CTD struggles to regain industry leadership

CTD has various obstacles as Vietnam's construction sector struggles with a sluggish residential real estate market. The provisioning for building projects has progressively become bad debt, eroding the company's income sources.

Heading Overseas

CTD has announced the establishment of a subsidiary aimed at generating $3 billion in revenue. This action reflects the company's "go global" strategy, as outlined in the Board of Directors' decision on international investment, by establishing a subsidiary, Coteccons Constructions Inc, to carry out construction-related operations in 2023. Previously, in late March 2024, CTD planned to open a representative office in Indonesia to bid on and implement contracts in the market.

According to DSC Securities Company, CTD is one of the leading construction firms, securing numerous contracts worth trillions of VND. Its application of ESG sustainable development standards in business operations has given CTD a competitive edge in winning multimillion-dollar contracts from large foreign partners, such as the construction of VinFast's factory by Vingroup and LEGO’s factory by the LEGO Group. These serve as a springboard for CTD to participate in international tenders.

To prepare for new investment opportunities abroad, CTD has taken several significant actions. Notably, in July, CTD signed a partnership agreement with Daewoo E&C. According to Mr. Bolat Duisenov, Chairman of CTD’s Board of Directors, this strategic partnership with Daewoo E&C is expected to bring significant achievements and set new standards in the construction industry.

Daewoo E&C is currently developing manufacturing and infrastructure projects in foreign markets. In Vietnam, the business is extending its construction market by creating new cities and establishing cold storage and data centers powered by LNG cold energy, while also pursuing investment and construction projects in the LNG power plant and renewable energy sectors. The potential for growth in construction bids and real estate development, along with the two firms' collaboration, is likely to multiply as they expand internationally.

The above is only one example of CTD's "go global" approach. According to DSC, CTD is also working on industrial projects in India and Indonesia, which VinFast has invested in, as well as evaluating bids for additional international projects.

Domestic Operations

Turning to the company’s internal performance, CTD has just concluded its 2024 fiscal year. According to reports, CTD’s fiscal year revenue reached VND 21,045 billion, up 30.8% from the previous year, 118% of the old business plan (VND 17,793 billion) and 105% of the revised business plan (VND 20,000 billion). Gross profit nearly doubled from the previous year, reaching VND 712 billion, and net profit after tax surged 343%, reaching VND 299 billion, completing 109% and 104% of the old business plan (VND 274 billion) and the revised plan (VND 288 billion), respectively. CTD also reported winning contracts worth VND 22,000 billion in 2024, providing a solid foundation for meeting business plans in the coming year.

According to DSC, by the end of the 2024 fiscal year, CTD's financial leverage ratio stood at only 0.18 times, among the lowest in the industry. CTD also stated that it would actively mobilize cash flow to ensure smooth project implementation. A $200 million investment commitment from shareholder Kusto Group for the 2024-2028 period is expected to support the company’s expansion, investment, and profitability improvement.

In the fiscal year 2025, CTD intends to maintain effective operations based on: (1) the acceleration of public investment disbursement at the end of the year, (2) the anticipated expansion of real estate supply after the revised Land Law goes into effect on August 1, 2024, and (3) its large backlog of contracts.

As a result, DSC has altered its recommendation to "buy" CTD shares, with a price objective of VND 82,000 per share, representing a forward P/B ratio of 0.9 times.

CTD faces ongoing risks in the local market, where the real estate market has yet to fully recover. Many investors are experiencing liquidity issues, and without increasing their payment capacity, CTD may face increased bad debt. Internationally, geopolitical tensions and the possibility of an economic downturn might dampen demand for building and infrastructure development in emerging nations. Increased construction price competitiveness may potentially reduce business margins. Thus, CTD must prepare for worst-case situations in which real estate developers fail to make loan payments, as well as contingency plans for high-expectation regions such as Southeast Asia, Saudi Arabia, and Ukraine.