Construction industry to build on a tough 2022

December 31, 2022 | 09:00
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The business journey for construction enterprises in 2022 encountered a great many difficulties.
Construction industry to build on a tough 2022
The construction industry has recently had a torrid year

After a period of social distancing to avert the pandemic outbreak in 2021, industries and companies approached 2022 with an upbeat disposition due to the revival of economic activity. Contractors had ambitious business goals for the first quarter of 2022, anticipating a surge in public investment and real estate market activity.

For instance, Hoa Binh Construction Group (HBCG) had a revenue goal of $742 million and a profit-after-tax objective of $14.8 million, increases of 54.1 per cent and 262 per cent over 2021. FECON Corporation targeted $212 million in sales and over $12 million in profit after taxes, increases of 44 per cent and 296 per cent, respectively, over 2021.

However, 2023 is quickly approaching, and there has been a significant gap between plans and execution for building companies. Both anticipated growth drivers for the construction industry failed to materialise: public funding was disbursed slowly, and the real estate market slowed to a halt, leaving contractors with few employment opportunities. Additionally, this industry's businesses are under pressure from growing input prices and outstanding debts.

The CEO of a construction company said, "The more you do it, the more you lose due to excessive input prices, even to the point of having to decline some projects due to the danger of losses."

HBCG was likewise not immune to the industry's challenges. The company's revenue for the first nine months was $463 million, an increase of 45 per cent compared to the same time last year; profit after taxes was more than $2.6 million, a decrease of 21 per cent compared to the prior year.

HBCG only accomplished 63 per cent of its revenue target and 17.5 per cent of the profit plan with this outcome. Interest expenditure for nine months was over $15 million, up 60.8 per cent year-over-year, eroding the company's earnings.

According to Coteccons Construction, price changes in inputs such as construction materials and the cost of mobilising and employing people pushed up the company's cost of goods and decreased its gross profit margin. In the third quarter, the company's cost of goods sold jumped by $85 million, or 192.3 per cent, compared to the same time last year; the gross profit margin decreased by 1.06 per cent on-year.

This year, Coteccons aims for sales of $636 million, rising 65 per cent on-year, and a profit after tax of around $850,000, down 17 per cent from 2021's performance.

The company's sales during the first nine months of the year increased by 25.5 per cent year-over-year to $353 million, but its profit after taxes decreased by 97 per cent to about $80,000. The firm only reached 55.3 per cent of its annual sales objective and 9.5 per cent of its annual profit goal.

According to Le Viet Hai, former chairman of HBCG's board of directors, the firm is attempting to eliminate obstacles and make flexible modifications to adapt to the market. The corporation reorganised and sold assets to tackle its liquidity and cash flow issues.

When the housing real estate market experienced problems, HBCG expanded to construct factories in industrial parks and engage in social housing design. The head of HBCG said that the business had secured a contract to design a 4,000-apartment social housing project in Hai Phong City and was vying to become a contractor for this project, which has a potential value of $170 million. In addition, the company has constructed several facilities in the southern provinces of Binh Duong and Tien Giang, including Taiwan's Want Want Holdings plant.

The management of Coteccons anticipates fourth-quarter revenue of around $254 million. The backlog value in 2023 is $721 million. The company is implementing several high-end real estate projects, including Diamond Crown, Ecopark, Vinhomes project clusters, the Emerald Golfview, and Crystal Palace; as well as industrial projects with foreign capital, including Apache and Tesa; and the LEGO factory project.

This year, in recognition of market risks, Coteccons established a proactive provision of about $41 million for accounts receivable from clients starting in 2020 or earlier. The business has made a provision of about $1.7 million for two projects, Alpha Hill and IFC Saigon Tower One, connected to the investor Van Thinh Phat Investment Group Corporation's completed works remaining from 2020 and earlier.

Regarding business prospects in 2023, Hai has identified a decline in the cost of raw materials as a possible bright spot.

According to recent research, the building sector could revive due to the strategy of boosting public investment and the price adjustment of raw materials. In 2023, it is anticipated that over $33 billion in public investments will be made.

VNDIRECT anticipates that the disbursement of public investment in 2023 will increase by 20 to 25 per cent compared to the actual disbursement in 2022. This is due to the bottleneck of a dearth of construction stone and backfill soil being eliminated when the government grants mining permits for new mines, and the prices of construction materials such as iron and steel, cement, and construction stone are anticipated to decrease next year.

In 2023, the background variables of lower input prices and better employment resulting from the public investment drive will hopefully improve the outlook for contractors. According to VNDIRECT, the main construction firms with high capacity and proven strength, such as Vinaconex, Deo Ca transport infrastructure investment, and CIENCO4, have several advantages for winning large-scale bidding packages.

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