Construction businesses to benefit from public investment projects

Shares of the Fecon Joint Stock Company had a price increase of 37% in May 2023, from nearly 11,000 VND per share to over 15,000 VND per share, after this company continuously won bids for projects.

In May, Fecon won bids for projects worth a total value of 300 billion VND, including the concrete embankment of the Cầu Hôn project worth nearly 60 billion VND in Phu Quoc, soil cement pile D1200 of the Royal Group Headquarters project worth 22.2 billion VND in Cambodia, and production and pile pressing at the Clubhouse Vung Tau project worth 12.2 billion VND in Phu Quoc. In the first five months of 2023, Fecon won bidding packages with a total value of nearly 800 billion VND.

Fecon said the company selected projects carefully, ensuring the best resources for projects and that they did not try to win bids at all costs. This was a safe plan in the context that lending interest rates of banks are still high and cash flow is still scarce in the market, it said.

Many other stocks such as Deo Ca Traffic Infrastructure Investment (HHV), CIENCO4 Group JSC (C4G), Licogi 16 (LCG) also witnessed increases in price in May as well as in the first five months of 2023, thanks to the positive developments in business operations.

Deo Ca Traffic Infrastructure Investment (HHV) has won three bidding packages of the North - South Expressway project, phase 2. Besides construction, Deo Ca is operating six BOT (build-operate-transfer) toll stations, which have been its main source of revenue for the past year, collecting about 2.6 billion VND of gross profit per day. The increased travel demand due to the recovery of the tourism industry is expected to bring more revenue for these BOT stations of Deo Ca.

According to DSC Securities Company, the construction industry has a positive outlook in 2023.

In the 2023-25 period, Deo Ca is expected to participate in investing in many more expressways, with a total investment of about 40 trillion VND, focusing on projects in the form of Public-Private Partnerships (PPP). In order to have enough resources, Deo Ca plans to raise capital.

In 2023, the revenue and profit of Deo Ca is forecasted by DSC to reach 2.63 trillion VND and 345 billion VND, up 25.5% and 16.2%, respectively, compared to 2022.

CIENCO4 Group JSC (C4G) is also expected to benefit when the Government implements a series of strategic transport infrastructure projects such as the East North-South Expressway (phase 2), Long Thanh international airport, Hanoi and Ho Chi Minh City ring routes, and green energy traffic projects.

In the recent 2023 Annual General Meeting of Shareholders, Cienco 4 General Director Nguyen Tuan Huynh said that in the first quarter of 2023, Cienco 4 achieved revenue of 460 billion VND, profit after tax of nearly 41 billion VND, increases of 8% and 27%, respectively, over the same period in 2022. In 2023, Cienco 4 plans to achieve revenue of 4.5 trillion VND and net profit of 330 trillion VND.

The Construction Industry Outlook 2023 Report of VNDIRECT Securities Company states that this year promoting public investment disbursement will help infrastructure construction companies make a breakthrough in both revenue and profit in the 2023-25 period.

Four factors promoting public investment

The disbursement rate for public investment as of April 30, 2023 is estimated to reach 14.7% of the National Assembly's 2023 plan, with total disbursed value of 711.7 trillion VND, an increase of more than 130 trillion VND compared to the 2022 plan.

In May, investment capital from the State budget reached 45.1 trillion VND, and in the first five months of 2023 it reached 177 trillion VND, up 19.7% from last year, completing 25.5% of the yearly plan.

VNDIRECT believes that there are four supporting factors that will accelerate public investment projects this year.

First, Vietnam's public debt has decreased significantly in recent years thanks to high GDP growth in the 2016-22 period and tight spending control. The public debt ratio decreased from 51% in 2016 to 40% in 2022, according to IMF estimates, much lower than the public debt ceiling of 60% of GDP. Low public debt creates room for expansion of fiscal policy to support economic recovery.

Second, government bond yields have fallen sharply since the beginning of 2023. As of May 10, in the primary market, 10-year and 15-year bond yields fell 1.67% and 1.7%, respectively, down to 3% per year and 3.1% per year. On the secondary market, 5-year and 10-year bond yields fell by 2.42% and 1.89%, to 2.6% per year and 3.2% per year, respectively.

Third, inflation slowed significantly. The consumer price index in May 2023 only increased by 2.43% over the same period last year, while in January it increased by 4.89%; on average, in the first five months of 2023, the Consumer Price Index increased by 3.55%. When inflationary pressures decrease, the Government may consider loosening fiscal policy.

Fourth, the Prime Minister directed the transport sector to complete preparations to start the construction of three expressways, Chau Doc-Can Tho-Soc Trang, Bien Hoa-Vung Tau and Khanh Hoa-Buon Ma Thuat, and two ring roads including Ring Road 4 in Hanoi and Ring Road 3 in HCM City. These projects are expected to start construction before June 30, 2023.

Mac Quoc Anh, Vice President of HCM City's Small and Medium Enterprises Association, said the second and third quarters of 2023 are an important period for businesses when policies to promote the economy are implemented, especially in terms of finance, fiscal, cost reduction, and loan interest reduction in the banking system.

"I think the second and third quarters of 2023 will be a growth period for Vietnamese businesses," he said.

(Source: VNA)