Increasing its capital by 1.5 times, along with building two refrigerated warehouses in foreign countries, Minh Phu Seafood Corporation (code: MPC on UPCoM) is making attempts to expand in the US market. However, it is necessary that the company should balance instant and long-term benefits.
|Minh Phu will ride the waves displacing Chinese exporters in the US to improve its market share |
Market niche in the US
Minh Phu is planning to issue 75.72 million stocks worth VND757.2 billion ($32.9 million) in 2018-2019. Its charter capital is expected to reach VND2.1572 trillion ($93.7 million), 1.5 times its current value.
Le Van Quang, chairman of Minh Phu, stated that the driving force behind this issuance is that the US-China trade war has raised import tariffs on Chinese breaded shrimp from 0 to 10 per cent and will hit 25 per cent by the end of 2018.
More customers from the US have submitted orders to Minh Phu for this product to substitute Chinese supply.
Taking advantage of this opportunity, Minh Phu is planning to build a breaded-shrimp processing plant with the annual capacity of 40,000 tonnes on the spare land of Minh Phu Hau Giang.
Breaded shrimp is not subject to anti-dumping tax in the US. Therefore, shrimp material used in this plant will be mainly imported from India, along with second-grade shrimp from Minh Phu Hau Giang and Minh Phu Ca Mau. The new plant located in Minh Phu Hau Giang will help reduce shipping costs.
In addition, Minh Phu will invest in building refrigerated warehouses to support exportation to the US. Currently, the refrigerated warehouses in the US are overloaded, which raises costs for Minh Phu as importation is delayed by waiting for available warehouse space. Thus, Minh Phu is planning to construct a 10,000-pallet refrigerated warehouse in Los Angeles and another in New York, where its two main ports are located.
The capital invested in these two refrigerated warehouses will be sourced from the revenue of Minh Phu Seafood Corporation’s wholly-owned subsidiary in America, Mseafood Corporation, and bank loans. The loans will be paid from the annual retained earnings of Mseafood.
Balancing short-term and long-term targets
Minh Phu has an ideal opportunity to expand overseas. However, the company also needs to consider investing in its previous projects that are contributing to its total revenue and profits. At this time, the company’s operating profit margin may drop due to investments in new projects.
According to the consolidated financial statement as of the third quarter of 2018, Minh Phu Seafood Corporation’s total turnover reached almost VND4.9 trillion ($213 million), up more than VND300 billion ($13 million) compared to 2017. Its accumulated turnover so far in 2018is 12.6 trillion (increased by nearly 2 trillion on year). The company’s after-tax profit in the third quarter of 2018 alone and in the first three quarters of 2018 combined were VND353 billion ($15.3 million) and VND681 billion ($29.6 million), equivalent to year-on-year increases of VND80 billion ($3.4 million) and VND251 billion ($10.9 million), respectively.
According to Minh Phu’s deputy director Nguyen Van Diep, thanks to the relatively stable price of material input, Minh Phu can take the initiative in purchasing larger quantities of materials to make more deals, and complete larger orders of key value-added products. In addition, the company’s move to control money flows also helped it to boost profit.
On the other hand, investors are concerned about whether this growth can be maintained with the construction of the breaded-shrimp processing plant as well as the two refrigerated warehouses in the US.
Tran Van Dung, an investor from FPT Securities, forecasted that in 2019 export prospects will be as smooth as this year, thence the company can continue growing thanks to increasing revenue and profit. However, because the charter capital of the company increased by 1.5 times after the issuance, its absolute profit should also be increased by 1.5 times. As a result, the company will be under great pressure to maintain dividend rates before its new projects come into profitable operation.