2022 marks tough year for building contractors

The business rebound in late 2021 and early 2022 was positive for firms across the board, including those in the construction sector. With high expectations for accelerated public investment and a vibrant real estate market in the first quarter of this year, many building contractors set forth ambitious business targets for 2022.

2022 proved to be a challenging year for building contractors

For instance, Hoa Binh Construction Corporation (HBC) aimed to reach $760 million in total revenue and $15.2 million in post-tax profit this year, 54.1 per cent and 262 per cent on-year jumps respectively.

Similarly, FECON JSC envisaged counting $217.3 million in revenue and $12.2 million in post-tax profit, equal to a 44 per cent and 296 per cent rise on-year.

In reality, as 2022 has passed, a large gap has grown between the projections and the actual performances of many building contractors.

Headquartered in Ho Chi Minh City, Coteccons JSC reported that a spike in building material, mobilisation, and labour costs had hindered the company’s capital cost and pushed down its profit margins.

In Q3 alone, the capital cost of its products rose by $88.1 million, up 192.3 per cent on-year, and its accrued profit margin fell to just 1.1 per cent compared to the same period last year.

This year, Coteccons aimed to reach $652.6 million in revenue and $869,560 in post-tax profit, up 65 per cent in revenue and down 17 per cent in post-tax profit on-year.

In the first three quarters, the company raked in $361.1 million in revenue – up 25.5 per cent – and $82,600 in post-tax profit – down 97 per cent on-year. With such results, Coteccons only reached 55.3 per cent of its revenue target and 9.5 per cent of its profit target for 2022.

Meanwhile, FECON JSC registered similar revenue to the same period last year, but its post-tax profit was down 97 per cent.

CEO Nguyen Van Thanh said that the low pace of construction at its several major projects has significantly affected the bid offer and contract signing progress of the company.

Besides this, soaring borrowing costs – which rose by 53 per cent or $82,390 in Q3 due to spiking mobilisation rates at banks – caused a headache for firms like FECON.

HBC is not an exception. In the first three quarters, the company’s revenue showed a 45 per cent jump to reach $474 million, yet post-tax profit shed 21 per cent, falling to $26.6 million.

With such results, HBC just fulfilled 63 per cent of its full-year revenue target and 17.5 per cent of its full-year profit target. The company’s borrowing costs in Q3 hit $15.5 million, soaring 60.8 per cent on-year, which has eaten into its profits.

According to Le Viet Hai, chairman of the Founder Council, HBC has sold several assets and reshuffled to improve liquidity and tackle these difficulties. As the housing market segment has been in the doldrums, the company has expanded to build factories in industrial zones and engaged in the design of social housing blocks.

HBC has signed a $174 million social housing design contract in Haiphong for 4,000 housing units and is striving to become the project’s contractor.

The company has also engaged in building factories in Binh Duong and Tien Giang, including that of Taiwan’s Want Want Group.

A recent report by VNDIRECT Securities states that the construction sector will revive in the coming year thanks to accelerated public investment and the predicted reduction in building material prices.

About $34.4 billion of public investment funding will be disbursed in 2023 (up 20-25 per cent compared to 2022), which is expected to fuel growth in the construction sector.

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