Loc Troi Group (LTG) reported record profits while Q2 loan interest tripled.

What is the reason for Loc Troi Group's record profit?

In the first quarter of 2023, Loc Troi Group, a well-known unit in the field of producing plant protection chemicals, trading chemicals, seeds, and paper packaging in Vietnam, unexpectedly recorded a loss after tax of VND 81.3 billion. The company's main business activities lost VND 78.5 billion.

Entering the second quarter, investors were excited when Loc Troi reported revenue of VND3,678 billion, profit after tax increased to a record level of VND424.7 billion while in the same period last year it was still losing VND44.3 billion. As a result, Loc Troi's accumulated profit in 2023 was not affected but increased to VND357.8 billion, up 88.1% over the same period despite the loss in the first quarter.

In fact, LTG's net revenue in the second quarter did not grow much, only reaching 3,678 billion VND, a slight increase of 3.7%. Cost of goods sold accounted for a high proportion of up to 3,151.7 billion VND, gross profit reached 526.3 billion VND.

The loan amount in the second quarter of 2020 increased by 3 times, the group LTG reported a record high, picture 1 — Loc Troi Group (LTG) reported record profits thanks to the revaluation of investments in associated companies (Photo TL)

Financial revenue in the period increased 9 times, from 5.9 billion to 49.4 billion VND. However, financial expenses doubled, from 114.6 billion to 231.4 billion VND. Of which, the strongest increase was interest expense, increasing from 114.6 billion to 168.4 billion VND. This means that LTG's interest expense increased 3 times in just the second quarter of 2023.

Selling expenses were reduced to 135.8 billion while business management expenses increased to 128.4 billion.

The real driving force that helped Loc Troi Group record a record profit came from the profit (loss) recorded in the associated company of up to 326.9 billion VND. This profit recorded unexpectedly appeared on the Q2 financial statement, helping to push LTG's profit to an unusually high level.

According to the explanation on LTG's financial statements, this profit is due to the revaluation of investments in associated companies including Loc Troi Quang Dong and Loc Nhan. Regarding these two investments in associated companies, as of June 30, 2023, LTG recorded the investment value in Loc Nhan Food JSC at VND 184.9 billion, the investment value in Loc Troi Quang Dong at VND 3.4 billion.

The accumulated profit (loss) after purchasing the associated company recorded by Loc Troi Group is up to 326.9 billion VND for Loc Nhan and negative 3.4 billion VND for Loc Troi Quang Dong. Thus, the accumulated profit after purchasing the associated company is temporarily recorded by Loc Troi as 323.5 billion VND.

Loc Troi Group also explained that the initial accounting for the transaction of transferring shares at Loc Nhan Food JSC is provisionally determined based on the book value of the net assets of this company at the date of purchase. The Group will make necessary adjustments (if any) upon completing the official assessment of the fair value of the net assets purchased within 12 months from the date of purchase.

This means that the profit of 326.9 billion VND that Loc Troi recorded from the investment in buying shares at Loc Nhan may still be an inaccurate figure.

Record profit of 424 billion after a loss in the first quarter, Loc Troi issued shares to pay dividends, short-term debt increased by more than 3,100 billion VND

After announcing a record profit of VND 424.6 billion in the second quarter of 2023, Loc Troi Group approved a plan to issue nearly 20.15 million shares to pay dividends in 2022 at a rate of 25%.

This ratio means that each shareholder owning 100 shares will receive an additional 25 issued shares. The capital for issuance is taken from undistributed profit after tax as of December 31, 2022. The dividend payment will be made immediately after the plan is approved by the State Securities Commission.

Regarding LTG stock price movements, in the trading session on August 18, 2023, LTG stock is priced at VND 37,900/share, equivalent to the price range reached at the end of 2022.

As mentioned above, the expenses incurred in the second quarter of Loc Troi Group stood out with the interest expense payable increasing 3 times compared to the same period. This reflects that the business is having to increase its debt, leading to a sudden increase in interest expense, putting pressure on revenue.

The increasing debt situation is once again reflected in the capital structure of Loc Troi Group. LTG's total capital at the end of the second quarter reached VND 12,183.5 billion, an increase of 39.5% compared to the beginning of the year. This increase did not come from equity but from additional loans.

Of which, short-term debt and financial leases increased from VND 3,747.8 billion to VND 6,869.8 billion, equivalent to Loc Troi Group having to borrow an additional short-term debt of nearly VND 3,100 billion in just the first half of 2023.

Another notable point is that Loc Troi Group's net cash flow from operating activities during the period is negative to VND 3,310.8 billion. Meanwhile, in the same period, the company's net cash flow from operating activities was also negative to VND 1,816.7 billion, showing an imbalance in cash flow, leading to the need to increase short-term borrowing to compensate for this shortage.

Source