had been badly affected by the pandemic
Secondly, asset turnover showed a falling trend but remained larger than | over four years meaning that PINACO still efficiently used its assets to generate revenue In detail, account receivable turnover showed a downward trend meaning that there was a rise in the trend of days receivable outstanding Inventory turnover also decreased over 4 years Due to the Covid-19 pandemic, the consumption of its products faced both challenges in the domestic and international markets so the number of days inventory on hands increased On the other hand, fixed asset turnover increased over the period of four years for its rise in net income despite the drop in average tangible fixed assets
In contrast, the capital structure leverage ratio showed an improving sign with rising numbers
This explains the improvement of ROCE in the trend Since Vietnam Chemical Group (Vinachem) still holds the dominant ownership role with 51.4% shares, raising capital by new issuance is considered to be quite difficult, therefore, the company acquired much capital through debt
19 instruments In 2020, the proportion of long-term and short-term debt over total assets was high (53.92%), the majority belongs to short-term loans and short-term trade payable, respectively accounting for over 50% and 5% of total assets over 4 years
From the statement of cash flows, it is obviously seen that cash flows from operating activities (CFO) fluctuated throughout five years In 2017, it was a year of a sharp decline in CFO as the company collected more cash leading to negativity in receivables and paid more cash for liabilities
Furthermore, the loss in foreign exchange is due to a sharp increase in the VND/USD exchange rate at the beginning of 2017, which directly affected the company that most of the supplies, raw materials and equipment were imported In 2018, there was an enormous recovery of CFO thanks to declining in a series of changes in accounts such as payable, prepaid, inventories In 2019 and 2020, there is an increasing trend in operating cash flow caused mainly by a positive in payables and an increase in interest expenses
In five years, cash flows from investing activities (CFI) were negative However, it can be seen that the investment cash flow in 2017 and 2020 plummeted compared to other years The main reason is that the company used a large amount of money to invest in machinery, equipment and build factories, which led to an increase in the purchase and construction of fixed assets At the same time, the company boosted the investing activities by making huge deposits in many other companies and the banks and also collected large sums of money from customers and bank deposits, which was the same as 2020 In particular, the investment cash flow in 2018 increased sharply because the company invested to buy nearly 9 hectares in An Phuoc Industrial Park, Dong Nai province to build the battery factory to meet future demand development as well as perform the Dong Nai battery factory relocated as the plan of Dong Nai province
Cash flow from financing activities (CFF) experienced a fluctuated trend In the first four years, CFF was a positive number indicating that PINACO depends on internal financing However, the CFF of 2020 turned negative because the borrowing repaid exceeded the borrowing received
As can be seen, in the first two years and 2020, net cash flow tended to be negative, which indicates that the inflow was not enough to cover the payout of money Meanwhile, net cash flow in 2018
20 and 2019 was positive because the positive in CFO and CFF was enough to cover the negative CFI
V Forecast company’s financial statement 1 Income Statement Forecast Assumption 1.1 Revenue
From PINACO's income statement from 2016 to 2020, the 2020 year’s revenue was experienced a prominent decline, a negative growth of -2.60% because the Covid-19 pandemic caused many countries to suspend the export of goods and mines leading to scarcity of raw materials along with import and export restrictions causing a decrease in the revenue Furthermore, a problem originating from 2017 is that the consumer trend has been gradually shifting from MF batteries (wet batteries and require periodic maintenance) to CMF batteries (dry batteries and not required maintenance), while, the company's production capacity of CMF batteries has been limited making it unable to meet market demand, affecting domestic revenue
From those existing problems and the continuing complicated pandemic situation in 2021, however, we expect some positive signs leading to improvable revenue from 2021 to 2025 Firstly, almost all countries around the world are implementing policies to adapt to the Covid-19 pandemic through normalizing economic activities, reopening mines This would be a change for the firm to normalize its trading activities in the international market Secondly, stated in the 2020 annual report, in the third quarter of 2021, PINACO’s strategy is to introduce a new product called low-maintenance batteries to meet the rising demand of customers Therefore, we predict that the revenue in 2021 will reach about 94.5% of the revenue plan (3700 billion dongs) by the year-end and will increase slightly compared to 2020 (an increase from -2.6% to 1%) Moreover, the company planned to construct phase 1 of the new An Phuoc factory by the end of 2021 Based on these factors, we predict that overall the trend of revenue from 2021 to 2025 will increase (from 1% to 5.5%), especially, when the Covid vaccine is getting more and more widespread In particular, the revenue would rise significantly in the year 2024 due to the coming into operation of a new manufacturing factory as planned, however, the factory might not be maximined its capacity yet so the expectation is cautious at 5.12% growth
The Covid-19 pandemic is also predicted to cause the deduction cost in 2021 and years afterward, so we predict the deduction will slightly fluctuate about 14% of total revenue (common size) because of the high trade discounts and will decrease in the next year when the company will not use less commercial discount, suiting to the company's low-cost strategy