Concerned about inflation many businesses plan to reduce profits


Concerned about inflation, many businesses plan to reduce profits
Hoa Sen Group JSC set a target of a sharp decrease in profit this year

Unpredictable inflation

There are concerns about increasing inflation, especially when the Russia-Ukraine conflict broke out, pushing oil prices to the highest level since 2008.

Along with that, prices of coal, iron, and steel increased sharply again. Domestically, gasoline prices have also been continuously increased, after the adjustment period on March 1, RON 95 gasoline cost nearly VND27,000/liter, E5 RON 92 gasoline cost VND26,077/ liter. Gas prices also increased beyond VND500,000/can.

According to the General Statistics Office, the CPI in February 2022 increased by 1% compared to the previous month, by 1.2% compared to December 2021, and by 1.41% over the same period in 2021.

In the first two months of 2022, CPI increased by 0.67% over the same period in 2021. The General Statistics Office assessed that the main reason for the increase in CPI was the increase in gasoline prices in line with global raw material prices, and food and public transport prices increased during the Lunar New Year.

According to Dragon Capital, currently, petroleum contributes 3.6%, and transportation accounts for 9.7% of Vietnam’s inflation basket. Since the beginning of the year, the price of Brent crude oil has increased by 27.2%. The next move in oil prices will depend on several factors, including the development of the conflict in Ukraine and the progress of the Iran nuclear deal.

Nguyen Quang Hung, Chief Economist of Dragon Capital, assessed that as a result of the increase in world oil prices, Vietnam’s inflation may not be too high because domestic gasoline prices and world oil prices are not always moving in the same direction.

Fuel prices in Vietnam currently include many taxes as well as other stabilizing factors. Additionally, to maintain inflation below the target set by the National Assembly of 4%, the Government can take some measures to control prices, including financial support to refinery and petrochemical companies to deal with some temporary difficulties and bring capacity back to normal.

Along with that, the Ministry of Industry and Trade, related ministries, and agencies plan to auction 100 million liters of RON 92 gasoline from the national reserve this month to increase domestic supply. The Prime Minister also asked the Ministry of Finance to consider reducing the environmental protection tax on gasoline, details will be discussed at the next National Assembly session. Currently, the environmental protection tax accounts for 15% of the domestic gasoline price and the total taxes and fees account for 42%.

Be careful when setting goals

Although the forecasts estimate that the impact is not large, fluctuations in raw material prices are still unpredictable factors that have a great impact on freight rates, causing many businesses to be more cautious in setting business targets.

At Hoa Sen Group JSC, the company’s management forecasts that domestic consumption might increase slightly in 2022 due to the recovery in demand. The steel price level is forecast to continue to stay at a high level, at least in the first half of 2022 because many real estate projects will be quickly deployed after a long delay in 2021 due to the pandemic. However, steel export output is forecast to slow down due to the recovery of the global supply chain, countries will increase protectionist policies for imported steel. Steel prices will be adjusted stably from the second half of 2022 when the supply disruption is resolved. Oversupply may occur when steel mills increase production output to solve shortages.

Therefore, HRC price is forecast to decrease by 11.5%; steel companies may not benefit significantly from cheap inventories in 2022 as in 2021, profit margin from the export channel is likely to decline from a high level in 2022. Additionally, the price of input materials has been fluctuating unpredictably, seriously affecting production and business plans not only of Hoa Sen but also of most enterprises in the same industry.

Accordingly, in the financial year 2021-2022, the Board of Directors of Hoa Sen Group JSC set a target of two million tons of sales volume, revenue is VND46,399 billion and profit after tax is from VND1,500 to VND2,500 billion depending on the price of input materials. All three indicators are lower than the results achieved in 2021, the decrease is 11% for sales volume, 5% for revenue, and 42-65% for the profit target, respectively.

Operating in the transportation sector, fuel prices have a great impact on the production and business activities of PetroVietnam Transportation Corporation (PVT). Faced with unpredictable movements in petrol prices, PVT has set a plan that revenue and profit in 2022 will both decrease sharply compared to 2021. Specifically, revenue is expected to decrease by 12%, at VND6,500 billion and profit before tax is expected to decrease by 43% to VND600 billion.

At An Tien Industries JSC, the revenue plan in 2022 is expected to reach VND9,000 billion, up 9% compared to the results achieved in 2021, however, the target of profit after tax decreased by 6%, to VND97 billion. According to the management of this enterprise, Vietnam’s plastic industry has to import 80-90% of input materials to restore production, raw materials account for 75-80% of product costs. Meanwhile, the import price of plastic materials depends greatly on the world price of oil, natural gas, and coal.

According to the 2022 Annual General Meeting of Shareholders of Saigon – Quang Ngai Beer Company (BSQ), this enterprise set a net revenue plan at VND1,857 billion, a sharp increase of 56% compared to 2021, however, the target of profit after tax decreased by 37%, to nearly VND100 billion.

According to BSQ’s Board of Directors, these indicators may increase or decrease, depending on the pandemic control in the country and the world; the recovery and development of Vietnam’s economy, the beer market, and the actual consumption capacity of regional trading companies. In particular, the influence of inflation on the world economy and supply chain disruptions leads to insufficient raw materials for production. In 2022, the price of raw materials, especially imported materials, will increase, which will directly affect the company’s production and business results.


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