VRG wading through deep waters before IPO

Earlier, VRG’s charter capital after equitisation was expected to mount to VND40 trillion (US$1.76 billion), equivalent to four billion shares.

Specifically, the rubber manufacturer planned to sell 475 million shares, equivalent to 11.88% of the speculated charter capital, through a public auction at the starting price of VND13.000 (US$0.57) per share. Additionally, the corporation plans to sell 11.88% of its charter capital to strategic investors, 1.22% to current employees at a discount price, and 0.02% to VRG’s trade union.

According to this equitisation plan, the group expected to divest 25% of its charter capital, which was roughly equivalent to VND6.2 trillion (US$273.42 million).

However, the government still planned to maintain its ownership of 75% at VRG, which would partly reduce the appeal of the stakes. In addition, strategic partners were also required to preserve their ownership at VRG for at least five years, which would further impact the group’s attractiveness, especially in light of the erratic price of natural rubber latex.

Moreover, VRG’s price-to-earnings ratio (P/E) was also relatively high in comparison to the industry. In particular, the P/E of other rubber enterprises recorded at the final transaction session of 2017, including Phuoc Hoa Rubber JSC (PHR), Dong Phu Rubber JSC (DPR), and Tay Ninh Rubber JSC (TRC) were respectively 6.8, 5.8, and 6.8. However, the P/E of VRG for four billion shares after the equitisation process would be 17 if the company manages to exceeded its profit target of VND3 trillion (US$132.3 million).

During 2013-2015, falling rubber prices significantly diminished VRG’s profit from VND3.79 trillion (US$167.1 million) in 2013 to VND1.93 trillion (US$85.3 million) in 2015. In contrast, since 2016, the enterprise’s profit recovered to VND2.79 trillion (US$123.3 million) due to its restructuring process, which lowered financial costs by 54%.

According to a financial report published by VRG for the first six months of 2017, its profit reached VND8.12 trillion (US$357.8 million), while its after-tax profit skyrocketed to VND1.53 trillion (US$67.3 million), up respectively 46 and 178% against the same categories in 2016 due to the 30% surge in the price of outputs and the VND966.8 billion (US$42.4 million) return from the sale of industrial parks.

During 2018-2020, the group aims at a steady increase of 17.6% a year in revenue. Particularly, the revenue and after-tax profit targets are VND29.4 trillion (US$1.2 million) and VND6.08 trillion (US$265 million), respectively.