Hoa Sen Group reports alarming plunge in profit

Hoa Sen Group's second consecutive quarterly report of bad performance shook the faith of investors

Hoa Sen Group has released the estimated business results for the fourth quarter of the 2016-2017 financial year, according to newswire Cafef.

Accordingly, Hoa Sen estimated a net revenue of VND6.9 trillion ($302.5 million), up 30 per cent on-year, however, after-tax profit is estimated at VND203 billion ($8.89 million), less than half of the past year.

This will be the second consecutive quarter that Hoa Sen reports bleak business prospects. Earlier in the third quarter of this year, regarding after-tax profit, the figure was VND272 billion ($11.9 million), declining 39.3 per cent on-year.

In the 2016-2017 financial year, Hoa Sen Group estimates selling 1.66 million tonnes of steel with a revenue of VND26.1 trillion ($1.14 billion), signifying increases of 26 and 46 per cent, respectively.

However, the consolidated after-tax profit would be VND1.33 trillion ($58.3 million), 12 per cent lower than the figure of the previous financial year.

The reason for the plunge in profit is the soaring interest on the company’s massive debts. Notably, as of the end of the second quarter of this year, Hoa Sen Group bore a debt of VND12.4 trillion ($543.6 million), VND10 trillion ($438.4 million) of which is short-term debts, while its equity was only VND5 trillion ($219.2 million).

From early October 2016 to late July 2017, the group reported mobilising VND19.9 trillion ($872.4 million) from loans.

Besides, the group reported that interest payments rose to VND334 billion ($14.6 million), tripling on-year.

In the third quarter alone, skyrocketing expenses also contributed to the group’s declining profit, especially the increasing interest expenditure which hit VND136 billion ($5.9 million) and decreased the company’s profit by 40 per cent on-year, to VND271 billion ($11.8 million).

One of the group’s targets in collecting massive amounts of money was to develop projects, especially the $10.6-billion Ca Na steel project. Notably, Hoa Sen chairman Le Phuoc Vu announced that the group was ready to develop the steel project in the central province of Binh Thuan. However, in April 2017, Prime Minister Nguyen Xuan Phuc requested the suspension of the project in order to “clarify some issues related to the environment and technology.”

The consecutive decreases in profit sent investors scampering on a massive sell-off on the stock exchange, evaporating VND3 trillion ($131.5 million) from its capitalisation.

According to the latest move, an investment fund managed by Dragon Capital transferred a part of its holding in Hoa Sen Group to its competitor Nam Kim Steel JSC. The investment fund gave up its position as a large shareholder in Hoa Sen Group by decreasing its holding to 4.96 per cent, or 17.38 million shares.

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