Topic inventory redistributio strategies for hoa phat group amidst vietnam's steel industry crisis

UNIVERSITY OF ECONOMICS HO CHI MINH CITY COLLEGE OF TECHNOLOGY AND DESIGN INSTITUTE OF INNOVATION UEH UNIVERSITY REPORT TOPIC: INVENTORY REDISTRIBUTION STRATEGIES FOR HOA PHAT GROUP A

UNIVERSITY OF ECONOMICS HO CHI MINH CITY COLLEGE OF TECHNOLOGY AND DESIGN INSTITUTE OF INNOVATION

UEH

UNIVERSITY

REPORT TOPIC: INVENTORY REDISTRIBUTION

STRATEGIES FOR HOA PHAT GROUP AMIDST

VIETNAM'S STEEL INDUSTRY CRISIS

LECTURER: MR HOANG ANH

CURRICULUM: BUSINESS INTELLIGENCE

MODULE ID: 24D1INF50908505

HO CHI MINH CITY, 2024

1.1 Hoa Phat introduction - 5 0 02011121 112211111 11111 112111111 1111 112111111911 tra 8 1.1.1 Introduncing Hoa Phat Group joimf stock cormpanp (HPQ) 8 1.1.2 Analyze business performance and financial index gFOHDS 9

2 Inventory status of Hoa Phat Q0 H112 H12 1191111 1111911111011 1 kh II 2.1 Data and trends of Hoa Phat's imvent0FV - 2 Q0 220 1n 22s re II 2.2 The pitfalls of inventory reallocation: Why it's a major consideration 13

K V020 0000 0).ả35s4 14 3.1 Analyze the effectiveness of each solution based on data such as market

đemand and market consumption c2 2222122221111 12211 1112111111115 5 251252 14 3.I.I Invenfory dllocdftont mGtlhOdS TH ng HH TH ghe he rra 14 3.1.2 Inventory allocation rules and best pFdCÍiCS à 2Q Q HH re 16 3.2 How could a DSS help make these decisions? .0 00.0.0000000ccccccceccceccesseteeeees 17 3.2.1 What is a Decision Support Systern (DSS)? o 0.0.ccc cocci tec settee cence 17 3.2.2 Components of a Decision SŠHDDOFf Š)SÍCTH à Q TQ nhe 17 3.2.2.1 Model management system - 2c 222 12221121211 1211 1115211111222 17 K0 ái an 18 K8 ©o 0 7 18 3.2.3 Purpose 0ƒ d DecisioH SHDDOF£ Š)SÍGTH TT HH HH nh HH ra 18 3.2.4 DSS helps to make these decisions 000 cccccccccc cece cece tite tein ttecseesencees 19 3.2.4.1 Real-time inventory Mmsights 000.00000 ccc c2 c1 2211112111221 1 1211112111214 19 3.2.4.2 Cost-benefit anaÏysIs - 2 1 111112111211 1121111111112 11 112 11ha 19 3.2.4.3 Transaction flow optiin1zafIO 0 0 2201122111221 1 1211115111521 k2 19 3.2.4.4 Dynamic prIcIng sffatCØV ác n0 1112111211101 111112 11111011111 20 3.2.4.5 Scenario analysis and sensItIvity testIng -c cc c2 x s22 20 3.2.4.6 Decision documentation and repoftIng - 222111221222 x22 21 3.3 The application of Business Intelligence for the analysis and decision-

making in invenfory managemen( at Hoa Phat 2 0 22211222223 tee ee eeee es 21 3.3.1 HWat is Business Intelligence (BÏ)? cn HH HH Hài 21

3

3.3.2 Benefit of BT itt Business 00.00 ead Ả 22 3.3.3 How does the Business Intelligence process work ? 00 ccccccccceeseeeees 22 3.3.4 The application of Business Irfellig@fCe TT Hs nhe nrse 23 3.3.4.1 Inventory management throueh Business Intellipence - 23 3.3.4.2 The application of Business Intelligence for the analysis and decision-

making in inventory management at Hoa Phat 2-2 2222222222222 s22 23

TABLE OF MEMBER ASSIGNMENTS

2.| Nguyễn Thị Mỹ Duyên Chapter | 100%

3.| Nguyễn Thủy An Chapter 3 100%

4.|_ Nguyễn Khánh Linh Chapter 3 100%

LIST OF FIGURES Figure 1.1 Organizational chart of Hoa Phat Group cc c2 222 9

Figure 1.2 Profit index 8ðrƠUp - - 2L 2 2 020112201 11211 121111211 15211 111111 11211115111 k ru 9

Figure 1.3 Group index ørowtf - c 2111211211121 111 111 112212011211 11115 1011111 ray 10

Figure 1.4 Activity ratio index ðTOUP - L0 01211121121 1111 12 111811011101 12 81k ray 10

Figure 1.5 Financial leverage Index ør0Up - 22 1 22112211111 1211 1111521111122 II

Figure 2.1 At the end of Q2/2023, Hoa Phat's inventory was at 32,261 billion VND,

down 7% from the end of the first quarter and 50% lower than the same period last

Figure 2.2 Hoa Phat's inventory days Hoa Phat has brought down and maintained low

ñ05000a 05/3/10 /c0ii 00-0 13

Eigure 3.1 The steps 1n the BÌ system - 0 2012112211211 12221 1111112111111 ke 23

Figure 3.2 The applieation of BÌ - 12c 22111211 1211211 1211111111115 11 111981128 tr ray 24

LIST Table 3.1 Inventory allocation methods

OF TABLE

CASE STUDY Inventory is the most pressing issue for Vietnamese steel companies at present

According to newly released statistics, in the second quarter of 2022 alone, the total

value of inventory across the entire steel industry reached the record figure of 110,000

billion VND This number is up 20,000 billion compared to the previous quarter and

puts huge pressure on the working capital of businesses

Among the top steel companies, Hoa Phat Group leads the market in terms of

inventory levels, with a balance of up to 57,500 billion VND This means that Hoa

Phat alone accounts for more than half of the total inventory value of the entire

industry

The reason why Hoa Phat and many other major steel companies are piling up such

high inventory levels is that steel prices have continuously plummeted while prices of

production materials like iron ore, coal, etc have surged This has left many

businesses gasping for air

According to experts, to resolve the inventory issue, steel companies are forced to

aggressively promote sales campaigns and boost consumption demand to liquidate

stockpiled inventory However, this requires proper allocation and balancing of

existing inventory across different customers and distribution channels

So how can inventory be allocated in the most optimal and effective manner for

businesses amidst the wider difficulties faced by the industry at present?

1 Introduction

(Oanh Đặng, 2022)

1.1 Hoa Phat introduction

Ld Introducing Hoa Phat Group joint stock company (HPG)

Hoa Phat is Vietnam's leading industrial manufacturing corporation Starting out as

a company specializing in trading construction machinery in August 1992, Hoa Phat

subsequently expanded into other fields such as Furniture, Steel Pipes, Construction

Steel, Home Appliances, Real Estate and Agriculture On November 15, 2007, Hoa

Phat officially listed its stocks on the Vietnam Stock Exchange under the ticker HPG

Currently, the Group operates in 5 areas: Steel (construction steel, hot rolled coils)

— Steel Products (including Steel Pipes, coated steel, PC steel strands, prestressed

steel) — Agriculture — Real Estate - Home Appliances Steel production is the core

business accounting for 90% of total revenue and profits of the whole Corporation

Within just 30 years, Hoa Phat has transformed itself into Vietnam's "Steel Eagle"

with a production capacity of 8.5 million metric tons of steel per year This impressive

achievement has been built on continuous innovation, long-term vision of the

leadership, coupled with efforts to apply advanced science and technology into

production

Hoa Phat Group currently holds the number 1 position in Vietnam's steel market,

with dominant market share in its key products such as construction steel and steel

pipes In addition, Hoa Phat is also among the top manufacturers and suppliers of

prestigious coated steel With impressive growth in both scale and efficiency, the

Group has been named among the top in many areas: top 5 largest private enterprises,

50 most efficient listed companies, 30 largest companies contributing to state budget

Notably, Hoa Phat is also in the top 3 companies with the largest charter capital and

top 10 stocks with the highest market capitalization on the stock exchange

While focusing on business production and development, Hoa Phat does not forget

its social responsibility Every year, the Group spends hundreds of billion dong on

social welfare activities, reflecting its philosophy of "harmonious co-development"

With strategic vision and sustainable development orientation, Hoa Phat continues

its journey to become the leading industrial corporation in the region Robustness and

growth serves as the foundation for Hoa Phat to contribute to the common prosperity

of the country

rN

pe KLE OP CŨNG PHÁT TỔNG CÔNG TY GANG THÉP TỔNG CÔNG TY NÔNG NGHIỆP

TỔNG CÔNG TY BẤT ĐỘNG SẢN

NT D0 ny

y CP Bat di Hòa Phá

ean i NÂU, TONG CONG TY ĐIỆN MÁY GIA DỤNG

Ty suat sinh loi trén doanh thu thuan -7.14 1.44 4.91 7.02

Tỷ suất lợi nhuận trên vốn chủ sở hữu bình quân (ROEA) -2.05 0.41 1.50 2.03

TY suat sinh loi trén vén dài hạn bình quân (ROCE) -1.05 141 2.54 279

Tỳ suất sinh lợi trên tỗng tải sản bình quân (ROAA) -1.12 0.23 0.83 1.15

Figure 1,2 Profit index group Hoa Phat's gross profit margin shows an improving trend over the quarters, from - 3.43% in Q4/2022 up to 12.62% in Q3/2023 This indicates that Hoa Phat's profit- generating capacity from operations is being enhanced

EBIT and EBITDA margins also increased sharply, from -4.44% and 1.53% in Q4/2022 to 10.64% and 16.26% in Q3/2023, respectively This also reflects increasingly efficient business activities

Return on sales, assets, and equity ratios have likewise gone up significantly, suggesting Hoa Phat is generating better profits from invested capital

@ Group index growth

10

Nhóm chỉ số

doanh thu trước cla CD tai san dai tra chủ sở hữu 5.87

Hoa Phat’s total assets, total liabilities, and long-term debts all declined in the first

3 quarters of 2023, indicating tightened investment and borrowing activities

Shareholder’s equity increased slightly by 1.82% in Q3 as business performance

improved

HPG raised its charter capital by 30% in 2023 This could be a positive move to

restructure capital source and enhance financial capacity for the upcoming recovery stage

@ Activity ratio index group

Nhóm chỉ số Hiệu quả hoạt động

¬ Vòng quay phải thu khách hàng 825 7.78 6.55 6.23

Thời gian thu tiền khách hàng bình quân 44.26 46.92 5570| ' 58.57

Vòng quay hàng tồn kho 0.68 0.72 0.79 0.76

Thời gian tồn kho bình quân 535.46 503.99 460.10 480.46

Vòng quay phải trả nhà cung cấp 2.08 1.98 1.93 2.07 Thời gian trả tiền khách hàng bình quân 175.55 184 39 188 89 176.19

Vòng quay tài sản cố định (Hiệu suất sử dụng tài sản cố định) 0.36 0.38 0.42 0.40

Vòng quay tỗng tài sản (Hiệu suất sử dụng toàn bộ tài sản) 0.15 0.15 0.17 0.16

Vòng quay vốn chủ sở hữu 0.27 0.28 0.30 0.29

Figure 1,4 Activity ratio index group The turnover ratios of accounts receivable, inventory, and fixed assets show an improving trend This indicates Hoa Phat’s efforts to better utilize existing assets to increase revenue and profit

11

However, total asset turnover and equity turnover remain low, only reaching 0.16 and 0.29 cycles in Q3/2023, respectively This shows capital usage efficiency is still not high

The average days for customer collection and inventory went down gradually per quarter which is a positive sign Nonetheless, the figures of 58 collection days and 480 inventory days are still on the high side

The average days for accounts payable is around 180 days, demonstrating Hoa Phat’s stable financial position

@ Financial leverage index group

Chỉ só tài chính - HPG Q4/2022 Q1/2023 Q2/2023 Q3/2023

Nhóm chỉ số Đòn bảy tài chính

Tỷ số Nợ ngắn hạn trên Tông nợ phải trả 84.05 85.98 87.63 87.07

Tỳ số Nợ vay trên Tỗng tai san 33.99 34.58 34.39 33.42

Tỷ số Nọ trên Tông tài sản 43.57 45.02 44.49 42.44

Tỷ số Vốn chủ sở hữu trên Tổng tài sản 56.43 54.08 55.51 57 58

The debt/total assets and debt/equity ratios stood at 44.49% and 34.39% in Q2/2023, respectively These ratios indicate HPG’s financial leverage is at a moderate level The debt-to-equity ratio is around 80-81% This is considered high leverage, demonstrating HPG’s quite aggressive use of financial leverage to maximize capital efficiency

However, HPG’s interest coverage ratio is below the safe threshold (lower than 1x

in Q4/2022) This signals that excessive financial leverage also carries substantial risks,

2, Inventory status of Hoa Phat

2.1 Data and trends of Hoa Phat's inventory

(SmartBiz, 2023)

At the end of Q2/2023, Hoa Phat's inventory was at 32,261 billion VND, down 7% from the end of the first quarter and 50% lower than the same period last year This is the lowest level in the past 2 years Of which, materials accounted for 46%, finished products accounted for over 24%, the rest were tools and supplies, goods purchased in transit, goods delivered for sale, and manufacturing costs in progress

12

Notably, the allowance for inventory write-downs as of 30/6 for this company was less than 260 billion VND, while the year-end figure last year reached more than 1,200 billion VND

Biểu đồ cơ cấu hàng tồn kho

58,317

35,727 Pele 32,261

Amidst unstable prices of raw materials, this steel producer has maintained low days inventory across all warehouses for materials, fuels, work in progress, and finished products As a result, days inventory for raw materials this period was 65 days and finished products was 46 days, slightly lower than the previous quarter, bringing total days inventory down to 118 days, from 172 days in the same period (Vt

Duy Bac, 2022)

13

Biểu đồ vòng quay hàng tồn kho

Figure 2.2 Hoa Phat's inventory days Hoa Phat has brought down and maintained

low inventory days over the past year

The increasing price trend of steel in the first 3 months was a key factor helping businesses ease pressure on inventory write-down provisions However, steel prices have shown signs of reversing direction and started plunging sharply from early April until now If this trend continues, it will cause provision pressure to mount again on steel companies in the coming time

2.2 The pitfalls of inventory reallocation: Why it's a major consideration

There are several reasons why the reallocation of inventory from one customer to another could be a major issue for discussion (Quora, 2022):

Customer impact:

e Loss of trust: the customer who loses the inventory may feel upset and lose trust in the company if they are not properly informed or do not agree to the reallocation This could lead to decreased orders or switching to another supplier

Reputational damage: if handled poorly, reallocation can damage the company's reputation with all customers Customers might worry about their orders being filled on time or the company's adherence to agreements Contractual disputes: depending on the specific contract, reallocation might violate terms and lead to legal disputes