Vietnam Rubber Group intends to invest in tire business

The company plans to acquire shares in tire manufacturers that are part of the Vinachem state corporation.

At a recent meeting of the Vietnamese Enterprise Capital Management Committee (CMSC), the Vietnam Rubber Group (VRG) announced a business restructuring and plans to invest in tire and tube manufacturing.

At the moment, VRG's activities are focused on several main areas. The company is engaged in the cultivation and processing of rubber latex, as well as the sale of Hevea wood (in demand in the furniture industry) and rubber products. In addition, VRG also operates industrial parks where rubber plants are cultivated.

VRG manages over 400,000 hectares of rubber plantations, with an average yield last year of 1.56 tonnes per hectare. At the same time, as natural rubber prices have declined in recent years, the business has become less profitable and the coronavirus pandemic has reduced demand, making the situation even more dire.

In the opinion of the VRG management, business development in the tire industry can help in these circumstances. The company entered the tire market in 2017 with an agreement with Southern Rubber Industry JSC (Casumina, CSM), which began producing tires in various categories under the VRG brand. Now VRG intends to buy shares of one of the companies of the state holding Vinachem, which includes four tire manufacturers - Casumina, as well as Da Nang Rubber (DRC), Sao Vang Rubber (SRC), and Inoue Rubber Vietnam.

In 2019, Vinachem sold 9.4 million bicycle, 6.48 million motorcycle and 3.43 million car tires. Da Nang has higher production volumes and accounts for about a third of all tires and tubes produced by the holding structures.

In the first half of 2020, Da Nang generated net revenues of VND 1.59 trillion ($ 68.7 million), down 17% from the same period last year. Profit excluding taxes fell 3% to VND 107 billion ($ 4.6 million). The company notes that after a sharp drop in the second quarter due to the pandemic, the volume of tire exports began to grow. In July and August, the value of export deliveries exceeded $ 6 million, while in the second quarter the figure averaged $ 4.4 million. In addition, a 600,000-unit-per-year truck tire plant was opened, doubling the total DRC tire production.

Casumina and Sao Vang, after a difficult period in 2017-2018, improved their financial performance in 2019 and early 2020. In the first half of this year, Casumina's profit excluding taxes was nearly VND 40 billion ($ 1.7 million), four times higher than a year earlier. In the first six months of the year, the company produced 18.14 million and 3.73 million tire tubes for motorcycle and bicycle tires, respectively, 3.29 million motorcycle and 2.46 bicycle tires, as well as nearly two million other tires.

Sao Vang's pre-tax profit in the first half of the year rose 88% to VND 33 billion ($ 1.4 million). The company manufactured 15.9 million tires and tubes for motorcycles, bicycles and automobiles.

In early 2018, Vietnamese Prime Minister Nguyen Xuan Phuc decided to restructure Vinachem, as a result of which the holding should reduce its share in all tire companies to less than 51%. In May 2019, DRC securities were put up for sale at a price of 25.17 thousand dongs (about $ 1), but the auction was canceled due to the lack of investors. Vinachem now owns 50.51% of DRC shares.

Sao Vang's shares attracted the attention of investors who bought all the 4.2 million shares of the company put up for auction with a starting price of 46.452 thousand dongs (about $ 2). Vinachem now owns 36% of the company's shares, as well as 51 and 24% of Casumina and Inoue Rubber Vietnam, respectively.