D2D Company is struggling to find new momentum.

Having consistently paid high dividends to shareholders for many years, Industrial Urban Development Joint Stock Company No. 2 (D2D Company) is facing difficulties in securing capital to implement investment projects, as well as finding new growth drivers, as existing projects are already fully occupied.

The challenge of finding new growth drivers.

After the Nhon Trach 2 Industrial Park Project was fully occupied and the Loc An Residential Area Project Phase I was handed over and accounted for the majority of revenue and profit in 2021, D2D Company continuously recorded a sharp decline in business results.

While D2D Company recorded a profit of VND 268.1 billion in 2020 and VND 242.7 billion in 2021, it only made a profit of VND 17.18 billion in 2022, VND 25.75 billion in 2023, and reported a loss of VND 5.18 billion in the first half of 2024 (compared to a profit of VND 7.02 billion in the same period).

In fact, the Nhon Trach 2 Industrial Park Project has a scale of 331.42 hectares, with 281.72 hectares of land available for lease and a 100% lease contract rate; the Loc An Residential Area Project, Phase I, was largely handed over and accounted for in 2021, and Phase II is currently being planned for implementation.

From January 1, 2021 to June 30, 2024, D2D Company's cash reserves decreased by 95%, from VND 963.6 billion to VND 47.4 billion.

After major projects lost their growth momentum due to handover or the accounting of most profits, thanks to its shared ecosystem with its parent company, the Industrial Park Development Corporation, D2D Company collaborated with Sonadezi Chau Duc Joint Stock Company (SZC) to lease 57.88 hectares at the Chau Duc Industrial Park Project, along with 28 shophouses and 54 townhouses at the Sonadezi Huu Phuoc Residential Area.

Most recently, at the 2024 Annual General Meeting of Shareholders, the leadership of D2D Company continued to adjust and increase the investment capital for the Loc An Residential Area Project by an additional VND 1,115.93 billion for the 2024-2029 period, from VND 336.4 billion to VND 1,483.2 billion.

Due to the delay in the Loc An Residential Area Project compared to the initial investment plan (originally planned for implementation in 2016-2018), investment costs are showing signs of exceeding the initial budget many times over, and the company will also have to raise matching funds for investment.

Reportedly, as of June 30, 2024, D2D Company only had VND 47.4 billion in cash, accounting for 3.04% of total assets. In addition, work-in-progress production costs at the Loc An Residential Area Project amounted to VND 85.66 billion, and at the Huu Phuoc Residential Area Project VND 49.18 billion…

With cash reserves dwindling to just 47.4 billion VND, the total investment required for the Loc An Residential Area Project alone amounts to 1,115.93 billion VND. The challenge is for D2D Company to find ways to raise capital to implement the project and discover new growth drivers.

Lack of contingency planning for investment capital when maintaining high dividend yields for many consecutive years.

In fact, D2D Company is an industrial and commercial real estate business with a relatively attractive cash dividend distribution strategy for existing shareholders.

In 2020, the company paid dividends at a rate of 35%, in 2021 at a rate of 50%, in 2022 at a rate of 30%, and notably in 2023 at a rate of up to 87%.

It is known that in 2023, D2D Company only generated a profit of VND 25.75 billion, but paid dividends at a rate of 87%, corresponding to a total payout of VND 263.36 billion. Of this amount, the company used accumulated profits from previous years to pay dividends, offsetting the modest profit of VND 25.75 billion in 2023.

The Industrial Park Development Corporation owns 57.86% of the company, so maintaining a consistently high cash dividend rate has helped the parent company generate significant annual cash flow, improving its consolidated business performance, but this has weakened the subsidiary's cash flow.

Looking at the broader picture, from January 1, 2021 to June 30, 2024, D2D Company's cash reserves decreased by 95% (equivalent to a decrease of VND 915.9 billion), from VND 963.6 billion to VND 47.4 billion.

D2D Company needs a significant amount of capital to invest in the next phase of the Loc An Residential Area Project, as well as to collaborate on new investment opportunities to drive growth. However, with very limited cash reserves, the company is forced to seek new ways to raise capital to invest.

Besides the story of finding new growth drivers, the rapid increase in D2D stock in early 2024 has led to its valuation no longer being cheap compared to the industry. Specifically, data on SSI Securities' iBoard shows that D2D stock is trading at a P/E (price-to-earnings ratio) of 93.19 times, while the industry average is 16.19 times; the P/B (market price-to-book value ratio) is 1.3 times, while the industry average is 1.21 times.

It is known that during the favorable business period (2017-2021), the P/E ratio of D2D shares only fluctuated within the range of 4.3 - 9.1 times.

“After rising more than 92% at the beginning of the year, D2D's stock price fell 18.3% from July 8th to August 16th. The sharp decline in the stock price recently was mainly due to the overvaluation of the stock, triggering investors to take profits amidst the company's business losses, lack of new growth drivers, and especially, the stock's early-year increase was mainly due to market factors, not due to improvements in the company's internal performance,” said Mr. Lam Van Van, representative of ECI Capital Investment Fund, sharing his views on the valuation and price movements of D2D stock.

Source: https://baodautu.vn/cong-ty-d2d-loay-hoay-tim-dong-luc-moi-d223019.html