A mini-mall integrates many products and services at a WCM point of sale. Photo: collected

Rushing M&A, increasing investment capital

At the recent Annual General Meeting of Shareholders, the management board of Duc Giang Chemical Group revealed that the company was negotiating to acquire a number of domestic competitors in the yellow phosphorus (P4) segment which owned large ore mines and ore refineries. With the bauxite-aluminium project, the total investment capital of 3 phases can reach VND36,000 billion (US$1.6 billion).

Duc Giang expected the second apatite ore mine to come into operation by the end of 2022. According to the management board, if it didn't have its own mine and the ability to use low-grade ore, the company would have to run at low capacity like some domestic competitors due to a shortage of supply from mining companies although natural reserves remain for many years. Some of these competitors were acquisition targets of Duc Giang.

Duc Thanh Wood Processing Joint Stock Company (GDT) also said that they were negotiating to buy the entire production process, raw materials, customer relationship of a furniture wood processing enterprise in Dong Nai. This enterprise had a factory of 12,000 m2. GDT expected the amount for this deal to be about VND100 billion.

Binh Duong Water - Environment Joint Stock Company (BWE) has just announced the investment policy of buying shares of two water companies including Can Tho Water Supply and Sewerage Joint Stock Company and Can Tho 2 Water Supply Joint Stock Company. In 2022, it is expected that the purchase cost of Can Tho Water Supply and Sewerage Joint Stock Company is VND143 billion and Can Tho Water Supply 2 is VND70 billion.

In January, Masan Group Joint Stock Company bought an additional 31% stake in Phuc Long, raising the ownership rate to 51%. At US$110 million for a 31% stake, Phuc Long's equity valuation is US$355 million, approximately P/E is 15 times based on preliminary 2022 earnings estimates.

In addition to M&A plans to acquire competitors, enter new fields or expand operations, many enterprises have also announced plans to increase capital in order to have more resources to invest in their operations.

Specifically, Hoang Anh Gia Lai Joint Stock Company (HAG) plans to issue individual shares to raise equity of VND1,200 billion to invest in banana and pig farming. The specific offering plan will be presented to shareholders at the 2022 Annual General Meeting of Shareholders scheduled to be held on April 8. In 2022, HAG plans to invest in planting another 2,000 hectares of bananas, bringing the total banana area to 7,000 hectares; building nine additional clusters of barns for raising sows and pigs, including two groups of barns in Laos and two groups of barns in Cambodia, bringing the total number of barns to 16 clusters with a capacity of more than one million pigs every year.

Similarly, Halcom Vietnam Joint Stock Company also plans to issue 50 million shares at the price of VND10,000 per share, with a total value of VND500 billion.

The purpose is to add capital to two projects of water supply system in Nhon Hoi economic zone (Binh Dinh) and a resort project on the campus of wind power plant Phuong Mai 3. Total investment capital of the two projects is expected to be VND5,590 billion. Phuong Anh International Joint Stock Company also plans to issue 15 million shares, with a total issuance value of VND150 billion. The purpose of the issuance is to supplement capital to implement two real estate projects in Da Nang, namely the complex of commercial centers, offices for rent, high-rise housing and commercial buildings project, services, and apartments for sale. The total estimated investment capital of the two projects is VND1,750 billion.

Expanding scale, increasing profits

The plans to increase capital, expand investment, and M&A will help enterprises expand their scale and potential. Evaluating Duc Giang's M&A plan in the yellow phosphorus segment, experts from Viet Capital Securities Company (VCSC) believe that a potential acquisition would be a highly profitable investment for Duc Giang – similar to the expansion and cost savings projects in the phosphorus segment over the past few years.

According to VCSC estimates, these projects have a very high return on invested capital, at least 50% at the average selling price. This is thanks to Vietnam's natural resource advantage and Duc Giang's technological advantage.

Accordingly, if the company's M&A plans and aluminium business activities progress more firmly, Duc Giang's profit may be higher than the current forecast.

With GDT's plan, VCSC assesses that the furniture industry is more fragmented and has a lower average rate of return than GDT's current business, which produces small wood products - mainly wooden cutting boards.

However, the furniture market scale is significantly larger. It is known that the enterprise that GDT plans to M&A has an annual revenue of US$5 million, equivalent to 33% of GDT's current revenue. Therefore, if the M&A plan is successful, GDT's profit scale will be larger than the current one.

At Masan, following the initial success of deploying Phuc Long kiosks at points of sale on the WinCommerce integrated retail-consumer platform (WCM), Masan accelerated its Point of Life (POL) strategy by building and piloting mini-mall, integrating WinMart (essentials), Phuc Long (tea and coffee), pharmaceuticals, Techcombank (bank) and Reddi transaction point (mobile telecommunications) at one service point only.

In 2021, five pilot stores operating under the mini-mall model helped increase customer flow by 30% compared to stores before applying this model. Mini-mall also helps each point of sale reduce 44% of necessary revenue to reach the breakeven point in store per day. With this positive result, Masan is confident that the mini-mall model attracting customers will drive sales growth and reduce the revenue needed to reach the breakeven point, thereby increasing profits.

Masan expects Phuc Long's revenue to reach from VND2.5 trillion to VND3 trillion in fiscal year 2022 thanks to the expansion of the network of private stores and kiosks in WCM as well as the diversification of the tea and coffee products.

In 2022, the company aims to open 2,000 mini-mall stores in five different formats, based on an analysis of characteristics of each city, suburb, and countryside in newly opened as well as existing stores of WCM.