Financial performance of industrial enterprises on the stock market in Vietnam

The large market price has made the company's shares more attractive to investors.

Determining the fair value of a business and then making a reasonable bid for the business has become more unpredictable than ever for investors. For businesses, it is also difficult to price their business reasonably. If the price is too high, no one will buy it, if the price is too low, the business will suffer losses. To determine a reasonable purchase price as well as decide whether to buy shares of that business, investors must first find information about the business. However, that information is updated too late, lacks important information and sometimes lacks authenticity because most of the information on the prospectus is very general, the information from the company's website (if any) is not enough for investors to make a bid.

Another factor that also affects the stock price is the bid-to-offer ratio. When investors pay too much attention to this factor, it can lead to a virtual price phenomenon. Because the higher the bid-to-offer ratio, the more it shows that demand is greater than supply. When demand is greater than supply, it is inevitable that prices will increase. Especially for state-owned enterprises issuing shares for the first time, because the state ownership factor is still too large, the percentage of shares sold outside is often low. When the percentage sold outside is low, while the external demand is too high as it is now, it is natural that the stock price will be high.

It can be said that when valuing a business through an auction, the buyer will be the one who decides the purchase price of the shares, not the seller. However, accurately valuing your business also contributes significantly to the success of the business because if the starting price of the business is too high, there will be no buyers and the issuance will have to be canceled. In fact, there have been a number of companies that have fallen into such situations, typically the Saigon Garment Company.

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Although business valuation through auction has many advantages, it also encounters many difficulties when implemented:

First, Difficulties in pricing methods:

In case of applying the net asset method for valuation, it is very difficult because this method only calculates the book value of fixed assets in the enterprise. To determine the market price of different types of tangible assets of the enterprise, it is necessary to have the participation of many experts specializing in valuation of many different types of assets, which is very difficult because if individual investors in the market do not have the capital to hire valuation experts. If they have enough conditions such as large investment organizations or funds, the problem of accessing information and valuing the market of some assets seems impossible.

In the case of valuing land use rights of many enterprises based on market prices, it is very large, even larger than the value of all the different assets of the enterprise. If the value of land use rights is not taken into account, the enterprise may be undervalued. When valuing an enterprise too low, the investor may not miss an opportunity to make a profit, and the enterprise will of course suffer a loss.

Another difficulty is the valuation of intangible assets. Some large enterprises have famous brands and names, intangible assets can be as valuable as tangible assets, even much higher, but currently, intangible asset valuation methods are rarely applied in Vietnam. Even securities companies hired to value enterprises are confused about intangible assets, so investors find it difficult to accurately value them.

The application of the cash flow discount method in Vietnam is also widely accepted because the price calculated by this method reflects relatively fully all aspects of the nature of the company's production and business activities compared to other methods. However, this method is complicated, time-consuming and difficult to use because it has too many related variables that need to be clearly identified, and the enterprise value calculated by this method fluctuates greatly. Predicting accurate sales and accurate cash flow for many years is quite complicated. On the other hand, the maturity value of the enterprise always accounts for about 50% or more of the enterprise value, and this value will be very different if the review period is not clearly defined as 5-10 years. There is no general rule for determining the exact time

time, analysis period. The longer the consideration period, the higher the enterprise value and in addition to the enterprise value, the total cash flow converted to present value is larger if the time to consider the cash flow arising in the future is further away. From the investor's perspective, when using the discounted cash flow method for valuation, it is necessary to understand that there is no limit to the value standard and the discounted cash flow method has maximized the enterprise value that the buyer has to pay or in other words, the buyer can buy at a high price and lead to risks for the buyer.

Second, the difficulty in accessing information: Information about the issuing company is not highly reliable, some companies do not have audited financial statements. Even audited financial statements are not really trusted because the auditing companies are domestic companies (there may be collusion in the audit report), not joint venture or 100% foreign-owned auditing companies. Moreover, in Vietnam there is no independent organization to re-evaluate the first audit results.

Third, legal difficulties: The provisions of Decree 187/2005/ND-CP and Circular 126/TT-BTC do not have any restrictions or prohibitions on cases of participation in share auctions. That is, those with financial capacity have the right to participate in auctions without restriction. However, in reality, it may happen that some people or individuals participating in the auction have close, blood relations with the leaders of the intermediary financial institution that sells shares, through which they can grasp information about the situation of the enterprise (here referring to the equitized enterprise with high profitability) and will bid for shares more accurately. Therefore, they are able to boldly decide on prices to buy or acquire shares. Such actions greatly affect the equality in share auctions and can distort the auction results and cause future litigation.

The above problems have led to the following consequences in the pricing method:

Firstly, speculators push the price up, speculators predict the lowest bid price will be how much VND/share, then they will win the auction and place a large order to buy shares at this price, at the same time hire some people or attend the auction themselves and place a very high bid to buy shares, thousands of times higher than the price.

starting point (willing to put down a deposit with sky-high bid prices) with the aim that the average successful auction price will be much higher than the lowest successful auction price such as:

- Thac Mo Hydropower shares were bought at the highest price of 56 million VND/share, while the starting price was only 20,000 VND/share, pushing the average price up to 67,929 VND/share. Ba Ria Thermal Power shares also cost 40 million VND/share and the average price reached 78,528 VND/share while the starting price was only 15,750 VND/share.

- In addition, there are also many other stocks with the highest price at an unimaginable level such as: Hiep Phuoc Industrial Park stock is 20.1 million VND, KIDO Joint Stock Company is 80 million VND...

Second, Refusing to buy shares: Many investors still believe that buying shares in the initial issuance is often cheap, and they can buy at the original price. The number of investors registering to participate in pushing up the price is often very high, creating a mentality of buying shares at all costs. Therefore, there are many cases of having to "run away" when the market price drops. An unfortunate thing for some recent share auctions is that the auction was held when the VN-Index was increasing in price, but the money was paid to receive shares during a period when the market was falling. The comparison of the stock price trend between these two periods has caused losses for investors, leading to the situation of abandoning the deposit and not buying shares. It is better to accept losing the deposit than... The auctions during the time when the market was rising were all those with an average auction price that was 2-3 times higher than the starting price. The auction of Vietnam Electric Wire and Cable Corporation (Cadivi) on January 30, 2007 took place in a suffocating situation with the number of shares ordered reaching 67 million (20 times the number sold). The starting price was 40,000 VND/share, the average winning bid price was 185,369 VND/share. Up to now, when the market is in a downward trend, there is only

400,000/share was paid by investors to buy (out of a total of 3.4 million shares), the remaining investors "ran away" because they accidentally paid too high a price, causing the State to receive 12 billion VND in deposit money and the Hanoi Stock Exchange had to organize a second auction to sell shares, which will take place on May 8 with a starting price of 40,000 VND/share.

In addition, there are some investors in the capital market who do not have enough money to pay the full amount to buy shares. They participate in the auction because they want to buy shares after the auction.

immediately transfer to another investor to have money to pay, but for some reason they cannot transfer so they have to accept to forfeit the deposit because if they don't want to forfeit, where will the money to pay?

2.2.2.2. Current status of securities issuance activities.

a. Initial public offering activities.

The establishment of the Vietnamese stock market has created favorable conditions and an economic and legal environment for joint stock companies to mobilize and concentrate investment capital through the issuance of securities. When wanting to mobilize capital on the stock market, enterprises can mobilize through the form of issuing shares or issuing bonds. However, for enterprises in general and industrial enterprises in particular, the main activity is the issuance of shares. In the years before 2003, the initial public offering of shares by industrial enterprises was very quiet, the number of companies issuing shares to the public accounted for a very small proportion.

Chart of the number of industrial enterprises with initial public offerings

120

100

109

2002 2003 2004 2005 2006 2007 2008 6M/2009

Figure 2.17: Chart of the number of enterprises issuing initial public offerings.

Source: [13], [29]

From 1999 to 2002, there were 36 industrial enterprises with a total charter capital of VND 255,399 billion, the value of shares sold to employees was VND 154,615 billion, accounting for 61% of charter capital, the value of shares sold to the outside was VND 50,686 billion, accounting for 19.9% of charter capital. Of which, Ho Guom Garment Joint Stock Company, Vien Dong Paper Joint Stock Company, Garment Joint Stock Company 9 did not have shares sold to the outside, only the company's employees bought shares. Also during this period, the activity of issuing shares to the public for the first time

Chart of total value of initial public offering shares

of enterprises over the years

90,000.00

80,000.00

70,000.00

60,000.00

50,000.00

40,000.00

30,000.00

20,000.00

10,000.00

85,063.77

56,040.99

42,112.80

1,265.57

15,971.51

7,542.89

16,195.45

3,287.40

of industrial enterprises did not take place much. The total value of initial public offerings of industrial enterprises reached 1,265,568 billion VND.

Billion VND

2002

2003

2004

2005

2006

2007

2008

6T/2009

Figure 2.18: Chart of total value of initial public offering shares of state-owned enterprises over the years.

Sources: [13], [27], [28] The birth of Decree No. 64/2002/ND-CP dated June 19, 2002 on converting state-owned enterprises into joint stock companies and Circular No. 80/2002/TT-BTC dated September 12, 2002 of the Ministry of Finance, guiding the procedures and methods of selling shares to the outside of state-owned enterprises implementing equitization, in the form of auction or underwriting. Therefore, from 2003 onwards, the initial public offering of shares of industrial enterprises

more exciting than previous years.

Chart of stock value in public enterprises

equitization in 2003

25,000

20,214

20,000

15,000

9,686

10,000

6,738

5.475

5,000

Shareholders, Foreign Shareholders, Incentives for Staff, Strategic Shareholders, Corporate Affairs, Ministry of Finance, Strategy

Billion VND

Figure 2.19: Chart of stock value of enterprises first issued in 2003.

Sources: [13], [27], [28]

Chart of shareholding structure in public enterprises

2003

State shareholder

13%

23%

48%

Shareholders outside the enterprise

Incentives for staff

16%

Strategic shareholder

Figure 2.20: Share structure chart of the first-issued enterprise in 2003.

Sources: [13], [27], [28]

Chart of stock value in public enterprises

equitization in 2004

35,000

30,000

25,000

20,000

15,000

10,000

5,000

30,064

11,813

6,326

7,838

State shareholder

External Shareholders Incentives for Executives

business

CNV department

Strategic shareholder

In 2003, 89 industrial enterprises were equitized nationwide with a total charter capital of VND33,142,000 billion. In addition, 20 non-state joint stock enterprises also issued shares for the first time with a total charter capital of VND8,970,800 billion, higher than the number of equitized enterprises. Although the number of equitized enterprises was relatively large, due to the impact of the stock market crisis since the beginning of 2003, the departure of many investors in the stock market brought a gloomy atmosphere to the stock market and lost the excitement for the equitization process and the initial public offering of shares of industrial enterprises. Of the 109 industrial enterprises issuing shares, only 53/109 enterprises sold shares to the outside.

Billion VND

Figure 2.21: Chart of stock value of enterprises first issued in 2004.

Sources: [13], [27], [28]

Chart of shareholding structure in public enterprises

2004

State shareholder

13.99%

21.08%

53.65%

Shareholders outside the enterprise

Incentives for staff

11.29%

Strategic shareholder

Figure 2.22: Chart of share structure of enterprises issued for the first time in 2004.

Sources: [13], [27], [28]

In 2004, with the gradual recovery of the stock market and the return of investors, the equitization and initial public offering of industrial enterprises began to become more active. In 2004, the whole country equitized 100 industrial enterprises, including 13 mechanical enterprises, 15 enterprises operating in the textile and garment sector, 3 enterprises operating in the electricity sector, 7 enterprises operating in the chemical sector, 5 enterprises operating in the mining sector, and 30 enterprises operating in the food sector. The number of enterprises conducting initial public offerings also increased significantly compared to 2003, with a total of 85 enterprises conducting initial public offerings (65 equitized enterprises and 20 joint-stock enterprises).

Among the 85 enterprises that issued shares to the public for the first time, only Power Construction Joint Stock Company 1 sold shares to strategic shareholders with a total value of 7,837,900 million VND, accounting for 17.67% of the company's charter capital. Vinh Son Song Hinh Hydropower Joint Stock Company is the company with the largest charter capital among the 100 enterprises equitized in 2004, with a total charter capital of 1,250 billion VND, of which the value of state shares is 750 billion VND, accounting for 60% of the charter capital, the value of shares sold to the outside is 437.5 billion VND, accounting for 35% of the charter capital, the remaining 5% is the value of preferential shares for officials and shares sold to officials and employees.

In 2005, the VN-Index stock price index was flat, and the IPO activities of enterprises were not very active. However, in the industrial sector, 97 enterprises were equitized, including 15 enterprises.

Financial performance of industrial enterprises on the stock market in Vietnam - 16

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