Cash flow declined, resulting in a loss in the second quarter.

VietNamNet•09/08/2023

After nearly two months of bidding, on August 1st, the Vietnam Airports Corporation (ACV) - the investor of the Long Thanh Airport project - announced that the Vietur consortium had surpassed two other competitors and become the only consortium meeting all technical requirements for package 5.10 of the Long Thanh Airport project (the largest package, worth over 35,200 billion VND) and will proceed to the financial capacity evaluation bidding process.

VNDirect believes that Vietur has a great chance of winning this contract, creating a foundation to help the Long Thanh Airport project meet the schedule set by the Prime Minister (commencement in August 2023).

The Vietur consortium consists of 10 members, led by the Turkish ICISTAS Industrial and Trade-Construction Group. This consortium includes three companies within the ecosystem of Mr. Nguyen Ba Duong - former Chairman of the Board of Directors of Coteccons - namely: Newtecons, Ricons, and SOL E&C.

In addition, there are also Vietnam Construction and Import-Export Corporation - Vinaconex (VCG); Hanoi Construction Corporation (HAN); Construction Corporation No. 1 - JSC (CC1); Phuc Hung Holdings Construction Joint Stock Company (PHC)...

Several conditions regarding the financial capacity of the consortium must be met, including: the participating contractor's counterpart funding must be VND 3,224 billion; the contractor's net asset value in the most recent fiscal year prior to the bidding deadline must be positive; and the average revenue over the 5 most recent fiscal years (excluding VAT) must be at least VND 19,800 billion.

These criteria do not pose a significant obstacle for the Vietur consortium.

However, not all businesses in the group are in good financial health.

*Perspective view of Long Thanh Airport.*

Construction #1: Cash and assets dwindling

Construction Corporation No. 1 (CC1) is a long-standing enterprise specializing in the construction of civil, industrial, infrastructure, and energy projects in Vietnam.

Despite its long operating history, CC1 is relatively small in scale with a registered capital of nearly 3,290 billion VND. Its financial health and business performance have been declining recently.

According to the Q2/2023 financial report, Construction Corporation No. 1 (CC1) recorded a decrease in total assets of nearly VND 1,170 billion compared to the beginning of the year, down to VND 14,415 billion. Specifically, cash and cash equivalents at CC1 decreased rapidly from over VND 1,639 billion to VND 897 billion, a 55% decline in six months. Bank deposits totaled VND 320 billion, compared to over VND 1,200 billion at the beginning of the year.

Shareholder equity also decreased from VND 4,162 billion at the beginning of the year to nearly VND 4,053 billion.

Revenue in the first six months of 2023 decreased by nearly 36% compared to the same period last year, falling to VND 1,782 billion. In the second quarter alone, CC1's revenue decreased by 22% to nearly VND 1,237 billion.

In the second quarter, CC1 reported a loss of over 2.5 billion VND, compared to a profit of nearly 13.3 billion VND in the same period last year. For the first six months of 2023, profits decreased by more than 5.1 times, falling to just under 5.8 billion VND.

As of the end of June 2023, CC1 recorded accounts receivable totaling VND 8,085 billion (VND 6,906 billion short-term receivables), accounting for 56% of total assets. The company recorded work-in-progress construction costs of VND 2,497 billion, an increase compared to VND 2,118 billion at the beginning of the year.

Explaining its business results for the period, CC1 stated that the decrease in production and business activities in the second quarter of 2023 compared to the same period last year was due to the overall difficulties faced by the construction industry.

*CC1 has significant short-term and long-term loans and financial lease liabilities, totaling over VND 6,628 billion.*

Large debts

While CC1 only has a few hundred billion VND deposited in banks, it has significant short-term and long-term loans and financial lease liabilities totaling over 6,628 billion VND, including 2,048 billion VND in short-term loans. These primarily consist of three bond tranches worth 2,650 billion VND with an interest rate of 10% per year; a long-term financial lease debt of over 1,277 billion VND with the Vietnam Development Bank; and loans from TPBank, BIDV,SHB , Vietinbank, NamABank, Vietcombank, etc.

Short-term bank loans carry interest rates ranging from 6.3% to 13.4% per year. Long-term bank loans carry interest rates ranging from 8.6% to 10.9% per year.

Over the six months, CC1 had to spend more than 189 billion VND on interest expenses, equivalent to an average of more than 1 billion VND per day. In the second quarter of 2023 alone, CC1 paid over 125 billion VND in interest, compared to 103.8 billion VND in the same period of the previous year. This means CC1 paid nearly 1.4 billion VND per day in interest during the second quarter. This is also the reason why CC1 incurred a loss of over 2.5 billion VND.

Despite reporting a loss in the second quarter, CC1 shares have nearly doubled in value over the past three months, rising above 20,100 VND per share.

Construction Corporation No. 1 was established in 1979 and went public in 2016. As of the end of 2022, the company had only one major shareholder: Chairman of the Board of Directors Nguyen Van Huan, holding over 11% of the charter capital, and Mr. Tran Tan Phat, holding nearly 4.5%.

CCI has many prominent construction projects such as: Nghi Son Refinery and Petrochemical Plant, Sao Mai Cement Plant (Holcim), Dung Quat Refinery and Petrochemical Plant, Tri An Hydroelectric Power Plant, Thac Mo Hydroelectric Power Plant, Phu My Thermal Power Plant, Nghi Son 1 Thermal Power Plant, Thu Thiem Bridge, Ho Chi Minh City Metro Line 1, Da Nang - Quang Ngai Expressway, SP-SSA International Container Port, King Crown Infinity urban area, Dream City Hung Yen…

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