Big ships come big waves

Once expected to be the period of global economic recovery after the Covid-19 pandemic, the complex developments, including multidimensional crises from political conflicts and disease outbreaks to climate change, have increased risks for global financial markets, energy security, and food security, pushing inflation to its highest level in decades. Faced with macroeconomic fluctuations as countries turn to tighten monetary policies and consumer demand weakens, Vietnamese businesses have gone through a challenging year.

Profit growth figures in the fourth quarter of 2022 were even lower than in the first quarter of 2020, the initial stage when the economy faced the pandemic. According to statistics, the total profits of businesses on the three stock exchanges at that time decreased by up to 33.6% compared to the same period. In the past two quarters, profits decreased by 20.6% and 14.7% respectively compared to the same period; simultaneously, another bright spot was that the past two quarters recorded higher profits than the previous quarter.

Listed organizations with a market capitalization of over a billion USD on the stock exchange are not immune to the turmoil either.

According to data from nearly 50 businesses valued on the stock exchange with market capitalization over a billion USD (updated at the end of August 2023), although total revenue was not significantly affected, after-tax profits in the fourth quarter of 2022 reached more than VND64.930 trillion, a decrease of VND19.600 billion compared to the figure achieved in the third quarter of 2022 (equivalent to a decrease of more than 23%) and a decrease of 14.7% compared to the same period. Total profit grew negatively in the past two quarters, with a significant decrease and always higher than the profit bottom at the end of 2022.

Big ships come with big waves. Quite a few companies have seen sharp decreases in revenue and profit margins due to weak demand. Other input variables, such as interest rates and exchange rates, unexpectedly heated up in the last days of 2022. These are all factors that, with small changes, can generate significant costs for large businesses.

For example, Mobile World Investment Corporation - the leading retailer in Vietnam with a network of more than 6,000 stores, showed significant revenue recovery in the past quarter compared to the first quarter. However, accepting a narrower gross profit margin, more expenses for sales activities, and high interest costs have caused Mobile World to earn only a few billion VND in net profit for the second consecutive quarter, while profits in the previous quarters were often over a trillion VND.

The steel industry giant, Hoa Phat, even recorded a profound loss of over a thousand billion VND in the last two quarters of 2022, forcing it to close some blast furnaces, reduce production capacity, and witness a significant drop in profit margins while high-interest expenses and exchange rate differences sharply increased. Financial costs have also risen rapidly in large-scale businesses with capital borrowing, especially foreign loans, at high levels like Vingroup, EVNGENCO3, and Masan.

On the lending side, high interest rates do not necessarily benefit the banks. Billion-dollar market capitalization banking groups also face difficulties as they have capital but cannot disburse it due to the declining absorptive capacity of the economy. Net interest margin (NIM) ratios are also affected, especially during high capital mobilization costs, while lending rates have been encouraged to decrease to support economic growth and promote credit quickly.

Courage to Rise Above

Among the 50 billion-dollar companies listed on the stock exchange, the State owns 30% of these companies with over 51% of the capital. Some have been privatized, with the government divesting a significant portion of their capital, and most are private enterprises. Some of these companies have been established for nearly half a century, quite a few private businesses were founded in the entrepreneurial wave after the 1990 Company Law was enacted and are now around the age of "thirty-two", while others have been in operation for 20 years or "younger" partly due to transformations and reorganizations from previous entities.

The challenges in their business stem from the global context, and for many of these companies, it's not the first time they have encountered such difficulties. In fact, in their individual stories, to pursue projects aimed at growth and becoming billion-dollar enterprises, they have faced many challenges in implementation.

Overcoming Challenges

Hoa Phat's "iron buffalo" also faced many concerns in 2017 when it announced the implementation of the Hoa Phat Dung Quat Steel Complex project to double its capacity to 4.4 million tons. After the project's components gradually went into operation, market share figures and growth data in new markets answered the initial doubts. Stock prices rose rapidly from April 2020, following two years of sideways consolidation. This time, the market's difficulties deeply affected the giant's 30th year in the marketplace. However, with a strong foundation of internal resources built up over the years and favourable market conditions, Hoa Phat's profits rose from the bottom.

The choice to rise often comes with many risks. The head of The Gioi Di Dong (Mobile World) also emphasized that continuous exploration, innovation, experimentation, and accepting mistakes were essential to create new growth drivers. From its initial business of smartphones, The Gioi Di Dong has expanded to include Dien May Xanh (consumer electronics retail), Bach Hoa Xanh (consumer goods, fruits, and vegetables), An Khang (medicine), and Ava Kids (products for mothers and children). While it has not yet returned to growth compared to the same period last year, updated figures published in July showed improvement in most product categories.

Vinamilk, a billion-dollar "familiar face" to Vietnamese consumers, also refreshed its brand identity in early July 2023, moving away from the "joyful cow" image that had adorned its product packaging for decades.

The motivation for this change came from consumers and aimed to attract younger consumers, as Bui Thi Huong, Chief HR and External Relations Officer of Vinamilk, when discussing this bold decision. Whether this change has been successful cannot be confirmed, but it has been sufficient to generate an impact. Alongside improvements in business operations, especially in gross profit margin, attention has been drawn to Vinamilk's stock on the stock exchange, including foreign capital, helping Vinamilk's market capitalization reach its highest level since February 2023.

Vingroup also achieved a major milestone this year. At the age of 30, the third-largest market capitalization group completed the listing of VFS shares of its subsidiary VinFast Auto Ltd on the Nasdaq stock exchange. Just the fact that trading volume per session was several times the number of freely circulating shares and consistently being on the list of trend stocks on the stock exchange with a market capitalization of over USS$20,000 billion is an achievement that few stocks can claim.

However, VinFast's workforce had to adapt continuously to market fluctuations to achieve this result. From the initial idea of going public through a SPAC when electric vehicle stocks were hot at the beginning of 2021, VinFast shifted to an IPO plan and ultimately returned to listing through a SPAC company due to the lacklustre performance of the IPO market. According to Le Thi Thu Thuy, CEO of VinFast Global, the journey of listing on the US stock exchange was a significant effort by all employees and leaders of the company.

There will be more billion-dollar companies on the exchange

The list of billion-dollar club companies on the Vietnamese stock exchange has seen a significant breakthrough in the challenging years influenced by the pandemic. There was a time when this list had up to 60 members (at the end of 2021), and now it has been adjusted to 50 companies according to market developments. There are many reasons to believe that this billion-dollar club still has the potential to welcome new members from companies already listed on the exchange and newcomers.

A year ago, the government issued Resolution 68/2022/NQ-CP regarding the continued innovation and enhancement of the efficiency of the operations and resource mobilization of State-owned enterprises, focusing on economic groups and State-owned corporations in economic and social development. This resolution highlighted the need to review the listing of shares of previously privatized enterprises on the stock exchange. Furthermore, one of the tasks set for State-owned enterprises by 2025 is to have at least 25 State-owned enterprises with owner's equity or market capitalization on the stock market reaching over US$1 billion, including at least 10 units reaching a level of over US$5 billion.

The force of billion-dollar companies on the exchange from privatization is not insignificant. They possess valuable assets and unique advantages in key industries and sectors of the economy. Thanks to market evaluations and these advantages, giants such as Vinalines, VEAM, PV Power, and EVNGENCO3, which recently went public, have swiftly joined the billion-dollar club.

What's even more important is that the aspiration of these companies to rise above administrative orders will be a driving force for the stock market, in particular, and the economy, in general, to have more extensive and powerful enterprises. Right after the major milestone of VinFast, VNG Ltd, the company owning 49% of VNG's capital, recently submitted an IPO application on the Nasdaq exchange, paving the way for this billion-dollar Vietnamese company to raise foreign capital on the international stage. The company's ambition is to become a global technology company headquartered in Vietnam, with a global talent pool, yet still deeply rooted in Vietnamese identity: independent, resilient, open-minded, and eager to learn and develop.