Hoa Phat Continues to Grow Strongly

That is the slogan of the Mandarin Garden project invested by Hoa Phat Group. This project has consumed much of Hoa Phat capital and power in three years with a total investment of up to VND3,648 billion.

 

Mandarin Complex, Hoa Phat’s pride, has a wonderful location. It has total building floor area of 230,000 sq. metres and is beautifully located at the Southeast Tran Duy Hung urban area, Hanoi. It is ranked high priority among investment items of Hoa Phat Group, only behind the Hoa Phat Steel Complex Phase 2. This is also a core area of investment as the Group wants to maintain its number one position on the steel market in Vietnam.

 

When the Mandarin Garden project finished its model houses in October 2012, Hoa Phat pushed the sales of houses and took better advantage of the positive impact of several policies on real estate market. In particular, it has applied the flexible application of flat discounts to nearly 50 percent, from VND45 million per sq. metre to around VND26 million per sq. metre with no interior and this has brought revenue of Mandarin of roughly VND5,000 billion, with a profit rate of over 10 percent, which is VND500 billion, equivalent to nearly 50 percent of the profit achieved in 2012 of the group.

 

However, according to Chairman Tran Dinh Long, the expected profit of VND500 billion, only about VND100 billion is recorded in 2013. One third of houses were sold. When expected profit and inventories are generally recorded in the inventory list, this is obviously a "great savings" of Hoa Phat Group in the coming years.

 

In addition to Mandarin Garden, in 2012, the 257 condominium project of Hoa Phat reached revenue of VND454 billion and net profit of VND117 billion. This project was started in the same year with Mandarin, located at 257 Giai Phong street, Phuong Mai ward, Dong Da district, Hanoi, officially handed over and put into use from March 2012.

 

Thus, while the real estate market is freezing and most businesses fall into losses because capital is buried in inventory, Hoa Phat still obtains profit from both old and new projects.

 

Anyone who says the bigger an enterprises is, the more difficulties it gets when real estate market evaporates must have been too hasty.

 

Steel pipe is the main product of Hoa Phat steel and currently the market leader with a market share of up to 15 percent. In theory, steel pipe is construction steel, which suffers greatly from the effects of the fluctuations of real estate market and can hardly escape the fate of basic construction materials. However, analysing causes leading to business results exceeding 100 percent of Hoa Phat, analysts from VCBS Company's shared that although the production and trading of Hoa Phat steel fell on profit, the Group still achieved certain success through closed production process. In addition, although consumption decreased, the change is less than the industry's overall decline. Statistics show that, market share of Hoa Phat construction steel maintains second place, up from 13.3 percent to 13.7 percent, while continuing to affirm its position as the leading steel pipe manufacturer in Vietnam.

 

According to report of the Vietnam Steel Association (VSA) on construction steel output in March and the first quarter of 2013 quarter, Hoa Phat steel is coming against the general flow of the market. Specifically, other VSA members sold only 450,000 tonnes of construction steel, down 13.6 percent compared to March, 2012. In the first three months of 2013, VSA’s general consumption was 1.1 million tonnes, down over 3 percent compared to the same period last year. Meanwhile, Hoa Phat Steel has sold more than 70,000 tonnes in March alone, doubling the consumption in February, the Lunar New Year holiday month. Quarterly sales of Hoa Phat Group decreased only 1.4 percent over the same period, less than half of the total decline of VSA. These results, according to VSA, are thanks to Hoa Phat Steel’s supply for most of the major projects across the country such as the Times City condominium, Dai Thanh urban area, Ha Noi - Lao Cai highway, Ha Noi - Hai Phong highway, Song Bung 4A hydropower project, Cua Dai Bridge (Quang Nam), Muong Thanh Hotel (Da Nang), Formosa Ha Tinh, Mong Duong hydropower project, and others. With firm market share, strong brand and large customer base, the goal of improving and increasing the market share of steel pipe up to 14-15 percent in 2013 of Hoa Phat Group gets very close. It is just waiting for the finishing kick from the completion of Hoa Phat Steel Complex phase two.

 

Hoa Phat Steel Complex phase two will bring revenue, good expected revenue rate as well as very good prospects for long-term core steel pipe development. However investment costs of Hoa Phat Steel Complex Phase two and Mandarin Garden project, as of this moment, are in the amortization period. This will increase the cost of large depreciation of Hoa Phat. Along with that, it must continue to disburse 40 percent of the total investment, equivalent to more than VND1,220 billion in 2013 for Iron and Steel Complex. At the same time, that it is scheduled to continue to implement a number of projects if the flourishing real estate markets including 493 Truong Dinh, 70 Nguyen Duc Canh also puts back the pressure from the powerful leverage use to cover the cost of investment to Hoa Phat.

 

Therefore, investors see that although Hoa Phat is growing and very confident with its two strong areas of investment, it should be careful in investment strategies, importantly criteria to improve performance and profitability. Also it should avoid short-term benefits to gain long-term ones. It is unavoidable that the rich sometimes get into trouble with liquidity like Hoa Phat’s problems in the past year.