CTD Initiation report – BUY

COTECCONS CONSTRUCTION JSC (CTD VN): RESILIENTLY OVERCOMING CHALLENGES

Coteccons Construction JSC (CTD VN), a prominent construction firm in Vietnam, has consistently maintained its top position in the fiercely competitive industry. The substantial backlog of signed construction contracts, valued at nearly VND 25,000 bn, serves as evidence of their success. Moreover, CTD stands out as one of the select companies in Vietnam that meets rigorous construction standards set by both domestic and international investors, leveraging its extensive industry expertise. Additionally, CTD leads the way in implementing green construction practices, including adherence to standards like LEED, LOTUS, and ESG.

The construction industry, along with the real estate sector, is poised for a gradual recovery. The Land Law, Housing Law, and Real Estate Business Law will be in effect from August 1, 2024, five months earlier than previously scheduled. This will support to alleviate legal obstacles and create a more robust framework for sustainable development in the real estate market. As a result, project supply in major cities like Ho Chi Minh City and Hanoi is expected to rebound, and construction demand should pick up in 2H2024.

Foreign direct investment (FDI) acts as a catalyst for growth, driving the need for factory construction. CTD has swiftly capitalized on the opportunity to increase its industrial project portfolio, riding the wave of FDI. By March 2024, the industrial construction share had risen significantly to 38%, up from 14% in 2022. This will support the company in improving profit margins and increasing asset turnover.

CTD’s strong asset structure improves its bidding prospects by satisfying financial capacity requirements. At the end of 2023, the company stands out by maintaining a substantial cash ratio within its assets. over VND 2,800 bn, representing more than 13% of total assets. Remarkably, CTD’s debt-to-equity ratio is only 13%, significantly below the industry average of 132%.

Rating and valuation

We recommend a BUY rating for CTD with a fair valuation of 97,000 VND per share using DCF method. This valuation is 38.5% higher than the current price, with a P/E ratio for 2024 of 36.4x and a P/B ratio of 1.1x.