What outlook for LCG?

Leverage from public investment projects

According to statistics from the Ministry of Finance, by the end of August 2024, the disbursement progress of key national public investment projects reached 34.6%, relatively slow due to challenges in the compensation process. However, this is expected to improve with amendments to the Public Investment Law and the Land Law, which will help determine land prices and address bottlenecks in site clearance.

KBSV expects a significant improvement in disbursement progress in 4Q 2024 as contractors intensify efforts to meet investor-set targets. For the 2025-2026 period, it believes the public investment sector will be particularly significant, as several key projects are set for completion and handover.

Per the Ministry of Planning and Investment, the minimum capital demand for development investment in 2025 is estimated at VND903 trillion (25% YoY). KBSV expects public investment allocation to improve in 2025, especially for component projects of the North-South Expressway (Eastern section) for the 2021-2025 period.

LCG's 2025F revenue growth

The main growth driver for LCG in the 2024-2026 period will be large public investment projects, particularly expressways, with an estimated backlog of over VND4,300 billion by the end of 3Q 2024. Among these, the two largest contracts are the Vung Ang – Bung Expressway and the Van Phong – Nha Trang Expressway, both showing strong progress, with disbursement rates of 87% and 51%, respectively, for the 2024 plan (as of August 2024, according to the Ministry of Finance). Both projects are expected to complete their main routes before April 30, 2025, with full completion and acceptance anticipated in 2Q 2024, in line with the implementation schedule. Successful execution and handover of these expressway projects will significantly enhance LCG’s track record, providing a competitive advantage in bidding for major public investment projects in the 2026-2030 period. KBSV forecasts LCG’s revenue for 2024/2025 at VND2,322 billion and VND2,984 billion (16%/29% YoY).

KBSV has a positive outlook on LCG's ability to execute, implement, and hand over projects, bolstered by advances from investors, which have significantly improved the company’s customer receivable turnover days in 2Q 2024 (reduced to 178 days from 357 days in 2Q 2023). The ability to utilize advance payments gives LCG increased flexibility in project execution, financing, and managing liabilities with subcontractors and banks.

Extraordinary financial income

The transfer contract, valued at VND298 billion (with a contract cancellation fee of VND73 billion), pertains to the Chu Ngoc Solar Power Project, which has a total capacity of 40 MW, with phase 1 contributing 15 MW. The contract’s final execution date is set for September 30, 2024. KBSV estimates that upon the successful transfer of the project, LCG could record an extraordinary financial gain of VND108 billion in the second half of 2024.

Many risks ahead

LCG's construction progress and revenue recognition may be impacted by external factors, particularly if site clearance delays occur. From KBSV’s observations, land clearance for the Hanoi Ring Road 4 project (Hung Yen section) is 86% complete, while the Bien Hoa – Vung Tau Expressway has achieved 50% clearance.

Historically, LCG’s revenue from construction has primarily been derived from two key sectors: (1) construction infrastructure, especially expressways, and (2) electrical infrastructure. Given that the majority of LCG's revenue is concentrated in construction, with 96% of its backlog tied to public investment projects, KBSV anticipates a decline in the company's gross profit margin in the near future. It projects that LCG’s gross profit margin for the construction sector will be 10.1%/9.0% for 2024F/2025F.

Based on the 2Q 2024 financial report, KBSV estimates that receivables amount to VND364 billion, representing 6% of LCG's total assets.