Vietnam's biggest construction contractor hopes to get benefits from trade tension

Conteccons Construction Joint Stock Company (Coteccons) has announced its revenue of the first nine months of 2019 which reached $894 million, increasing 13.9 per cent year over year.

Construction of residential real estate gained $420 million, office trade center construction got $116 million, construction of hotel and resort brought in $107 million and the rest came from industrial building.

The construction of residential real estate projects is still the biggest contributor to Conteccons's revenue but the percentage of each business segment has changed significantly compared to previous years.

It is notable that the proportion of real estate construction segment decreased by 27 per cent year over year, from 73 per cent to only 47 per cent. The company's shares have been falling steadily since the beginning of this year as investors fear that Conteccons faces difficulties because of downturns in the real estate market or fierce competition in the cost of materials.

Having a long-term partnership with Vingroup, Coteccons will still benefit from deploying the Vincity's package. Vincity is currently under the construction but this year, it will not contribute significantly to revenue.

In the next few years, Vingroup plans to develop three Vincity projects including Vincity Gia Lam (364 hectares), Vincity New Saigon (251 hectares) and Vincity Tay Mo (280 hectares) with about 180 buildings and other infrastructures.

It is expected that Conteccons will put up 67 buildings and maybe develop other infrastructure projects, which is likely to be the main source of profit for the company in the next two years.

However, its profit margin will not be as high as before, ranging from five to six per cent as they are popular housing projects.

When facing difficulties in core business, Coteccons is looking for new directions. In the first nine months of this year, its industrial construction revenue increased 255 per cent year over year and contributed 28 per cent to total revenue, a threefold increase from nine per cent of last year.

The share of industrial construction increased sharply thanks to the large contribution from Vinfast as well as the Hoa Phat Dung Quat project. The move to industrial park construction can be considered as a new step for Vietnam's biggest construction contractor in the context that domestic demand for residential real estate is gradually saturated.

Ho Chi Minh City Securities Corporation (HSC) said that Coteccons's strong performance in this area and its long-term relationship with many Chinese and Taiwanese clients will help the company benefit from production shifting from China to Vietnam because of escalating the US - China trade tension.

HSC forecasted that mergers and acquisitions (M&A) activities of related companies will be a positive change for Coteccons. Estimated cost of M&A activities buying minority shareholders will be $108 million.