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Plastic stocks surge in two months, boosted by low production cost
Listed plastic companies have seen their market values expand 15-50 per cent in the last two months on low oil prices and increased consumption.
Some plastic producers trading shares on the three markets include Binh Minh Plastics JSC, Tien Phong Plastics JSC, Dong A Plastics JSC, Ha Noi Plastics JSC, and An Phat Bioplastics JSC.
The two-month rally of plastic stocks began in late July.
As of October 6, Binh Minh Plastics shares (HoSE: BMP) have gained a total of 30.6 per cent, and Tien Phong Plastics shares (HoSE: NTP) have increased by total 31 per cent.
Shares of Dong A Plastics (HoSE: DAG), An Phat Bioplastics (AAA) and Ha Noi Plastics (HoSE: NHH) have risen between 20 and 30 per cent in the same period.
The rally was boosted by the rebound of market demand in the construction sector as Vietnamese consumers are trying to adapt to the new life amid the COVID-19 pandemic.
According to securities companies and market analysts, the local stock market has benefited from the expectations that the Government will increase spending on infrastructure development.
Such expectations have helped boost material producers, including plastic companies, analysts said.
The growth of plastic companies has also been bolstered by the decline of oil prices starting in September.
Brent crude has dropped as much as 13.8 per cent to $39.27 a barrel since September 1 while US crude has slid and changed little around $40 a barrel. Both suffered a plunge in late April with US crude retreating to negative value for the first time in history.
Oil is the material used to create compounds for plastic production. Therefore, the decline of oil prices is expected to help local plastic firms reduce their production expenses, brokerage firms said.
Nguyen The Minh, analysis director at Yuanta Securities Vietnam Co, said local plastic producers had struggled a lot in 2018-19 because oil prices rose and market competition got fiercer.
The sector’s average profit growth in 2018-19 scaled back to only 5 per cent compared to 30 per cent recorded in 2017, he said.
The market had now stabilised and the toughest time had gone, but local firms were diverged, he said. Except for the two largest companies – Binh Minh Plastics and Tien Phong Plastics – other companies now have a 10-15 per cent gross profit rate.
Vietinbank Securities Co (VietinbankSC) said in a report that the volatility of oil prices was the major reason for Binh Minh Plastics to raise its gross profit by 28.2 per cent on-year in the second quarter and 26.4 per cent in the first half of the year.
In the January-June period, the company saw its total revenue rise 8 per cent on-year and post-tax profit jump 23.4 per cent on-year to VND2.27 trillion and VND257 billion, respectively.
At Dong A Plastics, lower production costs helped reduce cost of sales in the first six months by 38.6 per cent on-year and raise its gross profit, which increased by 4.2 per cent on-year to VND12.8 billion. The firm logged a 1.5 per cent growth in post-tax profit, which reached VND52.2 billion.
Business plan beaten
Based on the current conditions, local plastic producers have a great chance to finish their business plans ahead of schedule.
VietinbankSC said that Binh Minh Plastics had the largest market share in the South, healthy financial strength with low lending-over-total asset ratio, no long-term loans and positive cash flow in recent years.
In the first six months, the company fulfilled half of its full-year revenue plan, which was VND4.56 trillion, and nearly 70 per cent of pre-tax profit plan, which was VND465 billion.
Tien Phong Plastics eyes a 3 per cent growth rate in both total revenue and pre-tax profit in 2020, which are projected to reach VND5.1 trillion and VND470 billion.
Tien Phong Plastics general director Chu Van Phuong said that production and selling expenses dropped 14.9 per cent on-year in the first six-month period.
The company could also benefit from the European Union-Viet Nam Free Trade Agreement (EVFTA), which took effect on August 1, Phuong said.
Under the EVFTA, Vietnamese seafood exporters are expected to enjoy a zero per cent tariff when shipping products to European markets.
Tien Phong Plastics also sold pipes to help seafood firms raise aquaculture species, the general director said, adding a recent deal with Minh Phu Seafood Corporation would help the firm log higher earnings in 2020.
In January-June, the company earned VND2.15 trillion worth of total revenue and VND237.7 billion worth of pre-tax profit, down 13.4 per cent and 5.3 per cent on-year.
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