DPG faces pressure to improve cash flow

DPG has established a multi-industry ecosystem, but the majority of its revenue still comes from the construction sector.

A Multi-Industry Group with a Core in Construction

According to DPG's Q2/2024 financial statement, the company generated net revenue of VND 960 billion, a 25% increase year on year. However, due to a large rise in the cost of goods sold, the gross profit margin decreased from 15.7% to 13.5%. After deducting business expenditures, DPG's post-tax profit in Q2/2024 was VND 72.3 billion, up 33% from the same time previous year.

In the first half of this year, DPG's revenue and post-tax profit were VND 1,386 billion and VND 150 billion, respectively, up 19.6% and 9% over the same time the previous year. The corporation has achieved 30% of its sales and 44% of its profit targets for 2024.

Despite the positive growth in the first half of this year, DPG's cash flow statement shows that operating cash flow is negative VND 562 billion, compared to negative VND 260 billion in the same period last year. Overall, the group's net cash flow during the period is negative VND 249 billion.

DPG's leadership stated that the operating cash flow only reflects a momentary situation, and by the end of Q2/2024, the group’s cash flows are still in circulation. They forecast that by the end of the year, when the cash flow cycle concludes, the group's cash flow will significantly improve compared to the end of Q2/2024.

In theory, negative cash flow indicates that cash outflows exceed inflows, which, if prolonged, could create financial difficulties for the company. DPG has built a multi-industry ecosystem across five sectors: construction, energy, real estate, resort services, and manufacturing, but the revenue structure reveals a continued dependency on construction.

In Q2/2024, construction contract revenue accounted for 87.2% of total revenue, reaching VND 837.6 billion, a 34% increase year-on-year. Meanwhile, commercial electricity sales accounted for 12.03%, totaling VND 115 billion, a 10% decline. Revenue from service provision and real estate investment activities contributed insignificantly.

Significant Challenges Remain

In the real estate sector, DPG has the Con Tien project, which is expected to be eligible for sales in Q3 of this year; however, in 2022, the company had also anticipated launching this project and recording revenue in 2023, but it was unsuccessful. As a result, this project remains nearly stagnant. Recently, the Quang Nam Provincial People's Committee decided to approve the adjustment of the investment policy for the Con Tien Urban Area Housing Project in May, with project acceptance expected around Q4/2025. The prospects for revenue recognition in this sector remain distant.

In manufacturing, specifically in investing in a glass factory, this remains a near-future project, as the investment certificate for the factory in Thua Thien Hue province was only recently issued, and the investment procedures are being expedited with the goal of commencing construction in Q1/2025 and launching products in 2026. A positive note for this segment is that in July, DPG signed a contract with Khaithinh International Construction Group (China) for the supply and installation of equipment for the ultra-white glass manufacturing plant, along with accompanying technical services. Therefore, the USD 45 million factory project can be expected to gradually become a reality.

With a business strategy built on a multi-industry ecosystem, but with sectors other than construction not yet contributing revenue, DPG's cash flow is still dependent on investors' payments. It is worth mentioning that DPG is involved in public investment projects, which might reap major advantages from the government's drive for public investment in 2024 and possibly into 2025. However, because public investment projects are constantly dependent on capital allocation, the building contractor is not the only one who can increase cash flow. Previously, in Q1/2024, the group's net cash flow was roughly VND 176 billion, with operational cash flow negative by more than VND 497 billion. As a result, DPG will continue to face significant challenges in the future quarters.

Despite the company having profits on the books, it has not yet generated actual cash flow. Amid a wave of high expectations and benefits for companies involved in public investment, DPG's stock price saw a significant increase of over 60% in the first half of 2024. As of August 9, DPG closed at VND 48,000 per share, up about 18% from the beginning of the year.

With the forecasted growth rate of the construction sector expected to gradually decline to a modest level in 2024, ranging from 20% to 25%, and the gross profit margin expected to remain stable between 7% and 7.2% after a 40% increase in 2023, MASVN forecasts that DPG could achieve consolidated revenue of VND 4,142 billion, up 20%, and the parent company's post-tax profit could reach VND 211 billion, up 4%, with EPS at VND 3,351, up 4%. MASVN has downgraded its rating for DPG from "increase weight" to "hold."