HBC Flash note – NOT RATED

HOA BINH CONSTRUCTION GROUP JSC (HBC VN)

In Q1/2024, HBC’s business activities showed a partial recovery. Specifically, the revenue reached VND1,650 bn (+38.2% YoY). After deducting COGS, HBC achieved a gross profit of VND21.3 bn, a significant improvement from the VND202.6 bn loss recorded in the same period. Notably, the financial income skyrocketed, increasing 45-fold from VND2.5 bn to VND113.7 bn. The surge in financial revenue was attributed to profits from selling subsidiary. Additionally, HBC experienced a reversal in its provision for receivables, thereby helping the business management expenses in the period to be negative VND21.1 bn. As a result, HBC reported a net profit of VND57.7 bn in Q1/2024. However, excluding financial revenue, net profit from core business activities is still negative at VND58 bn, which is still a huge improvement compared to the loss of VND443 bn in Q1/2023.

In May 2024, CNCTech and HBC signed a MoU valued at VND12,000 bn for the period 2024- 2028. Accordingly, CNCTech will assign HBC to construct factories in Vinh Phuc province: Ba Thien 1 and Nam Binh Xuyen Industrial Parks, with a total expected construction value of over VND5,000 bn. Besides, HBC and Pavana Company, a CNCTech Group member, have entered into a strategic cooperation agreement. They are leveraging artificial intelligence (AI) for construction project supervision. We anticipate that the ongoing signing of new construction collaboration contracts will provide HBC with opportunities to broaden its stable income stream. Meanwhile, the adoption of AI is intended to boost efficiency in management, improve quality, and advance project progression.

In 2024, HBC aims for revenue of VND10,800 bn (+43%YoY) and a profit after tax of VND433 bn (a significant turnaround from the 2023 loss of over VND1,100 bn). The revenue breakdown for 2024 includes signed construction contracts from 2023 (valued at VND5,500 bn), designated contractor projects (valued at VND2,600 bn), and bidding projects (valued at VND2,800 bn).

Quick comment:  As of Q1/2024, HBC’s financial status was still not in a good shape. Even though the value of receivables fell by VND900 bn, from over VND11,400 bn to more than VND10,500 bn from Q1/2023 to Q1/2024, the value of receivables still constituted over 70% of total assets. Furthermore, the liabilities/equity ratio is significantly high at 99 times. We believe that HBC should prioritize enhancing its financial health. Additionally, it requires time to assess the potential benefits that foreign markets could offer in terms of profit margins and revenue from material exports. On the other hand, we appreciate the way HBC plans to enter the new market by being a co-investor and co-contractor and high potential of foreign construction market. Last but not least, , we anticipate that the revival of the real estate sector, facilitated by the prompt enactment of key laws, will stimulate a comprehensive recovery in the construction industry and HBC.