Investment Companies Archived High Profit Growth in 2010

 

The most important factor for the success of fund’s investment in Vietnamese private enterprises is the fast local economic growth. During the global economic downturn, up to 90 per cent of companies’ operations were reduced, discouraging the funds. Therefore, disbursement rates dropped sharply. At present, when the inflation rate is controlled and the country is reaching economic growth of over 6 per cent, it is a suitable time for investment funds to expand their operations in the Southeast Asian market.

Vietnam provides rapid growth in GDP and consumer demand, providing ample growth opportunities for companies in general. At the same time, most sectors are fragmented and most companies are immature in terms of applying best practices in management, and aren’t effective at scaling up strong management and leadership teams. Therefore, most companies aren’t effective at capturing the rapid growth opportunities that are available in Vietnam, leading to high fragmentation.

 

One other advantage to encourage investment fund disbursement is the open capital market. The development of both the financial market and the finalised legal framework, as well as investors’ experience, are also important factors to boost disbursement. Big funds such as Mekong Capital and VinaCapital plan to expand their operations in the years to come. This proves that they want to grasp opportunities as soon as the Vietnamese economy recovers, through aiming at potential private companies.

Mekong Enterprise Fund’s annual average revenue rate is approximately 30 per cent. Its annual net profit increased twice compared to when it started operations. The impressive net profit growth in 2010 contributed to a considerable increase in Internal Rate Of Return (IRR) of its three funds in the year.

 

The 21 investee companies held in its three funds of Mekong Capital as of 30 June 2010 reported a weighted average increase of 30 per cent in net profit for the six months of 2010, compared to the first six months of 2009. The net profit growth was broad-based across the 21 investee companies, with median net profit growth of 43 per cent.

 

Companies in consumer facing businesses delivered strong net profit growth by consolidating market share in fragmented but fast growing markets. Meanwhile, many companies in manufacturing sectors performed well during this period, driven by operational improvements, as well as growth in domestic demand for their products. Vietnamese garment and furniture companies also benefited from rapidly increasing manufacturing costs in China.

 

Below are some examples of companies that demonstrated sustainable growth throughout the above mentioned period: Minh Phuc Packaging: Minh Phuc, a printing and packaging company focused on clients in consumer industries, achieved net profit growth of over 380 per cent, resulting from its improved inventory management and successful reduction of operating expenses relative to its revenues.

Ngo Han - the manufacturer of magnet wire, achieved 381 per cent net profit growth for the first 6 months. This result is attributable the Company’s success in shifting to higher net margin products, negotiating favorable terms with copper suppliers and success in applying an effective bonus system which aligns key people around the net profit target.

 

AA, a manufacturer and retailer of furniture in Vietnam, achieved net profit growth of 410 per cent as a result of increasingly shifting its focus from revenue to net profit targets. In parallel, AA has successfully expanded its domestic retail presence from the high-end segment into the mass market, through launching new retail concept and Bo Concept.

 

The Gioi Di Dong (MobileWorld) - Vietnam’s largest mobile phone retail chain, continuously executed its strategy of nation-wide expansion by opening new stores in provinces throughout Vietnam. From 41 retail outlets by end of 2009, the company expanded to 51 retail outlets by 30 June 2010. Meanwhile, the company also benefited from other economy of scale advantages, contributing to net profit growth of 167%.

 

Masan Food, a packaged food products company, capitalized on its strength in product innovation, branding and distribution to successfully launch a series of new sauce and noodle products in the first half of 2010, driving up net profit by 40 per cent upper than early year. The launch of Nam Ngu II was a huge success and further solidified the company’s strong market position in both urban and rural areas of Vietnam.

 

Economists said consumer goods producers and exporters are seen as “good addresses” for investment funds. The funds’ investment, with the role of a big shareholder, will help increase the firms’ share value. A number of businesses have gained impressive growth thanks to the funds’ participation.