Escaped losses "narrowly"
Despite recording record high revenue, LTG fell into an "ironical" situation when profits almost recorded negative numbers. According to the 2023 audited consolidated financial statements, LTG recorded a profit after tax of VND 16.5 billion, down 93.8% compared to the self-made report of VND 265 billion. Thus, compared to 2022 business results, LTG's 2023 profit decreased by 96%. This is also the lowest profit this business has recorded since listing its shares on UPCoM.
According to this group's explanation, post-audit profits decreased by nearly VND 249 billion due to a series of reasons. First, revenue deductions decreased by VND 19.4 billion, and the cost of goods sold increased by VND 15.8 billion, due to the exclusion of trade discounts and cost prices from sales transactions within the group, which have not been properly reflected in the self-made financial statements.
The second reason is that profits from affiliated companies decreased by VND 315 billion. However, thanks to a decrease in corporate management costs of VND 77 billion after the audit, LTG has escaped losses in 2023.
Is Low Profitability Due to Objective Factors?
LTG operates primarily in the production of crop protection drugs, chemical trading, seed distribution, paper packaging, and rice processing for export. With over 20% market share in pesticides and as the second-largest seed distributor in Vietnam, LTG holds a prominent position in the industry.
Additionally, it is among the select Vietnamese enterprises directly exporting rice to discerning markets like Europe and Japan. Consequently, food constitutes the primary revenue driver for LTG, while the pesticide segment stands out as the primary profit generator.
According to an LTG representative, the nature of the food industry inherently results in a low gross profit margin, typically ranging between 2-3%. Despite its modest gross profit margin, the food industry plays a pivotal role in establishing a sustainable production and consumption chain, providing a foundation for the development and sustainability of other industries within the chain.
One factor attributed to the decline in LTG's food business, as highlighted by the company representative, is the global geopolitical instability. In 2023, political turmoil in numerous countries worldwide resulted in economic instability and disruptions in the global food supply chain, triggering concerns about food security domestically and internationally.
Moreover, the continuous fluctuations in exchange rates and interest rates further exacerbated the challenges faced by businesses. Following the Russia-Ukraine conflict and the Indian Government's export ban imposed in July 20, 2023, the price of fresh rice in Vietnam surged, reaching over VND 10,000 per kilogram.
This represented a nearly 50% increase compared to prices in June 2023, placing significant strain on rice businesses that had previously entered into export contracts. Additionally, the adverse effects of El Nino, coupled with dry weather and epidemics, hampered the capabilities of agricultural material companies to leverage their strengths.
Difficulty in Convincing Investors
LTG's explanations encountered skepticism from investors, particularly shareholders holding LTG shares. This skepticism arose primarily because, in the fourth quarter of 2023, when export rice prices were still elevated, many experts viewed this as an opportune moment for LTG.
For instance, DSC Securities Company (DSC) anticipated that revenue from LTG's food segment would continue to soar until early 2024, buoyed by the uptrend in rice prices and the Winter-Spring harvest. The persistence of the El Nino phenomenon was predicted to result in decreased rainfall and elevated temperatures, directly impacting the output of food-producing nations.
Consequently, rice prices were expected to remain elevated, especially with certain countries extending restrictions on rice exports, leading to supply shortages. These factors were perceived as supportive of LTG's ability to secure substantial rice export contracts. However, the reasons provided by LTG for its declining profits seemingly contradicted these optimistic projections, leading to skepticism among investors.
Despite the optimistic outlook for LTG's rice business, DSC also highlighted a significant risk facing the company: the burden of loan interest. While the rice segment may not be highly profitable due to thin profit margins, the other business segments within LTG are experiencing contraction. Consequently, leveraging debt to boost the rice segment's performance could prove to be a "double-edged sword" that directly impacts LTG's profitability.
It's worth noting that despite the challenges posed by loan interest, during the latest Shareholders' Meeting, Mr. Nguyễn Duy Thuận, the General Director of LTG, expressed optimism about the company's future prospects. He highlighted that with a substantial capital injection into deep processing facilities, such as those for processing cooking oil, rice flour, and gas production, LTG could potentially enhance the profit margin from new rice products.
This strategic move indicates LTG's proactive approach towards addressing its profitability concerns and capitalizing on emerging opportunities in the market.
