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H1 business results in, but are they reliable?
A lot of companies have announced impressive profit for the first half of the year. However, experts have warned that this may be ‘virtual’ profit that conceals actual loss.
Investors were dazed by the news about the loss of VND20bil Bao Viet Securities Company (BVSC) incurred in the first half of the year. Shareholders of Refrigerating Engineering Enterprise (REE) were astonished when hearing that the company’s pre-tax profit was minus VND127.48bil.
The main reason for the losses of BVSC and REE is that the companies had to make big provisions for investment deals.
Vo Huu Tuan, Deputy General Director of BVSC, admitted that the provisioning made the company’s profit decrease. BVSC made provision of tens of billions of VND for financial investments in Q1, and VND203bil in Q2. Vinamilk set aside a provision of VND1.2bil in Q1, while REE made provisions every month. REE made a provision of VND50bil in May 2008 after it made a provision of VND22bil in April.
The companies have had to make big provisions because they have big financial investment volumes. In early 2007, companies began injecting a lot of money in securities when the stock market was hot. However, stock prices have fallen by 50% since then, while there is no sign of the market’s imminent recovery.
According to local newspaper Saigon Tiep Thi, the total short-term financial investments of 274 listed companies had reached over VND14tril by the end of 2007, and VND17tril by the end of Q1 2008, while long-term financial investments had reached VND26,500bil. As such, the sums of money companies have had to provision for the investments will be very big. Tuan of BVSC believes that a lot of companies will see profit down due to having to make provisions.
Making provisions help enterprises ensure financial capability in case investment deals bring losses. However, a lot of listed companies did not make provisions in Q1, namely DHG, SMC, SAV, PAN, and VIC.
Analysts said that a lot of companies do not make provisions because they want to ‘polish’ their business results to satisfy investors. They try to delay provisioning to the last months of the year, hoping that securities prices will increase again.
Therefore, analysts have advised investors to analyse the business reports provided by companies. In many cases, the declared profit is just virtual profit.
The HCM City Stock Exchange in June 2008 sent a dispatch to listed companies, instructing them to strictly follow the regulations on setting aside provisions for finance investments.
VNN
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