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Thanks to decrease raw material prices, plastic enterprises have great profits

16 Nov 2020

The Q3 financial report of TienPhong Plastic Joint Stock Company showed net revenue increased by 38% to 1,238 billion VND. Gross profit jumped 68% to 424 billion VND, corresponding to the gross profit margin increasing to 34.3% over the same period in 2019. Profit after tax jumped 68% to nearly 138 billion VND. The leader of this enterprise explained the profit in the third quarter increased strongly compared to the same period last year by 55.6 billion VND, mainly due to the sharp drop in input material prices. Therefore, accumulated in nine months, net revenue of TienPhong Plastic increased slightly to 3,394 billion VND and profit after tax increased by nearly 14% to 342 billion VND. In 2020, the company hopes to achieve 5,100 billion VND in revenue and 470 billion VND in pre-tax profit. Thus, the business has completed 85% of the profit plan after nine months.

Many plastic companies have big profits in the third quarter. Source: Internet

Similarly, in the third quarter, Binh Minh Plastic Joint Stock Company recorded net revenue of 1130 billion VND, up 5.7%, while profit after tax was 153 billion VND, up by 27.8% YoY. The leader of this enterprise also said at the end of the second quarter and the beginning of the third quarter, the sharp drop in plastic material prices helped firms accumulate raw materials, thereby increasing profits. Raw materials account for 65% of costs, so any price increase or decrease can strongly affect profitability. Compared with the year plan, the enterprise has made about 73% of output, 74% of revenue and 88% profit.

In the third quarter, Vietnam Plastic Joint Stock Company recorded an increase of 57.5% in revenue to VND 52 billion and profit after tax increased by 20% to VND 10.6 billion. In the first nine months, the revenue of this business is equivalent to the same period last year at 99 billion VND, but profit increased by nearly 3 times to 26.4 billion VND.

Tan Tien Plastic Packaging Joint Stock Company in nine months also achieved revenue of more than 1,270 billion VND, equivalent to the same period last year, but thanks to cost savings, the after-tax profit of this firm reached 103 billion VND, up 51 % over the same period in 2019. Thanks to that, at the end of 9 months, this enterprise has completed 58% of the revenue target and 62% of the profit target.

Despite the difficulties, businesses still find a reasonable development strategy and the plastic industry is one of them. The evidence is that favorable factors of the industry in general have supported the prices of plastic stocks which increased quite strongly. Typically, BMP shares of Binh Minh Plastic increased from the price range of 31,000 VND/share to 54,000 VND/share as at present, equivalent to an increase of nearly 75%.NTP shares of TienPhong Plastic also increased from the price range of 22,000 VND / share to 33,000 VND/share.

Opportunities for big businesses

Vietnam has about 3,300 plastic enterprises in operation, with a turnover of about 15 billion USD. According to the Vietnam Plastic Association (VPA), since June, Vietnam’s exports of plastic products to the European market (EU) have recovered and increased again in some key and traditional markets such as Poland, Poland, Spain, Denmark and Italy. Besides, the tax incentives from the Vietnam – EU Free Trade Agreement (EVFTA) are expected by businesses to bring more growth prospects for plastic export activities.

The year 2020 is a difficult year; however, the plastic industry enterprises receive a favorable factor when the price of raw materials falls. Plastic resins are petroleum products, so there is a high correlation with crude oil prices, so oil prices in 2020, especially April, helping plastic producers benefit. However, the joy is not long before plastic material prices are recovering. According to a report by Bao Viet Securities Company (BVSC), PVC resin price recovered from a record low of 630 USD/tonne in April to 790 USD/tonne and went sideways in August. This material has increased to the price range 840-850 USD/tonne, equivalent to the average level in 2019.

Therefore, according to the leader of Binh Minh Plastics, in the fourth quarter, the price of raw materials can rise again when it increased by 30% compared to the bottom of 2020. This makes the profits of plastic enterprises possible may be affected at the last quarter of the year. In addition, most businesses have ended investment activities in 2019, with capacity exceeding 1.8-2 times the demand of the whole market, so there will be no move to invest more. So this will be an opportunity for large firms with good brands and strong financial potential.

By Huong Diu/ HuuTuc

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