Construction firms see divergent earning results amid rising material prices

Construction enterprises have reported divergence in the first half of 2021 as a sharp increase in raw material prices has put them under pressure.

Steel currently accounts for roughly 20% of the input costs.

In the first half of this year, the prices of many construction materials continuously increased to record highs, steel alone recorded a rise of 40%. The price of cement with the composition of coal, electricity, gasoline, gypsum and additives also climbed from VND30,000-40,000 per tonne.

The rising prices were attributed to a decline in demand caused by miners facing many difficulties amid the COVID-19 pandemic, a fragmented production chain and China’s policy of cutting steel production to protect the environment.

A number of contractors had to temporarily suspend and stop construction of projects to wait for steel prices to drop to avoid losses.

In the second quarter and the first half of 2021, many construction companies listed on the stock market recorded a decline in earnings while some others achieved impressive business results thanks to cost reductions and diversification.

Coteccons Construction Corporation (CTD), traded on the Ho Chi Minh Stock Exchange, reported Q2 revenue of VND2.55 trillion (US$111 million), down 36% over the same period last year.

Deducting the cost of goods sold, the company earned VND135 billion in pre-tax profit, only half of that in 2020. As a result profit margins decreased to 5.2%. Administrative expenses continued to record sudden increase from VND70.7 billion to VND122 billion, which, according to CTD's, was due to the pre-payment of expenses payable to employees.

Deducting expenses, CTD's after-tax profit was VND45 billion in the second quarter, down 71% over the same period last year. Except for the loss in the fourth quarter of 2020, this is the company's lowest quarterly profit in recent years. In the first half of 2021, CTD reported an after-tax profit of only VND99 billion, down 65%, fulfilling less than 38% of the profit target.

In the market, CTD stock is on an upward trend, trading around VND63,000 per share.

Ricons Construction Investment JSC announced second-quarter revenue of VND1.83 trillion, an increase of 10% over the same period last year. However, cost of goods sold rose significantly, thereby causing pre-tax profit to decline 27% year-on-year to VND70 billion.

In addition to the pressure of rising raw material costs, the company's administrative expenses also soared 49% to more than VND42 billion.

As a result, the second quarter's after-tax profit decreased by 44% to VND33 billion. In the first six months of 2021, Ricons achieved VND3 trillion in revenue. Deducting expenses, the company reported a 38% decrease in after-tax profit to approximately VND57 billion.

On the positive side, Hoa Binh Construction (HBC) in the second quarter achieved net revenue of VND3.18 trillion, up 8%. The higher cost of goods sold caused a decrease in pre-tax profit of 17%, down to VND195 billion.

But financial activities saw revenue soaring 7.5 times higher than the same period last year, reaching more than VND65 billion, mainly from nearly VND51 billion from the transfer of investments. The second-quarter after-tax profit jumped to nearly VND66 billion, nearly 35 times higher than the second quarter of 2020.

HBC's revenue in the first half of the year reached nearly VND5.4 trillion. Deducting expenses, the company reported an after-tax profit of more than VND73 billion, 5.6 times higher than the same period in 2020.

Thanks to its wind power projects, FECON Corporation (FCN) achieved six-month revenue of VND1.34 trillion and after-tax profit of VND50 billion, up 12% and 39%, respectively over the same period in 2020. In the second quarter, FCN reported an after-tax profit of VND35 billion, up 66% year-on-year.

In 2021, the company expects revenue to reach VND3.9 trillion, profit after tax of VND175 billion. Thus, in six months, the company has completed 27% of revenue and 29% of profit targets for the whole year.

Hung Thinh Incons Joint Stock Company (HTN) also recorded impressive results in the first half with revenue up 2.5 times higher than last year, reaching VND1.7 trillion. Pre-tax profit soared by 399% to approximately VND145 billion, the gross profit margin reached 8.5%.

It reported after-tax profit of nearly VND83 billion in the second quarter, nearly 46 times higher than the same period last year.

In the first six months, HTN achieved VND2.9 trillion in revenue and VND120 billion in after-tax profit, up 66% and 3.3% year-on-year, respectively.