Ricons shrugs off construction industry meltdown

By Nam Anh    January 3, 2020 | 02:30 am PT
Ricons Construction Investment JSC has achieved its ambition of becoming a new star in Vietnam’s construction industry, which is caught in a downturn.

It saw compounded annual growth rates (CAGR) of 48.4 percent in revenues and 72.6 percent in after-tax profits in 2013-18.

In 2018 Ricons reached VND9.3 trillion ($402 million) in net revenue and VND431 billion ($18.6 million) in after-tax profit, posting year-on-year increases of 42 percent and 50.2 percent respectively – equivalent to earnings per share (EPS) of VND13,077 ($0.56) after appropriation to bonus and welfare funds.

Some financial indicators for 2015-18

In the first nine months of 2019, Ricons kept up its pace of growth despite unfaòvorable market conditions, partly thanks to positive third-quarter results. Accordingly, in Q3of 2019, the company recorded revenue growth of 13.8 percent year-on-year at VND2.61 trillion($112 million). Net operating profit increased 20 percent year-on-year, reaching VND125 billion ($5.4 million). After-tax profit attributable to parent company shareholders was VND103 billion($4.42 million), up 17 percent.

Accumulated in nine months, although revenue dropped by 2.6 per cent to VND5.19trillion ($223 million), gross profit was upward, rising by 11.6 percent to VND330 billion ($14.2 million). Gross profit margins improved to 6.37 percent compared to the 5.56 percent recorded in the same period of 2018. Operating costs were little changed.

Diverse business activities include building materials supply, property lease and especially factory construction, with which Ricons won a number of contracts for major manufacturing projects in 2019. Gross profit margin for the construction segment was positive at 6.6 percent in 2018, compared to 6.2 percent in 2017 and an average 5.9 percent over 2013-17.

According to Bao Viet Securities Co (BVSC), such impressive results come from many factors including the competitive advantages of Ricons.


Ricons won a number of contracts for major manufacturing projects in 2019.

Firstly, its prestige and capacity in Vietnam's construction market, with relentless effort to improve and optimize a closed-loop construction value chain from building material supply, mechanical and electrical, consultancy and design to construction, property brokerage and real estate management services.

Secondly, the company has a good relationship with customers in the civil segment, who are major real estate developers in Vietnam or longtime partners in the field of factories from mainland China and Taiwan. Ricons has taken on myriad projects from many domestic and foreign investors. Examples are Vinhomes Grand Park-L7, Vinhomes Smart City and Vinhomes Ocean Park Villa of Vingroup; Novaland Hill Mui Ne, Water Bay and Festival Vung Tau of Novaland; River Panorama (Khang Dien); Diamond Precinct (Gamuda); and Ecopark Hung Yen (Vihajico), to name a few. Thanks to the three projects of Vingroup, Ricons assured a stable workload in 2019.

Thirdly, healthy and sufficient financial resources allow the company investments in real estate projects that create more work, support revenue growth, minimize competition and generate additional profit sources. One strength of Ricons lies in its not using bank loans to finance receivables. Furthermore, the company has huge financial resources with stable amounts of cash and short-term investments. At the end of September 2019, its cash and cash equivalents reached VND458.8 billion ($19.7 million), up 241.1 percent over the end of 2018.

Amid the gloom

According to Vietstock data, there were 21 construction enterprises suffering losses in the first nine months of 2019, six units more than 2018’s nine-month number. This somewhat proved that 2019 was nota good time for construction businesses due to the real estate market downturn. In this context, construction enterprises faced significant difficulties, which left many big industry players struggling.

For example, leading bird Coteccons (CTD) saw revenue decrease 22 percent year-on-year to VND16.3 trillion ($700 million) and after-tax profit decline 60 percent year-on-year to VND478 billion ($20.5 million) in the first nine months of 2019. In practice, business growth at Coteccons had shown signs of slowing since 2018, throughout which after-tax profit slid 8.7 percent and revenue expanded only 5.2 per cent. Previously, CTD witnessed high growth rates with revenue expanding on average over 40 percent per year, rising from VND4.5 trillion ($193.3 million) in 2012 to VND27.2 trillion ($1.17 billion) in 2017.

Regarding Ho Chi Minh City Infrastructure Investment JSC (CII), net revenue was down 33.4 percent year-on-year to VND1.47 trillion ($63.2 million) in the first nine months. After-tax profit attributable to parent company shareholders was VND453 billion ($19.6 million), a fivefold increase year-on-year – however, this mainly came from financial investments and liquidation of subsidiaries.

Notably, CII is the largest borrower in the industry, with debts – including convertible bonds – totaling VND13.55 trillion ($582 million) on September 30, up 10.95 percent compared to the beginning of 2019. This means CII is to pay the highest interest on loans, with interest amounting to nearly VND2 billion (86,000) per day.

Refrigeration Electrical Engineering Corporation (REE) maintained the throne in terms of profitability, with profit attributable to parent company shareholders reaching VND1.19 trillion ($51 million) in the first nine months, although this figure declined nearly 4 percent year-on-year. Nine-month revenue reached VND3.57trillion ($153 million), a slight increase of 2.87 per cent.

In the face of ongoing market difficulties, the majority of construction giants such as Hoa Binh Construction Corp (HBC), Vinaconex (VCG), CII and FLC Faros (ROS) witnessed a sharp increase in receivables. At REE, short-term receivables increased to VND3.36trillion ($144 million), equivalent to an increase of 70.8 percent over the end of 2018.

In a similar situation, HBC saw after-tax profit attributable to shareholders of the parent company fall by 53.94 percent to VND234 billion ($10.1 million) in the first nine months, despite a revenue increase of 6.88 percent to VND13.65 trillion ($586 million) in the period.

In the gloomy fog covering the current construction market, Ricons has shown its strength with its production and business results contrasting those of large enterprises in the sector. For example, profit margins at Ricons have continuously improved over the years, reaching 6.4 percent during the first nine months of 2019. Meanwhile, profit margins at Coteccons dropped to 4.37 per cent during the same period.

Remarkably, being aware of market difficulties in 2019, most construction enterprises set lower targets for operating results compared to those of 2018. Coteccons forecasted a 5.5 percent decrease in revenue and a 14 percent decline in consolidated profit in 2019, marking the second downtrend year in a row. Ricons, meanwhile, cautiously targeted an increase of 18.2 percent in revenue and a rise of 10.2 percent in consolidated after-tax profit in 2019 over the previous year.

Amid market difficulties, Ricons is showing its "strength of youth" with dynamic activities to seize opportunities, while many industry giants are struggling with a puzzle of growth and motivation for future development.

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