Crystal Resin (PLP) has a headache with the growth problem

(On February 19, 2019, PLP closed the list of shareholders to pay 10% stock dividend and offered 1: 1 share at the price of VND 12,000 / share according to the approved plan. shareholders approved. If successful, PLP’s chartered capital will increase to VND 315 billion, 2.1 times higher than the end of 2018. However, PLP’s growth problem is the point that investors should consider.

Error with the 2018 profit plan

Financial report (Financial Statements) in the fourth quarter of 2018 showed that Crystal Plastic Manufacturing and Technology Joint Stock Company (PLP code) achieved revenue of VND 166.8 billion, increased 70.1% over the same period in 2017, but due to the higher cost of goods sold, up to 100%, the gross profit increased only slightly over the same period, reaching 30.4 billion VND.

Along with that, financial expenses (mainly loan interest) increased by 20.8% (reaching VND 5.8 billion), management costs tripled (reached 5.5 billion), making the profit after tax decreased 23.8%, reaching 12.5 billion rumors – marking the second consecutive quarter of profit decline. Previously, the third quarter of 2018 of PLP decreased by 36.1% over the same period in 2017.

Accumulated for 2018, PLP recorded revenue of VND 525.7 billion, an increase of 67.4% compared to 2017 and exceeding 25.17% of the plan. but after-tax profit only fulfilled 86% of the plan, reaching VND 52.47 billion.

On the other hand, the fact that the 2018 profit growth was low at 1.5%, while the size of assets and capital increased by 45.2%, making the index PLP’s profitability is significantly reduced. Specifically, the return on total assets (ROA) and the average return on equity (ROE) in 2018 reached 10.3% and 23%, respectively, down from 15.4% and 33 % of 2017.

Profit margin declines due to rising costs

Formerly Crystal Crystal JSC, established in 2008, PLP is now one of the largest CaCO3 stone producers and plastic additives in the country. PLP owns the CaCO3 quarry at Thung Hung Mountain, Quy Hop District, Nghe An Province with an area of ​​5.24 ha, reserves of about 5 million m3, which is highly appreciated for its quality and exploitation time. 2037 (22 years since licensing in 2015). Recently, PLP plans to look for white marble quarries to expand its material area.

At the beginning, PLP’s main product was CaCO3 stone, which was directly exploited in raw form, but since 2014, PLP has invested in an additive grain production line. Filler Masterbatch is used as a filler for the production of industrial and household plastic products with the aim of reducing production costs, increasing heat resistance, durability for products …

After Filler Masterbatch production line was completed and put into operation in the second quarter of 2016, PLP’s revenue increased dramatically when it was a product. The price is 6-7 times higher than the price of stone powder products, even 13-15 times higher than ordinary CaCO3 stone.

Over the past 3 years, the proportion of revenue from Filler Masterbatch sales of PLP has increased, from 80% in 2016 to 85% in 2017 and about 90% in 2018.

Although in the composition structure of Filler Masterbatch, CaCO3 stone powder accounts for about 70-85% in weight, plastic resins account for about 10-15%, but due to the price This material is dozens of times higher than stone powder so the proportion of primary plastic resin accounts for 55-60% of the cost structure.

With a product made from petroleum products, the price of virgin plastic resins depends on fluctuations in world crude oil prices, which are external factors. control of the business. Besides, the main supply of plastic resins comes from imports.

According to the Vietnam Plastics Association, each year Vietnam has to import 3.5 million tons of raw materials for the plastic industry, not to mention additives, while domestic enterprises only meet 900,000 tons / year.

The inadequate control of important and imported materials makes PLP’s profits greatly influenced by the fluctuations in world plastic resin prices, as well as exchange rate risk.

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PLP 2015-2018 business results.

In fact, during the period when oil prices and exchange rates tended to increase in 2018, PLP’s raw material costs were pushed up higher than in 2017, Cost of goods sold last year increased by 85.8% – higher than the growth rate of revenue of 65%. This is the main reason that PLP’s gross profit margin of the whole year was only 21.4%, down sharply from 30.1% in 2017. In particular, in the fourth quarter of 2018 only, the profit margin was only 18.2%. % (the same period in 2017 reached 30.4%).

“The price of raw materials purchased to produce plastic beads increased over the same period last year, pushing up production costs, while selling prices in the market. kept stable for customers at the same price, ”PLP explains the story of net profit decline in the second half of 2018.

In the published prospectus, PLP acknowledged that, while the market of Filler Masterbatch has a lot of potential for development, the level of competition is fierce and barriers. enter the industry low. When the market demand increases, the number of new businesses joining and expanding production is one of the difficulties that makes it difficult for the Company to adjust selling prices and expand the market.

Capital appropriated, dependent on debt

An obvious feature of PLP’s operational structure is the imbalance in the receivables-pay structure, resulting in capital appropriation. According to the financial statements of PLP, by the end of 2018, the receivables amounted to VND 172.2 billion, up 95% compared to the beginning of the year and accounted for 28.5% of total assets.

In which, there is 111.5 billion dong receivable from customers, the rest is prepaid for sellers. On the other hand, accounts payable to suppliers is only VND 27 billion, equivalent to 15.6% of receivables.

The capital appropriation is most likely due to the dependence on big customers in PLP’s business. Although the financial statements of the fourth quarter of 2018 have not explained in detail the partners with large receivables, but in the previous financial statements, some names that often appear are Hanoi Plastic Trading Co., Ltd, Global New Material Limited , Rakka Al-khaleẹ International LLC … In which, Hanoi Plastics is a distribution partner of products in the domestic market, Global New Material Limited and Rakha Al-khaleej International LLC are major customers importing PLiller Filler Masterbatch.

Generally in the past 2 years, although the profits have continuously increased, the main business has not brought cash flow for PLP. In 2017, the operating cash flow was negative VND 39.6 billion, mainly due to a sharp increase in the payment to suppliers of goods, services and materials. Similarly, boosting investment also makes the cash flow of regular investment negative, as a result, the operating cash flow mainly depends on the increase in loans, debt and interest.

By the end of 2018, PLP had a loan balance of up to VND 350 billion, an increase of 65% compared to the beginning of the year. Of which, borrowings accounted for 89% of liabilities and 52% of total capital.

From the beginning of 2016 to the end of 2018, PLP’s debt increased by 3.3 times. In 2018, loan interest accounted into operating expenses was VND 22.2 billion, up 35% compared to 2017 and quadrupled in 2016.

In contrast, the ratio of cash to total assets decreases sharply. At the end of 2018, PLP’s cash and cash equivalents were VND22.3 billion, equivalent to only 3.4% of total assets and 7.5% of short-term liabilities. This shows that the solvency of PLP depends heavily on the recovery of accounts receivable and debt turnover.

With plans to continue raising cash flow for investment, expanding business, increasing working capital demand, it is certain that PLP’s debt will not be stopped yet. . In such a context, completing the ongoing capital mobilization will play an important role in helping PLP reduce cash flow pressure and prevent debt risks from spiraling out of control. However, PLP will also face dilution risks.

Dilution pressure on business results 2019

On February 19, PLP closed the shareholder list to pay a stock dividend of 10% and offered the stock to the public at a ratio of 10%. 1: 1 at the price of 12,000 VND / share according to the plan approved at the Annual General Meeting of Shareholders (AGM) 2018. If successful, PLP’s charter capital will increase to 315 billion VND, 2 times higher. 1 time compared to the end of 2018.

With 15 million shares offered, this capital raising is expected to bring about VND 180 billion for PLP. Of this amount, VND 50 billion is used to invest in improving the production capacity of Nghe An branch and Hai Phong factory, VND 60 billion is invested in artificial stone production lines and VND 70 billion is used to supplement working capital.

In 2018, in the announcement of business results from the second quarter to the fourth quarter, PLP said that the Company completed the transfer of the stone powder line to Nghe An, deploying and running 2 acid-coated chains to increase the capacity and quality of Filler Masterbatch production. Funding for these activities is mobilized by PLP from borrowed capital, so the financial cash flow pressure will increase in 2018.

Scale of charter capital is doubled, new lines need time to invest and when put into operation, they cannot run at full capacity, while depreciation costs , the increase in interest rates will increase PLP’s financial cost and financial costs, and profit in 2019 is forecasted to be difficult to keep up the capital increase momentum and cause significant dilution pressure on stock market prices.

According to the 2019 business plan temporarily built by the Board of Directors (according to the Prospectus information), PLP expects 741 billion dong revenue and 69 billion dong. net profit after tax, an increase of about 13% compared to the planned profit and 32% compared to the performance in 2018.

In the market, PLP’s share price is showing negative movements. Closing the trading session on February 22 at VND 11,900 / share, PLP market price has decreased by 15% in the last 3 months and down 42% compared to the price at the beginning of 2018.

With estimated price multiple on earnings (P / E) on expected after-tax profit 2019 and the number of additional shares issued 5.75 times, children This number of PLP is not much higher than that of other enterprises in the market.

Oil prices are in the trend of adjustment after a sharp increase period is a favorable condition for PLP to reduce capital costs, improve profit margins thanks to the ability of plastic resin prices to decline. . However, PLP’s financial – business – cash flow picture still has many points that need a resolution and clear information before the AGM 2019.

Khac Lam