Construction giants not immune from Covid-19 impacts

Although most securities companies consider it the industry least affected by the novel coronavirus, the collective Q1 revenues of all construction firms listed on the Ho Chi Minh Stock Exchange (HoSE), Vietnam’s main bourse, fell 7 percent year-on-year.

A General Statistics Office (GSO) survey on the construction industry found half the respondents complaining of difficulties in the first quarter. Most named a slowdown in the real estate market and dwindling foreign investment as major growth constraints in this period.

Coteccons, the biggest construction firm in Vietnam by market capitalization, said in its Q1 report that revenues fell 16 percent against the same period last year to VND3.55 trillion ($152 million).

General difficulties in the construction industry such as rising cost of materials and labor, along with the Covid-19 epidemic delaying the construction of major projects were the main reasons behind the fall in growth, the company said in its report.

Coteccons’s post-tax profits fell 34 percent year-on-year to VND123 billion ($5.27 million), the report said.

FLC Faros, a blue chip on the HoSE and subsidiary of real estate giant FLC Group, also saw revenues drop 7 percent to VND809 billion ($34.7 million). But its post-tax profits plummeted 98.4 percent, however, to VND410 million ($17,580). 

A direct competitor of these two corporations, Hoa Binh Construction (HBC) also reported its post-tax profits falling 95 percent year-on-year to VND4 billion ($172,000). This has been the lowest quarter profit the HBC registered in over five years, with the company naming legal issues causing projects to halt or stop construction altogether as another reason for plummeting profits.

Although HBC expects revenues to fall 25 percent year-on-year by the end of the year, and for net profits to fall 50 percent to VND200 billion ($8.58 million), its management considers even the lowered expectations difficult to meet as the company uses "high financial leverage in its capital structure, leading to high interest expenses significantly affecting completion of year-end objectives."

By March-end, HBC’s equity was VND15 trillion ($643 million), of which VND11 trillion ($472 million) came from loans.

According to the GSO survey, 65 percent of enterprises said they had to borrow to maintain production and business during the Covid-19 season, with interest costs accounting for 1.8 percent of total production costs.

"The epidemic has greatly slowed down businesses’ cash flow, with banks slow to disburse capital and investors struggling to raise capital, which in turn leads to delayed payment of obligations," the GSO said.

In a recent report to the Prime Minister, the Vietnam's Association of Construction Contractors said that social distancing and working from home has severely affected business effectiveness, as the firms needed to send personnel directly to construction sites to survey and inspect progress of projects.

In their reports, some construction companies remain optimistic about the upcoming period, saying that there was potential work available to revive the industry. 

Securities firms have also assessed that the government’s focus on disbursement of public investment could support the industry in the second half of the year, along with proposed changes in public-private-partnership regulations allowing private investors to bid on state-owned construction infrastructure projects and being paid for in public land.

However, in its recent strategic report, securities firm BSC Securities does not maintain a positive outlook on the sector for 2020, saying the value of new contracts is expected to fall in line with a slowdown in the real estate sector, an increase in receivables and increased financing costs.

According to the GSO, Vietnam’s construction sector was worth VND35.84 trillion ($1.54 billion) in the first quarter, a growth of 4.4 percent year-on-year, the lowest growth registered since 2016. Year-on-year growth had hovered close to 9 percent each quarter in the last two years.