by LE MY - TRUONG DANG 25/09/2024, 02:38

What chance for HBC to recover?

Hoa Binh Construction Group JSC (UPCoM: HBC)'s ability to recover is determined by its debt repayment capability as well as its ability to absorb credit limit s issued by various banks.

According to the reviewed 2024 semi-annual consolidated financial report, HBC recorded revenue of VND 3,812 billion, up 11% from the same period last year.

HBC was officially moved from the HoSE to UPCoM as of September 18 due to its accumulated losses exceeding its actual charter capital.

Accumulated Loss Burden

Although HBC's Chairman of the Board of Directors, Le Viet Hai, has set a goal of returning HBC shares to HoSE within the next two years, this will not be an easy undertaking. The accumulated losses are significant, exceeding the actual charter capital, and when considering the company's profits over the previous three years (excluding the Covid-19 and post-pandemic periods, which significantly impacted the construction industry and the real estate market freeze), it becomes difficult to forecast profits for this year and the next, raising concerns about the ability to eliminate the accumulated losses.

According to the evaluated 2024 semi-annual consolidated financial report, HBC generated income of VND 3,812 billion, increasing 11% from the same time the previous year. Profit after tax increased to about VND 830 billion, compared to a loss of VND 713 billion in the same time previous year. Compared to the self-prepared financial report, post-tax profit grew by approximately VND 90 billion. With this additional profit, HBC's cumulative loss as of June 30, 2024 was reduced by 26% from the start of the year, to VND 2,403 billion.

If we consider HBC's pre-tax earnings over the previous three years: VND 527 billion in 2019, VND 795 billion in 2018, and the company's high of VND 1,074 billion in 2017, HBC would require at least one year of peak profits and comparable performance in the next two years to eradicate the accumulated losses.

As a result, a two-year objective may be too short, particularly given the tough construction market, where liquidity has not completely recovered. Aside from the benefits of new real estate regulations, additional planned rules are likely to tighten control over capital expenditures, project implementation fees, and investor selling circumstances (not to mention material price variations). This may reduce HBC's potential revenue from project tenders.

It’s worth noting that HBC's 6-month results are highly positive due to the low base in 2023. However, according to HBC's management, these profits were mainly driven by increased financial income, including gains from selling investments in subsidiaries and affiliates, and interest from deposits and loans. The sustainability of these financial gains in subsequent quarters remains uncertain.

*At its best, HBC shares once reached VND 37,000/share, but at the start of the Covid-19 period, they dropped to VND 6,000/share, placing HBC stock in the "penny stock" category.*

Debt Repayment Uncertainty

At its peak, HBC shares were worth VND 37,000/share, but by the onset of the Covid-19 pandemic, they had fallen to VND 6,000/share, putting HBC stock in the "penny stock" category. After more than 347 million HBC shares were moved to UPCoM, HBC stock is now at VND 5,400/share.

As UPCoM has less stringent listing and disclosure requirements compared to HoSE, attracting capital and liquidity is much harder on this market. The daily trading volume of 1.3 - 3.4 million HBC shares during the early days of UPCoM listing has not garnered much attention from investors. According to a stock market expert, the market is more focused on assessing HBC’s debt repayment capacity, which will determine its recovery prospects.

Despite reducing accumulated losses, AFC Vietnam Audit Co., Ltd. emphasized that the accumulated loss of VND 2,403 billion and some overdue debts signal significant uncertainties that raise doubts about HBC's ability to continue as a going concern. If HBC fails to increase debt collection and improve cash flow, cross-default risks on its debt obligations could arise.

Recently, BIDV decided to increase HBC's credit limit to VND 4,000 billion, with a maximum loan, payment guarantee, and L/C limit of VND 2,000 billion. In addition, other banks, including SeaBank, VietinBank, and VPBank, have given HBC with a total limit of roughly VND 5,100 billion. This increases HBC's entire current credit limit to roughly VND 9,100 billion. While this is an important consideration for restructuring and progressing projects, the exact amount HBC can absorb is determined by the estimated revenue from contracted projects as well as the revolving credit limit under each agreement.