SMC faces greater challenges

SMC, which is heavily reliant on the construction sector, has not only seen a downturn in commercial activity but has also been badly damaged by approximately VND 1,000 billion in bad debts owed by real estate and construction enterprises, most notably Novaland.

Continuous Losses

SMC’s Q3 2024 financial report shows net revenue of only VND 2,276 billion, a steep drop of 27.5% compared to the same period last year. Although gross profit improved, financial expenses remain a heavy burden. SMC’s interest expenses alone reached nearly VND 52 billion. As a result, SMC recorded a net loss of over VND 82 billion in Q3, marking the seventh loss in the past nine quarters.

In the first nine months of this year, SMC's income plummeted roughly 36% to VND 6,747 billion. Nonetheless, the firm made a net profit of VND 6.8 billion owing to non-core income streams. Overall, SMC's business is struggling, with the steel trade segment still impacted by the stagnating real estate (RE) market. SMC previously specialized on steel for construction, but it has subsequently transitioned to the residential segment, rendering it especially sensitive to challenges in the residential real estate market.

Asset Sales for Survival

With the RE and construction markets recovering slowly, SMC is scrambling to sell assets to stay afloat. On October 2, SMC’s Board of Directors issued a resolution to transfer creditor rights over receivables from Beton 6 JSC, valued at VND 12.6 billion (including delayed interest or other penalties).

SMC authorized the transfer of land use rights and land-related assets to SMC Da Nang Co., Ltd. in September 2024, for a total of more than VND 96 billion. Previously, in April 2024, SMC authorized the transfer of a 329.5-square-meter office building at 681 Dien Bien Phu in HCMC for VND 170 billion. Furthermore, SMC authorized the transfer of leased land use rights and assets linked to land at SMC Tan Tao 2 - Tan Tao Industrial Park, comprising an area of 9,096 square meters and with an anticipated transfer price of VND 126 billion.

Struggling to Find a Way Out

SMC's financial status is worrying. The firm has accrued several dubious receivables and made huge provisions, significantly reducing profitability. If it fails to handle these bad debts (almost VND 1,300 billion, with 98% of them short-term), SMC may have to make an extra provision of approximately VND 300 billion for 2024. If this contingency is necessary, the company's earnings are likely to stay negative for the rest of 2024.

As of the end of Q3 2024, SMC’s total liabilities exceed VND 4,300 billion, nearly five times its equity. Additionally, SMC faces the burden of interest expenses from loans used to cover bad debts, further increasing costs and reducing profitability. During the 2024 Annual General Meeting, the company's management stated their goal of resolving bad debts (especially those involving Novaland) within this year. Current debt resolution options include cash collection, share swaps, and asset-for-debt exchanges, all of which are actively underway.