by DINH DAI - TRUONG DANG 19/06/2024, 02:38

HBC faces persistent financial risks

The State Securities Commission (SSC) recently imposed a penalty on Hoa Binh Construction Corporation (HoSE: HBC) for administrative infractions in the securities and stock market sectors.

HBC specifically failed to publish information on time as legally required on the SSC's information disclosure system and the Ho Chi Minh City Stock Exchange's website about the following documents: 2022 audited financial statements, both individual and consolidated; 2022 annual report; notification of Board of Director changes; explanation of discrepancies in business results before and after reviewing the 2022 mid-year financial statements, both individual and consolidated; and Q4/2022 individual and consolidated financial statements.

*HBC fined for administrative violations due to property transfers from the Chairman before approval - Illustrative image*

Furthermore, on March 31, 2020, HBC signed a land use rights transfer agreement with Mr. Le Viet Hai, Chairman of the Board of Directors, to receive property transfers from Mr. Hai valued at 120 billion VND without the approval of the Shareholders' Meeting or the Company's Board, in violation of regulations governing transactions with shareholders, business managers, and related parties.

The SSC administratively penalized HBC a total of 190 million VND for various infractions, including 65 million VND for failing to provide information on time and 125 million VND for related-party transactions without clearance.

In terms of business performance, HBC's operations improved throughout the first quarter of the year. In Q1/2024, HBC reported revenues of 1.65 trillion VND, gaining 38.2% from the same time of the previous year. After subtracting the cost of items sold, HBC made a gross profit of 21.3 billion VND, compared to a loss of 202.6 billion VND during the same time last year. Financial income increased rapidly, rising 45-fold from 2.5 billion VND to 113.7 billion VND.

According to HBC, the significant rise in financial income was the result of interest collected from the liquidation of a subsidiary. During the time, HBC also reversed provisions for dubious accounts, resulting in a reduction of nearly 21 billion VND in management expenditures.

At the conclusion of Q1/2024, HBC declared a net profit of 57.7 billion VND. However, excluding financial income, net profit from core activities remained negative at 58 billion VND, a considerable improvement from a loss of 443 billion VND in the same period in 2023.

*In the market, HBC shares are currently trading around the price of 7,800 VND per share and are still under watch since January 19, 2024*

According to ACBS Securities, in May 2024, CNCTech Group and HBC signed a memorandum of agreement for 12,000 billion VND for the period 2024-2028. CNCTech has agreed to contract with HBC from 2024 to 2026 to build factories in Ba Thien 1 Industrial Park and Nam Binh Xuyen Green Park in Vinh Phuc province, with a total construction value of more than 5,000 billion VND.

HBC and Pavana Company, a CNCTech Group member, signed a strategic partnership agreement to use artificial intelligence in project supervision. ACBS anticipates that signing new construction cooperation agreements will create chances for HBC to diversify its solid income streams, while the use of AI will assist the firm in improving management efficiency, quality, and construction project timeframes.

According to ACBS, HBC expects to generate 10,800 billion VND in revenue in 2024, a 43% increase over the previous year, and an after-tax profit of 433 billion VND. The income plan for 2024 is 10,800 billion VND, which comprises the value of construction contracts signed (backlog) in 2023 of 5,500 billion VND, designated projects of 2,600 billion VND, and tendered projects of 2,800 billion.

ABCS indicated that, as of the conclusion of Q1/2024, HBC's financial status remained highly hazardous. Although the value of receivables declined by 900 billion VND from over 11,400 billion VND to more than 10,500 billion VND between Q1/2023 and Q1/2024, receivables continue to account for more than 70% of total assets, and the debt-to-equity ratio remains high at 99 times. ACBS feels that the company's financial status has to be improved, and that time is required to examine the potential worldwide market offers in terms of profit margins and export revenues.

"We still highly appreciate the way it expands into the international market both as an investor and as a construction contractor for HBC, and the great potential it brings from the international construction market. Besides, with the expected recovery of the real estate sector following the early passage of important laws, it will lead to a general recovery of the construction industry and HBC," ACBS assessed.