Construction, Property Firms Are Most Profitable

1:10:49 PM | 9/10/2019

In the Profit500 List - the list of 500 most profitable companies in Vietnam in 2019 - recently released by Vietnam Report Joint Stock Company (VNR) in collaboration with online VietNamNet Newspaper, construction, building material and property companies take the lead (23.9%), followed by food and beverage (11%), finance (10.8%), and electricity (8.6%).

FDI firms the most profitable

Vietnam's economy fared well again in 2018. In that context, Vietnamese businesses performed well and their profitability and competitiveness increased, considerably. However, there was still a gap in business performance efficiency between foreign-invested companies and domestic companies and among industries.

Taking profitability indicators into consideration, the average return on assets (ROA) of Profit500 companies is 11.9%, slightly higher than 11% in 2018. This proves that their asset efficiency has improved in recent years. The average return on equity (ROE) also increases to 20.9% in 2019 (compared to 19% in 2018), illustrating better capital performance (higher than international standards, standing around 15% for well-performing businesses).

By ownership type, domestic companies have a lower profitability than FDI firms whose ROE is about 17%, compared to 11.5% (ROA) and 12.7% (ROE) of State-owned companies and privately held companies. Their ROE is also much higher, at 26.4%, than 17.6% of State-owned enterprises (SOEs). The high difference in profitability shows that the competitiveness of domestic enterprises, albeit improved in recent years, is still low relative to dynamic and effective FDI companies.

By industry, telecommunications - information technology, pharmaceutical - medical products, food - beverage, and transportation sectors have the highest ROA ratio. Meanwhile, telecommunications - information technology, mechanical engineering, garment and textile - leather and footwear, construction - real estate, and food - beverage sectors have the highest ROE ratio.

These sectors also recorded highest ROA and ROE in the last year’s Profit500 List. This tendency shows that financial independence and autonomy trends in these industries produced positive results and improved business performance.

Better business performance

In the Profit500 List, Vietnam Report conducted a survey of high-performing businesses to understand their performance, impact factors on their profit growth and forecasts for the coming period.

According to the survey, basically, respondents said that their business is better than the previous year. 82% of surveyed companies thought that their revenue in 2019 will be higher than in 2018 and 79% believed that their profit after tax will also increase over 2018. In general, they appreciated the government’s macroeconomic management and expect favorable business results in 2019.

Remarking on the investment and business environment in the first nine months of 2019, most respondents thought that it is good enough. Highly rated aspects of the business and investment environment include macroeconomic management (up to 90% of companies surveyed rated as good and 5% saw very good), access to capital (86.3%), and tax system and tax administration (80.4% and 8.9%).

Meanwhile, some poorly rated areas consist of infrastructure (30%), administrative services (29.8%) and access to land (27.8%).

In fact, in recent years, the Government and the Prime Minister have been very firm to reduce and simplify administrative procedures and create a better business environment for people and businesses. A lot of guiding documents have been issued. Among more than 5,000 business conditions, 542 conditions have been amended, 771 conditions have been removed, and 111 conditions have been replaced. To date, 30% of conditions have been removed and modified to provide more favorable conditions for businesses. However, according to experts and international organizations, administrative procedure reforms are still very slow and yet to come into practice. Much of amendment to business conditions is aimed at avoiding problems rather than making actual changes to them. Many places reportedly reduced 50% or even more of business conditions but affected contents and effects are not as much as announced.

When asked what barriers or challenges are likely to affect their growth potential in the second half of 2019 and the first six months of 2020, a majority of businesses point to five main barriers/challenges: complex administrative procedures (55.6%), fears of unstable economic growth (52.4%), worries about increasing tax burden (39.7%), exchange rate fluctuations (36.5%) and difficult access to capital sources (30.2%).

Some other specific barriers, in spite of accounting for only about 14%, are also worth noting, including U.S.-China trade war, technical export corridors and anti-dumping tax issues.

In this context, enterprises are placing a strategic focus on their internal strengths. In the question of the Top 3 priority strategies to increase revenue in 2019 and at least for the first six months of 2020, nearly 80% of businesses surveyed said that they will give priority to increasing employee performances, followed by finding new customers (about 76%) and finding new markets (about 70%). Also in an additional question about which strategies they will prioritize to grow profits in the next 12 months, most choose to apply high technology and techniques to production and business (about 70%).

10 most profitable companies in Top 500 Vietnam 2019

1. Vietnam National Oil and Gas Group (PetroVietnam)

2. Samsung Electronics Thai Nguyen Co., Ltd

3. Viettel Group

4. Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)

5. Honda Vietnam Company

6. PetroVietnam Gas Corporation (PV Gas)

7. Vingroup Joint Stock Company

‎8. Vietnam Dairy Products Joint Stock Company (Vinamilk)

9. Vietnam Technological and Commercial Joint Stock Bank (Techcombank)

10.Hoa Phat Group Joint Stock Company

Quynh Chi