Hoa Sen Group construction fire adds salt to injury

The fire at the Hoa Sen Group project

Fire damage at nearly $9,000

Hoa Sen Group has issued an announcement about the fire at its four-star complex including a trade centre, hotel, and event place at Nguyen Tat Thanh Street in the northern province of Yen Bai's Yen Bai city.

Accordingly, at 2.20PM on September 23, a huge fire broke out from the basement and first floor of the project. Although the construction units complied with safety regulations, during welding works, the wind blew ash into the area where combustible material was kept on the first floor of the building, which resulted in fire.

“Workers tried to bring the fire under control with fire extinguishers, sand, and water, but the wind was too strong and the fire spread too fast. They had to call the fire department for support. By 2.40PM the fire was extinguished. The incident was detected soon and caused no damage to life or property, and has not affected the quality or the progress of the project. The construction unit suffered some damage, around VND200 million ($8.850),” noted Hoa Sen Group.

The project construction was kicked off on May 19, 2016, at the centre of Yen Bai city on 1.5ha of land. The total investment of the project is estimated at VND1.2 trillion ($53.1 million) and it is developed by Hoa Sen Yen Bai Building Materials One Member Limited Liability Company (HSYB-Ltd), one of the member companies of Hoa Sen Group JSC.

This will be the biggest and highest building in Yen Bai city. The shell of 15 floors of the building has been completed, and the contractor is currently installing inside equipment. The complex is expected to be put into operation in the first quarter of 2019.

Hoa Sen Group deep in the red

Over the last two years, Hoa Sen Group’s profit margin has been falling. The after-tax profit of the last two quarters was under VND100 billion ($4.4 million), far from the VND855 billion ($37.8 million) peak in the first two quarters of the 2016-2017 fiscal year.

According to the 2018 second quarter financial statement of Hoa Sen Group, the corporation’s revenue increased by 40 per cent on-year to over VND10 trillion ($442.5 million). However, the group’s profit continued to decrease to VND83 billion ($3.7 million), down 70 per cent on-year. This is the second consecutive quarter that HSG’s profit was under VND100 billion ($4.4 million) and is at a four-year low.

Viet Capital Securities assessed that the fall in HSG’s profit was due to the fierce competition. In 2016-2018, the capacity of the leading steel companies has increased sharply.

In 2016, Hoa Sen produced 1.5 million tonnes more, which is 121 per cent of its 2015 production volume. Nam Kim’s production rose by 800,000 tonnes (190 per cent). Additionally, Hoa Phat, a new player, produced 400,000 tonnes in the first quarter of this year.

Moreover, the high input costs also eat into HSG’s profit. In the three first quarters of 2016, the company’s gross profit margin was 24-26 per cent. In the next five quarters, this figure reduced sharply to around 15-18 per cent, and was only 10 per cent in the last quarter.

As of the end of June 2018, the short-term debts of HSG were VND12.42 trillion ($550 million), increasing by VND3.4 trillion ($150.4 million), or 38 per cent, compared to the beginning of the year. Long-term debts also rose by 22 per cent to VND3.46 trillion ($153 million).

As a result, the accumulated debts of HSG stand at nearly VND16 trillion ($700 million), and the group had to pay VND190 billion ($8.4 million) of interest in the last quarter.

On the stock exchange, the HSG ticker has been falling since April and is at VND12,000 currently.