Bright spot in profits of tire and tube business group

The tire and rubber industry group experienced strong business performance in the second quarter of 2024 thanks to the recovery of the export market and a significant improvement in gross profit margins.

The second quarter showed positive results.

Breaking the record set two years ago, Da Nang Rubber Joint Stock Company (DRC) achieved a net revenue of VND 1,365 billion in the second quarter, an increase of nearly 18% compared to the same period last year. Despite some increased expenses, especially selling expenses, DRC's second-quarter profit was still one and a half times higher than the previous year. As a result, DRC completed 54.6% of its profit target for the first six months of the year.

Explaining this growth, Mr. Le Hoang Khanh Nhut, General Director of Da Nang Rubber, said that the strengthened sales policy helped increase revenue. Benefiting from the recent increase in the VND/USD exchange rate, the efficiency of export operations has also improved. Along with the surge in revenue, for the first time since 2017, the gross profit margin returned to the 20% mark. Revenue grew by double digits, but the cost of raw materials in production and business was even 4% lower than the same period.

With raw material prices consistently accounting for around 60% of production costs, fluctuations in the price of raw materials, including synthetic rubber, natural rubber, steel reinforcement, fabric, carbon black, etc., have a significant impact on the total costs of tire and tube manufacturers.

High gross profit margins were also a positive factor for this group in the second quarter. Despite an 8% decrease in revenue compared to the same period last year, Southern Rubber Joint Stock Company (Casumina, stock code CSM) still had a positive growth quarter. The gross profit margin increased sharply from over 9% in the same period last year to 15.76% – the highest since 2020. As a result, Casumina's pre-tax profit increased by nearly 59% compared to the base level of Q2/2023. Overall, in the first half of the year, the company reported a profit of VND 40.8 billion, more than double that of the same period last year, achieving over 50% of the set target.

At Sao Vang Rubber Joint Stock Company (SRC), revenue growth in the second quarter was quite high, reaching 22%. Gross profit margin improved significantly compared to the same period last year. Net profit from business operations alone reached VND 15.8 billion, nearly double that of the same period last year. However, the factor contributing to Sao Vang Rubber's strong performance in the past quarter was an extraordinary profit from land transfer.

Specifically, the company had a policy of transferring its leasehold rights to land with infrastructure and assets attached to the land in Chau Son Industrial Park ( Ha Nam province ) with a lease term of 40 years, starting from 4 years ago. Instead, it invested in a tire and tube manufacturing plant project in Ha Tinh province through an investment of VND 375 billion in the joint venture Sao Vang Hoanh Son JSC.

The completed transaction generated over 300 billion VND and contributed 160 billion VND to pre-tax profit – a significant amount for a company with a charter capital of 280 billion VND like Sao Vang Rubber. It is understood that the cash inflow will be used to repay loans and reduce financial leverage at the company.

There are still many obstacles.

Despite a reduction in the cost of goods sold per unit of revenue, an increase in selling expenses was also a notable trend among tire and tube businesses in the first half of the year.

Mr. Nguyen Van Hien, Deputy General Director of Casumina, said that the company has implemented a sales policy to boost product consumption, focusing on providing suitable policies for distributors. Another factor that increases costs is the shipping fee for overseas export orders. For the tire industry, both the domestic and export markets present unique challenges for Vietnamese businesses.

According to the Vietnam Automotive Tire Industry Research Report 2024-2033 by ResearchAndMarkets, among the top 10 tire exporters in Vietnam, only two are domestic companies: Casumina and Danang Rubber.

Right on their "home turf," world-renowned manufacturers such as Bridgestone, Michelin, Yokohama, and Kumho have established extensive operations throughout Vietnam. Sailun's factory – the first privately owned Grade A tire company from China in Vietnam – also boasts a production capacity of millions of units per year.

Besides the slow recovery of market purchasing power due to limited public investment disbursement, a business leader also acknowledged that competition with imported goods and products from foreign direct investment (FDI) companies is becoming increasingly fierce.

For the export market, turnover increased, but this growth was also partly due to contributions from FDI enterprises. According to the General Statistics Office, exports of rubber products in the first half of this year reached over 586 million USD, an increase of 13.7% compared to the same period last year. Along with many other manufacturing industries, tire production, driven by the recovery of the export market, was also one of the factors contributing to the better-than-expected economic growth in the second quarter.

According to Mr. Vo Hoang An, General Secretary of the Vietnam Rubber Association (VRA), tires are the most exported item in the group of deeply processed rubber products (including inner tubes, mattresses, pillows, shoe soles, gloves, and elastic threads), exported to 140 countries, with the largest market being the United States.

Trade promotion activities are being carried out to expand export markets. In early May, Danang Rubber and Oceanside One Trading (Brazil) signed an export contract with the goal of increasing production in the US and Brazilian markets to $150 million per year.

Not only with foreign partners, but rubber industry businesses are also stepping up efforts to strengthen their domestic distribution systems to increase sales volume and maintain market share.

Source: https://baodautu.vn/diem-sang-loi-nhuan-cua-nhom-doanh-nghiep-sam-lop-d220666.html