MEMBER PARTICIPATION

NO. FULL NAME STUDENT I.D

1 TRẦN THIÊN ÂN MBA03002

2 LÊ NGỌC HỒNG BỬU MBA03005

3 HỨA THỊ NGỌC QUYÊN MBA03026

4 TRẦN THỊ NGỌC QUYÊN MBA03027

5 NGUYỄN CHÍ THÀNH MBA03029

6 VÕ THỊ KHÁNH VÂN MBA03040

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PROFESSOR’S COMMENT

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TABLE OF CONTENTS

1. COTECCONS OVERVIEW.....................................................................6

2. INDUSTRY ANALYSIS...........................................................................7

3. DIRECT COMPETITOR OVERVIEW..................................................10

4. FINANCIAL RATIOS.............................................................................11

5. EVALUATION OF SOME PROMINENT FINANCIAL RATIOS........14

5.1. LIQUIDITY RATIOS.................................................................................14

5.2. FINANCIAL LEVERAGE RATIOS..........................................................14

5.3. TURNOVER RATIOS...............................................................................16

5.4. DU PONT ANALYSIS...............................................................................17

5.5. MARKET VALUE RATIOS......................................................................19

6. CONCLUSIONS.....................................................................................20

APPENDIX 1: INCOME STATEMENT OF COTECCONS........................21

APPENDIX 2: BALANCE SHEET OF COTECCONS.................................22

REFERENCES..............................................................................................24

5

6

1. COTECCONS OVERVIEW

Cotec Construction Joint Stock Company

(COTECCONS) is rated by VietnamNet and

Vietnam Report as one of the top 500 largest

companies in Viet Nam and the top company of

private construction industry for 03 consecutive years of 2007, 2008, 2009.

COTECCONS specializes in high-end industrial and civil projects.

Company is divided in to three operating segments as a general contractor.

High rise buildings such as offices, apartments, hotels, etc

Low rise industrial and manufacturing facilities

Resorts and residential villa complexes.

Main business activities:

Construction, installation, repairing civil and industrial projects,

infrastructures, traffic and water irrigation.

Investment consultation and project management of civil and industrial

projects, infrastructures, traffic and water irrigation.

Design of general layout; design of civil and industrial projects; interior

and exterior design; design of industrial and civil heat, ventilation; air-

conditioning systems; design of industrial and civil mechanical and

electrical projects.

Condensed statement of Financial Performance from 2005 to 2010

Unit 2005 2006 2007 2008 2009 2010

Gross sale

Billion

VND494.0 823.9 1,344.6 1,823.2 1,962.3

3,340.9

Net income

Billion

27.2 55.6 125.3 144.2 228.1 240.5

7

VNDDividend % 24% 24% 18% 24% 10% -

COTECCONS’s sales and profitability have increased dramatically in the last six

years. Especially in the first three years, net income raised twice times compared

to the previous year. Because of financial crisis happened in 2008, the developing

rate of company’s profit has been slower, but COTECCONS has still remained a

positive income.

On 20 January 2010, COTECCONS’s stocks

were first time listed on Ho Chi Minh

Security Exchange with an amount of

18,450,000 common stocks. Until now, total

issued share of company is 30,750,000. From

the first day to be listed, the highest price of

this stock was VND 150,000 and the lowest

was VND 48,000.

2. INDUSTRY ANALYSIS

Along with strong domestic consumption, the construction industry plays an

important role in maintaining Vietnam's economic growth on the plunging

foreign investment. The construction industry has changed dramatically in

recent years and many of the buildings that have gone up have improved the

appearance of urban Vietnam while the equipment that's being used by the

construction industry in Vietnam is in many cases of international standard.

The construction production value in 2010 at current prices increases by

23.1% against the previous year, of which the state sector increases by 23.4%;

the non-state sector and others by 23%; and the FDI sector by 22.7%.

8

19.11%

39.90%

41.00%

Government ForeignerOthers

Figure 1: Ownership structure ( updated on 29/10/2010)

The total realized social investment capital in 2010 at current prices is

estimated reaching 830.3 trillion dongs, up by 17.1% against 2009 and equal

41.9% of GDP, of which 1,980 billion dongs come from the central budget

source and 4,487.5 billion dongs from the Government bond course which

was permitted by the Prime Minister to pay in advance to complement and

speed up the implementation of some important projects to be completed in

2010. Of this year’s total realized social investment capital, capital from the

state sector is 316.3 trillion dongs, up by 10%; from the non-state sector is

299.5 trillion dongs, up by 24.7%; and from the FDI sector is 214.5 trillion

dongs, up by 18.4%.

Generally, during the financial crisis 2007-2009, the construction material has

burdened by unexpected increasing price in the materials (such as: cement). It is

inflated by the high inflation. In the year 2008, high inflation more than 23% put a

pressure on input and material price in this industry.

Besides, under a high inflation rate in the Viet Nam economy, it is followed by a

high borrowing rate in the lending and banking market. All the construction

materials, construction and real estate see that their loan contracts with

commercial banks tend to be renegotiated with an increasing rate about 45%

higher than the previous borrowing rates. In the mean time, construction

companies have to encounter another usual risk: operational risk, including

changes in their internal structure, system and corporate governance. The financial

crisis has negative impact on their business operation on the aspect that it threats

their business operating cash flow in near future. So, the Board of Directors of

those corporations has to flexibly restructure their business operation and human

resources.

Last but not least, corporate governance structure and mechanisms are still on the

way to enhance and need a lot of improvements which becomes another risk issue.

9

Because an imperfect corporate governance structure tends to negatively affect the

company’s cost of capital. This taking place during the financial crisis will give

new challenges to the corporation’s top management team such as how to operate

and organize business activities better and more effective.

Over the long term, the construction industry has much room for growth thanks to

the big demand for infrastructure and housing development. The Ministry of

Construction has forecast that along with population growth and fast

urbanization, the housing demand in Vietnam will rise strongly in the coming

years and many new urban areas will be developed. By 2020, the urbanization

rate in Vietnam is forecast to increase to 45.2% from the current 27%. At

present, per capital housing area in Vietnam is 10.2 square meters, much

lower compared with some regional countries like China (20 sqm) and

Singapore (32 sqm).

In the period 2010-2020, Vietnam will need to develop 364 million sqm of

housing space in urban areas, meaning some 36 million square meters per

year. The ministry has estimated that some VND640 million (about US$36

billion) will be needed to meet this housing demand.

As a result of this positive outlook, the ministry has forecast that the

construction materials market will experience strong development over the

next decade.

10

3. DIRECT COMPETITOR OVERVIEW

Company name : Hoa Binh Construction and Real Estate Corporation

Abbreviated name: Hoa Binh Corporation ( HBC)

Business operation and service:

Industrial & Civil Construction

Bridges And Roads Building, Transportation Projects, Water Supply &

Drainage System Building

Surface Leveling

Housing

Construction Consultations (project design consultations not included)

Production, Building Materials And Interior Decoration Products.

Services: Housing Renovation, Interior Decoration

COTECCONS HOA BINH CORP

Established date 24/08/2004 11/12/2000

Total Asset ( 2010) VND 2,020,722,000,000 VND 2,066,110,000,000

Current Assets (2010) VND 1,287,628,000,000 VND 1,427,594,000,000

Fixed Assets (2010) VND 256,279,000,000 VND 332,009,000,000

Short term liabilities VND 675,640,000,000 VND 1,864,578,000,000

Long term debts VND 000 VND 18,995,000,000

Chartered Capital VND 307,500,000,000 VND 167,310,000,000

Listed on HOSE 20/01/2010 27/12/2006

Ticker CTD HBC

11

4. FINANCIAL RATIOS

BENCHMARK USING FOR COMPARISON

Time trend analysis: Every financial ratio is calculated for the last three years,

form 2008 to 2010, in order to identify the developing trend of company

Peer group analysis: COTECCONS is categorized in the industry of Construction

and Materials by Ho Chi Minh Stock Exchange (HOSE). In this industry, the

direct competitor that we have chosen for comparison is Hoa Binh Construction

and Real Estate Joint Stock Company (HBC), which has the same market

capitalization to COTECCONS.

YEAR CTD HBC INSUDTRY

LIQ

UID

ITY

RA

TIO

S

CURRENT

RATIO

2008 2.92 1.72 -

2009 1.73 1.25 -

2010 1.91 1.07 1.42

QUICK RATIO

2008 2.34 0.87 -

2009 1.33 0.97 -

2010 1.25 0.91 0.81

CASH RATIO

2008 1.39 1.72 -

2009 0.55 1.24 -

2010 0.43 1.07 0.18

NWC TO TOTAL

ASSET

2008 0.47 0.28 -

2009 0.33 0.12 -

2010 0.32 0.04 -

12

LO

NG

– T

ER

M R

AT

IOS

TOTAL DEBT

RATIO

2008 0.22 0.49 -

2009 0.38 0.53 -

2010 0.38 0.67 0.68

DEBT-EQUITY

RATIO

2008 0.29 1.07 -

2009 0.61 1.24 -

2010 0.62 2.07 -

EQUITY

MULTIPLIER

2008 1.29 2.17 -

2009 1.61 2.33 -

2010 1.62 3.11 -

LONG-TERM

DEBT RATIO

2008 0.00 0.17 -

2009 0.00 0.03 -

2010 0.07 0.06 -

INVENTORY

TURNOVER

2008 13.25 2.99 -

2009 8.11 5.60 -

2010 8.53 7.63 -

DAY’S SALES IN

INVENTORY

2008 27.55 122.07 -

2009 45.01 65.17 -

2010 42.79 47.84 104

RECEIVABLES

TURNOVER

2008 11.13 2.66 -

2009 8.49 4.39 -

2010 8.04 2.57 -

DAYS’ SALES IN

RECEIVABLES

2008 32.79 137.21 -

2009 42.99 83.14 -

2010 45.40 142.02 61

NWC

TURNOVER

2008 3.49 2.83 -

2009 3.97 6.94 -

2010 6.01 13.71 -

FIXED ASSET 2008 37.98 4.3 -

2009 17.67 6.46 -

13

AS

SE

T

M

AN

A

GE

TURNOVER2010 15.94 4.38 -

TOTAL ASSET

TURNOVER

2008 1.72 0.66 -

2009 1.34 1.40 -

2010 1.74 1.07 -

PR

OF

ITA

BIL

ITY

RA

TIO

S

PROFIT

MARGIN

2008 7.91% 9.54% -

2009 11.62% 6.40% -

2010 7.28% 16.07% 6.4%

ROA

2008 13.57% 0.75% -

2009 15.58% 3.83% -

2010 12.68% 8.01% 5.8%

ROE

2008 17.01% 1.84% -

2009 22.88% 8.65% -

2010 20.54% 22.01% 19%

14

5. EVALUATION OF SOME PROMINENT FINANCIAL RATIOS

5.1. LIQUIDITY RATIOS

  CTD HBC  2009 2010 2009 2010

Current Ratio 1.73 1.91 0.26 0.19

Quick Ratio 1.33 1.25 0.97 0.91

Cash Ratio 0.55 0.43 1.25 1.07

In 2009, short-term debt controlled all the debt’s framework of CTD and had a

tendency to increase significantly from 260 billion in 2008 up to 671 billion in

2009. However, due to the fact that CTD limited in using liabilities in capital

policy, the liquidity ability of the company was safe and all ratios were nearly

higher than the firms which had the same scale. Although current liability of CTD

rose considerably from 2008, these ratios were still under control and acceptable.

In 2010, since CTD had reserved a big amount of cash at the beginning of the

year, the company ensured to maintain the liquidity ability in good condition. As

we can see from the table above, current ratio, quick ratio and cash ratio of CTD

were all higher than the average level of companies in the same field.

5.2. FINANCIAL LEVERAGE RATIOS

  CTD HBC  2008 2009 2010 2008 2009 2010

15

Total Debt Ratio 0.22 0.38 0.38 0.54 0.57 0.68

Debt-Equity Ratio 0.29 0.61 0.62 1.07 1.24 2.07

Equity Multiplier 1.29 1.61 1.62 2.17 2.33 3.11

These three ratios tended to increase in both two companies because of broadening

business scale. They needed more money to invest in new building projects which

led to debt rising. Although there was an equivalent increase in debt in both

companies, this ratio was stable from 2009-2010 due to effective investment

attracting policy of CTD, whereas this increased continuously in HBC.

Compared to HBC, debt occupied a small part in CTD’s capital structure because

Cotec Cons was one of few companies which did not use borrowed capital. This

was also the reason why this company did not have any pressure from cost of

interest rate. Therefore, financial risks were quite lower than the others.

Cotec Cons had a huge amount of equity (over 1,000 billion VND) from

investment funds and big corporations’ support such as Indochina Holding Group

(5.85%), Dragon Capital Vietnam Fund (5.69%), Red River Holding (5.63%), …

Generally, there were 38% debt and 62% equity in CTD’s capital structure,

compared to 67% debt and 33% equity of HBC.

  CTD HBC

  2008 20092010 2008 2009 2010

Long-term Debt Ratio 0.0027 0.000052 0.07 0.174 0.03 0.06

Both companies wanted to minimize long-term debt over total capitalization to

reduce the pressure from interest rate cost. However, due to the unstableness in

economy in the end of 2009 and at the beginning of 2010, most of companies were

affected by the fluctuation of oil and gold price. This led to growth in long-term

16

debt in the period of 2009-2010. Generally, this ratio decreased considerably in

CTD which showed the ability for attracting capital of CTD.

5.3. TURNOVER RATIOS

  CTD HBC PVX

VCG

Industry  2009 2010

Days' Sales in Inventory 45 43 48 78 159 104

Days' Sales in Receivables

43 45 53 43 83 61

Fixed Assets Turnover 17.67 15.94 4.38 5.67 1.52 -

Total Assets Turnover 1.34 1.74 1.07 0.84 0.55 -

CTD’s Days’ sales in Inventory was comparatively short in comparison with other

construction companies as well as the industry (CTD : 43 – Industry : 104). Due to

the company’s stable speed of constructing, the reserved materials were lower than

the cost for performing the projects. Up to now, Cotec Cons has built a good

image of never being late for the planning progress.

CTD was able to achieve Days’ sales in Receivables of 45 compared to average

one with 61 days. However, it was somewhat longer than 43 days in 2009. The

reason was that many investors had to deal with the strict policy for non-

manufacturing industry such as real estate and stock. Therefore, collecting money

from buyers in 2010 was more difficult than the previous year.

Fixed Assets Turnover and Total Assets Turnover of CTD were much higher than

other competitors in construction industry ( four times its core competitor HBC )

which meant that current and fixed assets of CTD was managed effectively than

others.

17

5.4. DU PONT ANALYSIS

In 2010, gross income increased out of expectation as unusual financial income. In

this year, CTD’s revenue was VND 3,304 billion, raised 68% percent compared

with one in 2009; and earnings after taxes was VND 241 billion, increased only

6% compared to the previous year. There are two reasons explained why there is a

huge difference between growth rates of sales and net profit:

(1) The raising of operational costs, especially, CTD begun to pay business

income taxes after having tax free in a first couple of years. Beside this, due to the

high inflation rate and increasing workload, company had to pay more on staffs’

salary.

(2) Actually, the addition in net profit in 2010 was from the raising of financial

revenue, such profit getting on some transferring activities in third quarter, interest

from saving money in banks, dividends, etc.

ROE = Profit margin x Total Asset Turnover x Equity Multiplier

2008 2009 2010 HBCROE

17.01% 22.88% 20.54% 22.01%

Profit Margin 7.91% 11.62% 7.29% 7.05%

TA Turnover 1.72 1.34 1.74 1.07

Equity Multiplier

1.25 1.47 1.62 2.75

18

Profit margin decreased from 11.62% in 2009 to 7.28% in 2010. The reason why

company profit margin went down in 2010 was the amount of large scale

construction project having a high profit margin declined as the FDI dropped

while the amount of civil and tourism construction projects having small premium

raised up. In another hand, because construction and real estate market had

abundant difficulties last year, company had to reduce the value of construction

packages bidding.

On another hand, CTD had an advantage based on ability to manage company

assets efficiently. Total asset turnover was faster than direct competitor, HBC. It

showed that company was able to keep operating expenses low and prevent the

fluctuation of construction materials affect construction progress and erode profit

margin. In particular, most of construction companies have a lot of inventories and

high receivables turnover, but it is a light spot that COTECCONS can get a quick

day’s sale in inventory, 42.79 days, and shorter period of collection receivables.

The last element mentioned in the Du Pont Analysis is Equity Multiplier. From the

table above, company equity multiplier had increased for the last three years. That

means company use more financial leverage in running business. Long term debt

has developed noticeably, from VND 3 billion in 2009 to VND 100 billion in

2010. However, this ratio was still small because company equity has raised up

continuously from 2007, reached more than VND 1244 billion in 2010, increased

nearly VND 144 billion compared to one in 2009. Having giant equity in hand can

help CTD to implement a couple costly projects in long run without worrying

about capital shortage, but the limitation of financial leverage makes the company

owner have use much more their own money instead of creditors money to earn

profit.

19

5.5. MARKET VALUE RATIOS

2010 CTD HBC Industry

P/E 7.9 4.8 6.4

EPS 7,837 8,210

According to construction industry, we use method of comparing PE to settle the

prices. Till the end of 2010, average PE of construction area was 6.4 and it was

estimated to gain 9.3 in 2011. However, CTD had to encounter strong competition

from the other companies such as Cofico, Delta Group which were not listed in the

stock market, particularly from HBC. Therefore, we do believe that Cotec Cons is

impossible to get higher PE in 2011. In my opinion, PE around 8 was suitable

because CTD was a big and reliable company with many potential customers who

would bring stable contract and profit for company.

20

6. CONCLUSIONS

As we can see from the analysis above, CTD has so many competitive advantages

than other competitors in construction industry:

Partners and customers of the company spread across the country and focus

on major cities such as Ho Chi Minh, Hanoi, Da Nang, Nha Trang.

Revenues grow over the years even during the economic crisis in the period

2008-2009.

The high level of technology, modern techniques along with large financial

capacity and particularly using no debt in capital structure ensure the

progress and quality of projects.

Most of financial ratios are better and safer than other companies.

However, in the year of 2011, company has to face many risks such as :

Cost of materials accounts for a noticeable amount in cost of goods sold.

Therefore, total cost easily fluctuates when the economy or supply-demand

situation changes.

From 2010, CTD’s income tax rate was 25% which remarkably decreased

the company’s profit.

Although CTD had expanded its core construction business into real estate

investing and development, these investments cannot generate revenues in

2011 so that they will not affect the company’s profit.

21

22

APPENDIX 1: INCOME STATEMENT OF COTECCONS

INCOME STATEMENT

2008 2009 2010

Revenue 1.823.189.206.312 1.962.328.197.802 3.303.784.360.148

Cost of goods sold (1.656.423.673.775) (1.691.643.00.702) (3.021.569.424.561)

Gross profit 166.765.532.537 270.685.193.100 282.214.935.587

Financial revenue 35.618.880.438 48.537.745.746 85.097.329.977

Financial cost (4.117.925.994) (20.771.969.253) 705.072.285

Operating cost (33.889.962.467) (37.146.394.811) (77.030.162.379)

Net operating profit

164.376.524.514 261.304.574.782 290.987.175.470

Earnings before tax

167.402.688.368 265.240.524.387 312.841.395.687

Taxable income (23.215.093.846) (42.219.444.738) (70.388.039.073)

Earnings after tax 144.187.594.522 228.099.912.734 240.327.120.990

23

APPENDIX 2: BALANCE SHEET OF COTECCONS

BALANCE SHEET

2008 2009 2010

Current assets758.853.274.3

581.159.727.087.

0621.287.628.153.

264

Cash and cash equivalents361.909.341.3

21369.037.642.2

95289.879.887.6

75

Short-term financial investments

77.637.652.101

170.309.000.000

5.988.441.300

Account receivables154.408.369.5

04307.943.749.5

57513.895.794.1

15

Inventories149.511.515.4

04267.786.174.9

08440.709.544.4

63

Other short-term assets15.386.396.02

844.650.520.30

234.263.963.03

0

Long-term assets397.225.441.8

28612.212.413.7

45733.093.598.5

36

Fixed assets65.121.986.00

8157.009.126.0

03257.639.639.0

58

Investment properties64.662.555.40

064.662.555.40

0103.164.365.6

65

Long-term financial investments

254.020.747.899

325.460.561.308

186.091.061.308

24

Other long-term assets13.420.152.52

165.080.171.03

4186.198.532.5

05

TOTAL ASSETS1.156.078.716.

1861.771.939.500.

8072.020.721.751.

800

Total liabilities259.995.310.8

46674.244.282.8

55776.003.511.6

83

Current liabilities259.948.521.1

82671.288.129.2

74675.639.783.0

08

Long-term liabilities 46.789.664 2.956.153.581100.363.728.6

75

Shareholders' equity896.083.405.3

401.097.695.217.

9521.244.718.240.

117

Common stock and paid-in surplus

685.200.000.000

754.200.000.000

754.200.000.000

Business promotion fund84.670.678.15

8109.670.678.1

58297.114.567.9

56

Financial provision fund14.900.797.75

822.110.177.48

445.540.663.70

8

Retained earnings96.630.809.48

3214.514.126.8

21214.514.126.8

21

Welfare and bonus fund14.681.119.94

1(3.464.209.496

)0

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1.156.078.716.186

1.771.939.500.807

2.020.721.751.800

25

REFERENCES

1. Financial Management Book ( Stephen A. Ross – Randolph W.

Westerfield – Bradford D. Jordan )

2. www.coteccons.com.vn

3. www.hoabinhcorporation.com

4. www.fpts.com.vn

5. www.vcbs.com.vn

6. www.tvsi.com.vn

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