Kinh Do Changing for the Better

 

In the financial statements for the first six months of this year, KDC still retained VND276.97 billion of short-term financial investments, down VND 83.34 billion over the same period last year. There still remain entire investments of over VND2,776.71 billion in subsidiaries and associated companies. However, the list of listed shares currently owned by KDC has been contracted with the value of only around VND1.5 billion compared to VND 15.35 billion by the end of 2011. In particular, in the second quarter, KDC withdrew investment from Dong Tam Food Joint Stock Company (Nutifood) and Saigon Beverages Joint Stock Company (Tribeco). While the fund withdrawal from Tribeco yielded profit of VND 1.7 billion, the withdrawal from Nutifood drove KDC to the loss of VND71.31 billion. KDC has officially announced the merger of Bakery Vinabico Company so as to expand its market share in the confectionery industry in Vietnam. However, non-core field investment fund of KDC still stays very large. The total investment in three companies in the real estate reached VND1,255.6 billion, an increase of more than 25 percent against the end of 2011. Undoubtedly, fund withdrawal is not easy at all. According to Mr Pham Ngoc Bich, Deputy General Director of Saigon Securities, if businesses offer acceptable price, there is still likelihood that they will find the buyers.

 

Kinh has officially announced the partnership with Ezaki Glico Confectionery Corporation (Japan) in product distribution in Vietnamese market. Mr Tran Le Nguyen, General Director of Kinh Do said that with overseas experience of Glico, Kinh Do will expand product portfolio, increase productivity and revenue and more importantly, provide a variety of choices for consumers. Earlier, since February this year, Glico has officially become a strategic shareholder of KDC through the purchase of 14 million shares (equivalent to 10 percent of the share capital upon the release) in the issuance period of KDC’s individual stocks. It is expected that after four years, sales of Glico products distributed in Vietnam will reach US$ 1,000 billion. In its development strategy, it is planned that KDC will launch oil products and instant noodles into the market at the end of this year. It is obvious that Kinh Do is expanding its business areas with an aim to becoming the leading food company in the market.

 

According to Dr Le Dat Chi, Head of investment module, University of Economics of Ho Chi Minh City, investment in non-core fields is not totally misleading. As for a business that has successfully insured itself in the market, if "entrenching" itself in only one main business area, the production expansion would not probably work out at a certain time in the future as the market demand has not increased. However, the most important lies in the business’s expansion scale. KDC’s investment expansion in the food sector is worth considering as KDC has experience in the production and distribution of confectionery – also considered the food. Investment expansion in the relevant products will help the company grow and keep retaining its market share in the traditional line.

 

Another important point that ensures the proper operation of the new invested business area is mechanism and workforce. Accordingly, according to the named specialist, it is quite easy to understand why KDC make a loss when it joins the new business area namely real estate, securities, etc. Obviously, KDC does not have any experience in business management in real estate or securities area. "I do not think that a dairy company investing in production of beer will be successful as we don’t see any relation. Either, I don’t agree with the fact that a company specializing in textile tries to own site to open showroom, which is similar to real estate trading. If textile company invest in producing fashioned items, it is certain to go in the right direction", Dr Le Dat Chi analyzed. It is proved by many business lessons that a business that fails to meet the requirement on experience, skill and human resource, it is certain to be unable to compete with others and survive in the market. The more investment in non-core fields it makes, the more loss it suffers from. That's not to mention the fact that many businesses keep aggressively pursuing investment in non-core fields, making dispersed and depleted resources, thereby leading to the collapse of main production line. Therefore, Kinh Do is probably undergoing a hard transformation process. Yet, it is an inevitable trend. Investors keep watching King Do’s developments.