Coteccons’ profit in the second quarter of 2022 decreased due to the past burden
The number of new projects and contracts worth tens of thousands of billion dong helped Coteccons’ revenue grows again, but handling the backlog of the previous period affected the company’s profit.
Past burdens, present difficulties
Coteccons Construction Joint Stock Company (HoSE: CTD) has just announced its consolidated financial statements for the second quarter of 2022, with net revenue increasing by 28.6% over the same period, accumulated revenue in the first 6 months of 2022 reached 5,193 billion VND.
With outstanding efforts in saving costs and increasing the efficiency of arising packages, the handover and finalization projects in 2022 have exceeded the profit of 135 billion VND, and the 2nd quarter gross profit increased by 60% compared to the same period in 2021.
In addition, the efforts of the Board of Management to help reduce costs, selling expenses, administrative expenses, and business administration expenses (SG&A) of Coteccons continuously improved, decreasing by 1.65% in the second quarter compared to the same period last year.
However, the provisioning for bad debts for the contracts signed from 2018 to 2020 and the current difficulties in the real estate and construction industry have put great pressure on the Company’s profit margin in the second quarter of 2022.
Specifically, the company’s profit after tax in the second quarter of 2022 was negative 23,8 billion VND. The profit margin was negative 0.73%. In the 6 months of 2022, Coteccons’ after-tax profit is only 5,4 billion VND. The profit margin is 0.1%. In addition, Coteccons’ business cash flow was negative by more than 1,298 billion VND. Coteccons’ loan forecast reached 1,314 billion VND for the first time. However, the company’s net financial income in the first 6 months still reached 155% compared to last year’s period.
One of the projects that the company has to make the most provision for is that of Viet Star Company – a member company of Tan Hoang Minh Group as the investor. The project was delivered and put into use in May 2019. Despite efforts in debt recovery, in the second quarter of 2022, Coteccons still has to make provision for this project of VND 242 billion for this project., bringing the accumulated provision for 2020-Q2/2022 to VND 484 billion.
Not only bearing the burdens left by the previous period, Coteccons, as well as many other construction and real estate enterprises, is also facing many difficulties and challenges when the State Bank tightly controls real estate credit. The Tan Hoang Minh case caused the corporate bond market to tighten, affecting the ability to raise capital for real estate and construction businesses.
Besides, external factors such as supply chain disruptions, conflicts, and geopolitical tensions that cause raw material and fuel prices to escalate in the second half of 2021 and the beginning of 2022 continue to weigh on the building contractors. Along with that, the negative impact of the Covid pandemic continues to affect the overall labor distribution of Vietnam, leading to a shortage of laborers in big cities and high labor costs.
Initial results of the restructuring process
The consequences of past burdens have persisted for many years, so it takes time to handle. Due to the market’s difficulties being general difficulties and other objective reasons, affecting Coteccons’ profits in the short term is inevitable. However, any molting process is painful and necessary. The reality is that the process of restructuring the Company in the past 2 years of the Coteccons Board of Directors was the right decision and initially brought positive results.
Specifically related to core business activities, in the first 6 months of 2022, the Company successfully won bids for more than 39 projects with a total construction value of more than VND 16,000 billion. Not only focusing on finding jobs, but Coteccons also focused on improving the quality of new projects. In the second quarter, the Company won bids for many iconic projects such as Diamond Crown Hai Phong with Diagrid structure appearing in Asia for the first time; Novaworld Phan Thiet project applies Pre-cast technology. Ecopark investor continues to trust Coteccons to give construction package CT06 to Coteccons with a total value of nearly 2,400 billion VND.
With a diversification strategy, Coteccons upholds its commitment to environmental sustainability in all projects, diversifying services and products, focusing on customer experience, and bringing added values in the process of operation and business cooperation. In the first 6 months of 2022, the Company has delivered 14 projects to customers, including Akari City, The Marq, Metropole Phase 1, Ho Tram strip 2, Crowne Phu Quoc…
A remarkable point is that the Company continues to deploy the Enterprise Management Software System (ERP) phase 2, fully meeting the value chain and complex business processes of the large-scale construction general contractor industry based on accurate data in real-time to create a premise for the application of new technology in construction from office to construction sites. Currently, in some projects, after successfully convincing investors to apply Pre-cast technology in construction, the initial results help shorten the construction time, improve construction quality, and solve the problem of labor force shortage at the project. It is expected that in the first half of 2023, Coteccons will master and completely dominate this construction technology.
In addition, the restructuring process has been gradually completed until the senior personnel at Coteccons has stabilized. The salary, bonus, welfare, and cohesion policies help employees feel secure in their work and attract talents.
Besides being the leading construction company in the industry with strong financial potential, the Company has formed a balanced and diversified short-term investment portfolio in 3 types: bank deposits with terms of fewer than 3 months, bank deposits with terms of 4-12 months, and mixed bond portfolio with a term of 1-12 months. This allows CTD to increase its average financial income margin, which ranges from 3-6% in the first 6 months of 2021 to 5-12% in the first six months of 2022. CTD holds more than 3,000 billion in diversified financial instruments in total.
At the end of the first 6 months, the Company achieved 34.6% of the annual revenue plan in the context of many influences from the general market. It is expected that after the real estate market recovers and public investment projects are promoted, it will create favorable conditions for the Company to make a breakthrough in the second half of 2022.