Coteccons targets merger to reach $3 billion revenue

By Tran Anh - Jun 06, 2018 | 01:43 PM GMT+7

TheLEADERIn the context of a decelerating revenue, the mergers of related companies and the shift to larger value-added businesses may be the potential drivers contributing to Coteccons’ growth in the medium term.

At the annual shareholder meeting held on June 2, the resolution of Coteccons to increase expected revenue and post-tax profit up to $1.23 billion and $65.6 million was passed, respectively. 

This is the first time Coteccons has set a profit target for the coming year lower than the previous year since the profit in 2017 fell short of the expected target.

Even though, Coteccons set a new record when attaining profit of $72.3 million in 2017, it was still 5.6 percent lower than the target set earlier last year in the firm's plan. 

Coteccons' management is cautious with this year's revenue plan due to the number of contracts signed so far this year, which forced the company to shift to a lower profit margin segment.

This situation occurred at the same time as profit margins were under pressure due to higher input costs, greater competitive pressure and increased labor costs due to changes in social insurance policy.

The scene at Coteccons' general shareholders meeting 2018

Coteccons shareholders' meeting this year was also very tense as the stock price of the company fell constantly. Therefore, many shareholders raised their concern for the future of Coteccons.

According to the assessment of Ho Chi Minh City Securities Corporation (HSC), there are two potential drivers arisen from the shareholders' meeting this year that could improve Coteccons' business performance in the medium term.

The first driver is the merger of Coteccons to related companies, which currently are Coteccons' subcontractors, to become "One Coteccons". 

Although, the issue was discussed and agreed to be considered, it was not approved yet since it was not included in the meeting document and there was no basis for valuation of these associates.

Currently Coteccons has several related companies namely Ricons, FCC, BM Window and BOHO. Each company is responsible for a different construction field, such as building structures, glass and facade systems, providing aluminum products and furniture.

These companies are also owned by the Coteccons Board of Directors and often act as subcontractors for many of the company's projects.

Based on the assessment of HSC, if these related companies merged into Coteccons, it would eliminate the interests of minority shareholders ensuring profits flow to Coteccons and improve corporate governance. As such, the merger will strengthen the value chain and improve Coteccons' operations.

Chairman of the Board of Directors of Coteccons, Nguyen Ba Duong said that if the merger succeeds, Coteccons revenue may reach $3 billion and will enter the top 10 largest enterprises in Vietnam by 2020.

"A roadmap to merging the entire related companies into Coteccons will be a change for the company and its shareholders. If done properly, we think this will be a positive changer for Coteccons," mentioned by HSC.

The second driving force is for Coteccons to shift to more valuable businesses, such as becoming an investor and developer of commercial and infrastructure projects, instead of only acting as a contractor.

As the market is saturated, a point at which a market is no longer generating new demand for a firm's products, the company is seeking to diversify its portfolio, targeting medium-to-high-end projects, industrial construction projects, entertainment complexes, hotels and resorts.

This may be the direction for Coteccons in the long run, however, it will take several years  to turn into a reality.

In addition, Coteccons is looking for new opportunities in the real estate sector. The company plans to invest in some commercial real estate and some residential projects through its subsidiary, Covestcons.

Currently, there is not much information on real estate projects of Coteccons but the company's goal is to expand its business to a higher profit margins and help stabilize profits by acquiring a number of investment properties for sale or reselling at reasonable prices.

The rate of return for real estate developers and operators is much higher than a construction company. Coteccons is qualified to do this but the extension process requires learning time and must undergo several years of conversion before gaining actual results.