Credit Rating Result

Hanoi, 25 October 2024 – Vietnam Investors Service (VIS Rating) has assigned a long-term issuer rating of A to Gelex Group Joint Stock Company (GEX). The outlook on GEX’s A issuer rating is stable. This is the first time VIS Rating has assigned a rating to GEX.

Rating rationale

GEX’s A long-term issuer rating reflects the group’s ‘Above-Average’ standalone assessment, underpinned by its ‘Very-Strong’ scale, ‘Strong’ business profile, ‘Above-Average’ profitability and efficiency, and ‘Average’ leverage and coverage profile.
GEX is the holding company of Gelex Group, a large corporate group with subsidiaries and investments in four key sectors, including Electrical Equipment Manufacturing (55% of consolidated group revenue over the past three years), Construction Materials (25%), Industrial Real Estate (15%) and Utilities (5%).
GEX’s ‘Strong’ Business Profile incorporates our view of its ‘Above-Average’ Industry Profile and ‘Strong’ Competitive Position and Diversification, particularly in the sectors that drive the majority of the group’s cash flows, Industrial Real Estate and Electrical Equipment Manufacturing sectors.
For Industry Profile, the ‘Above-Average’ score for Industrial Real Estate sector in Vietnam incorporates the sector’s high barrier to entry, low levels of competition and volatility, and a high growth outlook. The ‘Average’ score for Electrical Equipment Manufacturing and Construction Materials sectors is driven by a higher level of competition and moderate barriers to entry and a moderate growth outlook in the sector. The ‘Strong’ score for Water (Utilities) sector reflects the sector’s high barrier to entry due to complex license requirements, low volatility, and a high growth outlook.
The ‘Strong’ Competitive Position and Diversification score is driven by strong scores for both the Industrial Real Estate and Electrical Equipment Manufacturing sectors. The majority of the group’s subsidiaries are among the leading companies in terms of market share and business coverage in their respective sectors.
GEX is the leading electrical equipment manufacturer in Vietnam, with wide-ranging product lines accounting for 20 - 35% market share of each product. GELEX Electric JSC (GEE) – a subsidiary of GEX – owns renowned national brands through its subsidiaries, including Vietnam Electric Cable Corporation (CAV) in electric cables, EMIC Electrical Measuring Instrument JSC in electrical measuring equipment, Electrical Equipment JSC (THI) in electric transformers, Hanoi Electromechanical Manufacturing JSC (HEM) in electric motors, and CFT Vina Copper Co., Ltd in copper wires.
In the Industrial Real Estate sector, Viglacera Corporation JSC (VGC) – a subsidiary of GEX – has the highest amount of leased land in industrial parks among Vietnam’s listed companies in 2023. This company has developed 14 industrial parks with about 4,000 hectares of land and 1,000 hectares of leasable land, ranking among the top 5 listed companies in this sector. VGC is among the market leaders in the Construction Materials sector, with a 42% market share in the building glass segment and a 30% market share in the ceramic tile segment.
Song Da Water Investment JSC - Viwasupco (VCW) specializes in clean water production and produces up to 300,000 m³ of clean water per day to serve one-fourth of Hanoi’s clean water needs. This company has invested in new capital expenditures to double its production capacity by 2025-2026.
The operations of GEX’s key businesses and investments span Vietnam’s geography and various industries nationwide. The group has a track record of delivering on its business plans and exceeding its profit targets.
 
GEX is ranked among the top 30 largest listed companies by group consolidated revenue over the past five years. Our ‘Very-Strong’ assessment of GEX’s Scale reflects the well-established and deep market presence of its core businesses, its diverse mix of complementary products to serve market needs, and its ability to maintain good relations with its vendors and financiers.
We expect GEX to maintain revenue recognition at a ‘Very-Strong’ level in the long term, driven by a solid market share in Other Manufacturing and a robust pipeline in Industrial Real Estate. GEX has a long-term plan to expand its capacity, including the clean water plants expansion project, new electric equipment exports, and Tran Nguyen Han Office and Hotel project.
We assess GEX’s Profitability and Efficiency as ‘Above-Average’. The group consolidated EBITDA margin (Earnings Before Interest, Taxes, Depreciation, and Amortization over Revenue) of 19-23% was higher than Vietnam’s corporate average over the past five years. These high margins are mainly driven by its investments in the Industrial Real Estate, Power, and Water sectors.
Over the next 12-18 months, we expect EBITDA margins to deteriorate to 17-18% due to the divestment of renewable investments and expected losses in the Construction Material sector.
According to the group management, they are actively addressing issues in the Construction Materials segment. Since 2023, VGC has suffered operating losses in the Construction Materials segment due to increasing price competition in the building glass products and weak domestic demand for other products such as sanitary wares and ceramic tiles. In 2023, VGC shut down two of three glass manufacturing factories to control costs and restructured its inefficient product lines, such as building bricks and terracotta products.
GEX’s overall credit assessment is constrained by its ‘Average’ Leverage and Coverage profile, driven by ‘Strong’ Leverage and ‘Below-Average’ Coverage scores.
We view the group’s overall debt level to be relatively low when compared with Vietnam's corporate average. Its key subsidiaries – accounting for 55% of total group debt – have low Debt/EBITDA ratios, namely VGC (1.0x) and GEE (2.5x). Over the next 12-18 months, we expect the group consolidated Debt/EBITDA ratio to slightly increase to 3.0x-3.2x from 2.9x at end-2023 due mainly to capital expenditures (CAPEX) for new project development by GEX and VCW.
According to the company management, the total CAPEX in the next 18 months will be VND 11 trillion, including VGC’s CAPEX (55% of the total), VCW’s expansion project (15% of the total), Tran Nguyen Han Office and Hotel project (25% of the total), and other minor projects among subsidiaries of GEE.
The group’s ‘Below-Average’ coverage score incorporates the ‘Weak’ Interest Coverage score and an ‘Average’ Debt Coverage score.
The ‘Weak’ Interest Coverage score is mainly driven by the low EBIT (Earnings Before Interest & Taxes over Interest Expense)/Interest Expense ratios of VCW (1.4x) and GEX (-0.2x). VCW’s weak EBIT is mainly driven by its recent large capital expenditure on new production capacity, which is still under construction. GEX’s weak EBIT is driven by its operational nature as an investment holding company with limited revenues and relies heavily on dividends from its subsidiaries and investments to service its debt.
During Q2 and Q3 2024, GEX increased its equity investment in Vietnam Export Import Commercial Joint Stock Bank (Eximbank) and became the bank’s largest shareholder with a 10% equity stake. In September 2024, Eximbank announced its plan to pay cash dividends (VND300 per share) in Q4 2024 for the first time in ten years. We view this additional income will not have a significant impact on GEX’s income.
Over the next 12-18 months, we expect the group’s consolidated EBIT/Interest Expense ratio to weaken to 1.7-1.9x from its five-year average of 2.5x due to higher leverage and interest burden at GEX and VCW.
The ‘Average’ score in Debt Coverage reflects the group’s moderate ability to generate operating cash flow to service its debts. This score is primarily driven by the stable cash flows from GEE and VGC, and partially offset by the weaker cash flows of GEX and VCW to cover their respective debt repayment. We note that the group’s cash flow from operations (CFO) has been volatile over the past 5 years, mainly due to its merger and acquisition activities. In the next 12-18 months, we anticipate the CFO/Debt ratio will deteriorate to 15 - 25% from the 2022 – 2023 level of 22 – 47%, resulting from large CAPEX by GEX and VCW. We expect the new capital investment to only begin generating revenue and cash flows in 2026.
The group’s heavy reliance on short-term financing is a key credit concern. As of 30 June 2024, 53% of the group’s consolidated borrowings are short-term loans (VND 9,214 billion) maturing within the next 12 months. VGC and GEE account for 70% of the total group’s short-term borrowings, while GEX accounts for around 30%.
 
Based on our discussions with the group management, liquidity risks have so far been well managed, primarily from the roll-over of the short-term loans prior to maturity. Moreover, the group has a sizable portfolio of financial assets (VND 3-4 trillion on average over the past five years) that are available for sale if and when the need for emergency liquidity arises. These assets include listed shares (VND 2.2 trillion), corporate bonds (VND 0.85 trillion), and bank deposits (VND 0.85 trillion). Nonetheless, we remain concerned about the group’s resilience to a liquidity crunch when access to new borrowings and market liquidity for financial assets becomes limited.
We do not incorporate any affiliate support uplift to GEX’s assessment score. There is no evidence to assess the support of GEX's major shareholders to the company through loans and other assets. We also expect no government support for GEX because the company has no State-owned stakes, and its business lines do not link with government priorities and political policies.
GEX’s long-term issuer rating is stable, reflecting our view that its credit fundamentals will remain stable over the next 12-18 months.

Factors That Could Lead to an Upgrade/Downgrade

Rating methodology

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Credit rating history

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Analyst & Committee

Primary Analysts

Nguyen Dinh Duy, CFA

Director - Senior Analyst

Email: duy.nguyen@visrating.com

Tran Quoc Thang, MBA

Analyst

Email: thang.tran@visrating.com

Rating Committee Members

Simon Chen, CFA

Head of Ratings & Research

Email: simon.chen@visrating.com

Duong Duc Hieu, CFA

Senior Director - Head of Corporate Ratings & Research

Email: hieu.duong@visrating.com

Phan Duy Hung, CFA, MBA

Senior Director - Head of Financial Institutions Ratings & Research

Email: hung.phan@visrating.com

Credit Rating Announcement Number