Credit Rating Result

Hanoi, 4 December 2024 - Vietnam Investors Service And Credit Rating Agency Joint Stock Company ("VIS Rating") has assigned a long-term issuer rating of BBB+ to Tasco Joint Stock Company (HUT). The outlook on HUT's BBB+ issuer rating is stable. This is the first time VIS Rating has assigned a rating to HUT.

Rating rationale

HUT's BBB+ long-term issuer rating primarily reflects the company's 'Average' standalone assessment. The standalone assessment incorporates our view of the company's intrinsic financial strength, driven by its business profile and financial flexibility. Specifically, our assessment reflects the company's 'Very Strong' scale and 'Above-Average' business profile, as well as its 'Average' leverage and coverage profile and 'Below-Average' profitability and efficiency.
Today, HUT generates annual revenue of over USD 1 billion and is targeting more than USD 3 billion by 2027. HUT is a leading automobile distributor in Vietnam, with a 13.7% market share, 106 car showrooms nationwide, and 16 distributed car brands. According to management, HUT is also a leader in the smart transportation sector, with a 75% market share and 3.6 million customers.
HUT was established in 1971 as a construction contractor in Northern Vietnam and later expanded through investments in infrastructure projects, real estate, and electronic toll collection systems. The company underwent a major strategic overhaul during 2023-2024 to advance its vision of becoming Vietnam's leading provider of automotive services and smart transportation infrastructure. This strategic shift led to significant restructuring and streamlining of its core businesses, including the acquisition of new business assets and the divestment of legacy non-core businesses such as construction and healthcare.
HUT's 'Above-Average' business profile reflects our view of the automotive industry's 'Average' industry profile, the sector in which the company mainly operates, as well as HUT's 'Strong' competitive position and diversification within that sector.
Through its subsidiaries, HUT currently operates in four main segments: (1) automotive dealership and distribution, the company's core business, which accounted for 88% of 2023 revenue; (2) infrastructure operations (9%), including five toll road projects and Vietnam Electronic Toll Collection (VETC); (3) residential real estate (2%); and (4) non-life insurance (less than 1%) through Tasco Insurance.
The 'Average' industry profile score reflects the key characteristics of Vietnam's automotive industry, including moderate barriers to entry, a positive growth outlook, high competition, and a high degree of business volatility.
The automotive industry is moderately regulated, mainly through government tax and fee policies. The sector is also capital-intensive, requiring capital expenditure and working capital for manufacturing facilities and showrooms. Competition is high, as the top five car retailers account for less than 40% of total market share.
In Vietnam, the automotive sector shows high volatility in business performance because car prices remain relatively high compared with average income, causing demand to fluctuate significantly with macroeconomic conditions. Over the next 12-18 months, the sector outlook is moderately favorable, as Vietnam's low car ownership rate and economic recovery in 2025 are expected to mitigate the effects of the expiration of the 50% registration fee reduction policy at the end of 2024. In addition, rapid growth in the middle class, combined with the development of transportation infrastructure, particularly the expansion of new highways projected to reach 3,000 km by 2025, will create favorable conditions for growth in the automotive market.
We assess HUT's competitive position and diversification as 'Strong', based on its solid market position, competitive advantages, and business diversification in the automotive sector.
HUT's business strategy focuses on building a vertically integrated automotive ecosystem that provides a seamless customer experience throughout the vehicle lifecycle. This strategy includes plans to expand upstream in the automotive value chain through cooperation with Geely, one of the world's top 10 automakers, for exclusive distribution, as well as investment in an automobile assembly plant with capacity of 75,000 units per year in 2025 to serve the domestic market and selected export markets in Southeast Asia, South America, and Europe.
The company holds a leading position in Vietnam's auto dealership market, with 106 showrooms nationwide. It accounted for about 13.3% of Vietnam's passenger car distribution market in 2023, increasing to 13.7% in 9M2024, and significantly outperforming most other automotive retailers, which typically have market shares of less than 1%. HUT holds exclusive distribution rights for Lynk & Co, Zeekr, and Geely, and is also the nationwide distributor of the luxury brand Volvo.
HUT distributes a broad portfolio of 16 automotive brands, including leading brands such as Toyota (~20% retail share), Ford (~28%), Mitsubishi (~19%), and the luxury brand Volvo (100%), compared with an average of six brands distributed by the other top five retailers. Compared with peers, HUT also has higher inventory turnover, indicating above-average operating efficiency. Its proven ability to distribute brands across both premium and mass-market segments strengthens its bargaining power with manufacturers and supports the expansion of its showroom network for new brands.
showrooms for new brands.
According to management, HUT aims to develop a comprehensive automotive ecosystem across the entire vehicle lifecycle through its subsidiaries and affiliates, including new car dealership networks (Tasco Auto, Savico, Sweden Auto), used car trading (Carpla), car insurance (Tasco Insurance), financial services through cooperation with commercial banks, electronic toll collection and related e-wallet services (VETC), and vehicle service and maintenance centers. The company is also moving upstream in the automotive value chain by investing in a Lynk & Co and Geely CKD factory in 2025 to improve profit margins on sales of these brands.
The company's business is geographically well diversified across major cities and provinces throughout Vietnam, with a broad customer base in the middle- to high-income segment. We assess the company's execution capability in the automotive industry as above average, as reflected in Tasco Auto's track record of meeting sales and profit targets in three of the past five years despite the impact of COVID-19 on Vietnam's automotive market.
with a broad customer base in the middle-to-high-income class. The company's corporate execution in the automotive
industry is ove average, represented by Tasco Auto's track records is above-average, indicated by the completion of CoVID-19 imnact on sales and profit plans in the last three to five years, regardless of the COVID-19 impact on Vietnam's automobile sales.
However, most of HUT's management team was appointed after the restructuring announcement and changes in the company's major shareholders in 2022. The team brings 15-20 years or more of experience across financial services, automotive, infrastructure, and hospitality, but is still in the process of building a track record at HUT.
Our 'Below-Average' assessment of HUT's profitability and efficiency reflects our expectation that its EBITDA margin will remain around 5%-7% during 2024F-2026F, which is lower than the average for Vietnamese corporates. HUT's EBITDA margin is primarily driven by its automotive dealership business, which accounts for the bulk of its profits. According to management, the automotive industry faced significant challenges in 2023, with declining demand leading to lower sales and revenue, but is expected to recover in 2024-2026.
HUT's profitability also reflects contributions from its infrastructure operations, including VETC, which remains loss-making, and investments in toll road projects. We note that three of its five toll road project investments underwent debt restructuring for the coming years.
HUT's profitability also incorporates contributions from its infrastructure operation businesses, including its VETC
business, which remains loss-making, and investments in toll road projects. We note that three out of its five toll road
project investments underwent debt restructuring for upcoming years.
We expect HUT's profitability to improve over the next 12-18 months, driven by strong revenue growth, with projected CAGR of 19% during 2024F-2026F, supported by improving demand and higher margins from the exclusive distribution of certain brands such as Volvo, Lynk & Co, and Geely, the operation of the CKD factory, and profits from the Ana Mandara Viet Tri residential real estate project. We also expect HUT's profit margin to improve further beyond 2026 if its CKD manufacturing operations achieve high capacity utilization and the company successfully transforms into an integrated automotive manufacturer, distributor, and dealer.
manufacturer, distributor, and dealer.
HUT's 'Average' leverage and coverage profile reflects its 'Above-Average' leverage and 'Below-Average' coverage. HUT's 'Above-Average' leverage is reflected in a projected debt/EBITDA ratio of around 6.5x-7.0x in 2025-2026, which is lower than that of its automotive peers at 7.2x. We expect HUT's leverage to remain stable as projected EBITDA growth of 39% will help offset new debt over the next 12-18 months. The company is expected to borrow around VND 3.5 trillion, equivalent to 35% of current total debt, to finance capital expenditure and working capital for the CKD factory and showroom expansion, as well as around VND 1 trillion, equivalent to 10% of current debt, to develop the Viet Tri residential real estate project during 2025-2026.
2026 period.
The company's 'Below-Average' coverage is mainly driven by thin profitability, rising debt, and increasing interest expense. Interest coverage, measured by EBIT divided by interest expense, is expected to remain at a moderately low level of 1.5x-2.0x over the next 12-18 months. Before its expansion into the automotive segment, HUT's CFO/debt ratio fluctuated significantly during 2020-2023. We expect this ratio to stabilize at around 5%-8% during 2024-2026, supported by more stable operating cash flow from the automotive business as sales recover.
The company's debt comprises revolving short-term loans and borrowings for long-term projects, including toll road projects, the upcoming CKD factory, and the Viet Tri residential project. Short-term debt primarily finances working capital for the automotive business, with an average tenor of less than six months.
According to management, HUT expects to raise an additional VND 1,785 billion in Q1/2025 through a share issuance to existing shareholders under the plan approved at the 2024 Annual General Meeting. We expect HUT's liquidity risks over the next 12-18 months, driven by large capital expenditure disbursements, to be mitigated by the anticipated cash injection from the share issuance and sales proceeds from the Viet Tri project, which management intends to launch commercially in the second half of 2025. Going forward, its debt repayment capacity will continue to depend on the performance of the automotive segment, especially the CKD factory.
These assumptions underpin the stable outlook on HUT's issuer rating.
We do not incorporate any uplift from affiliate support into HUT's issuer rating. We also do not expect meaningful government support for HUT because the company has no state ownership and its business lines are not aligned with government priority sectors or policy objectives.

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