Vietnam’s Construction Sector Gears Up for a New Cycle
A review of construction companies listed on the HOSE, UPCoM, and HNX stock exchanges reveals a remarkable surge in the industry’s financial performance for Q3 2024. The sector recorded a combined pre-tax profit of VND 2,919 billion, the highest in four years, reflecting a 36% increase compared to the same period last year. Notably, the growth in profits for construction firms is no longer solely dependent on the real estate sector.
This performance contradicts earlier assessments and expectations that forecasted a bleak outlook for the construction industry in Q3 2024 and the entire year.
Moreover, the performance of construction stocks since mid-November has outpaced the VN-Index. After the market bottomed out, this group of stocks rebounded more robustly than the index, signaling that the construction sector is poised to conclude 2024 on a high note, surpassing market expectations.
Mr. Do Thanh Son, Head of Investment Advisory at Mirae Asset Securities, acknowledges that the construction sector’s recent performance has exceeded expectations. However, he points out that there is significant differentiation within the industry. Civil construction companies, which depend heavily on the real estate sector, are experiencing a slower recovery as the real estate market is not yet showing strong signs of revival. On the other hand, infrastructure construction firms are faring better, largely due to the impetus provided by public investment. The industrial construction segment is currently the biggest contributor to growth, fueled by the continuous influx of FDI into Vietnam.
Looking ahead, Mr. Son anticipates that the construction sector will maintain its strong performance in Q4 2024, as this is the period when projects accelerate to meet completion deadlines before the end of the year. He predicts that the industry will continue to surpass market expectations and enter a new growth cycle from 2025 onwards, propelled by multiple favorable factors. The two segments to watch are industrial construction and infrastructure development.
“The primary driver of growth will be industrial construction, particularly for companies capable of executing high-tech industrial projects and automating warehouse logistics. There is a current shortage of such offerings in the market. However, companies are selective and tend to favor contractors with extensive experience and expertise, so opportunities may not be equally distributed,” Mr. Son explains.
“Regarding infrastructure construction, public investment will remain the key driver. Companies entrusted with重点 projects and those with superior construction capabilities will reap the benefits, especially with the current emphasis on public investment. In the long term, high-speed railways will be the main catalyst, and enterprises capable of handling multiple aspects of such projects will be prioritized. Stocks in these two segments are likely to outperform the broader market,” he adds.
Optimism in the Construction Sector
On a national scale, the General Statistics Office’s Q3 2024 report indicates that construction companies are more optimistic about Q4 2024 compared to the previous quarter. Additionally, there has been a reduction in the percentage of enterprises facing critical challenges, such as a lack of new construction contracts (down 1.9% from the previous quarter) and rising raw material prices (down 2.3% from the previous quarter), reflecting an improvement from the situation in the first half of 2024.
At the micro level, businesses are witnessing positive developments, albeit with some differentiation and shifts in their operations. Mr. Nguyen Khoa Dang, CEO of Searefico Joint Stock Company (HOSE: SRF), shares that civil construction continues to face challenges due to a lack of new contracts and escalating raw material prices, which have forced some contractors to exit the industry. In contrast, industrial and commercial construction segments are showing more encouraging signs.
“The continuous rise in FDI inflows into Vietnam, the booming e-commerce sector, the resurgence of domestic and international tourism, and the overall vibrancy in the construction sector for production and logistics are all contributing to a dynamic market, especially in large industrial zones and key economic gateways like Bac Ninh, Da Nang, and Long An. The construction segment for tourism is also picking up pace in destinations like Phu Quoc, Hoi An, and Da Nang. Going forward, these two construction segments are expected to remain positive, with key industrial and tourist destinations continuing to be the bright spots,” Mr. Dang states.
Mr. Dang further explains that industrial construction projects typically have shorter construction cycles (6-9 months) as businesses aim to commence production on schedule to ensure profitability and capital recovery. Usually, construction is completed by Q3 to initiate production in time for the busiest shopping season in Q4 and the Tet holiday.
A similar pattern is observed in the construction of resorts and tourist destinations. In Vietnam, the rainy season starts in April, so construction companies strive to finish projects and hand them over in Q4 to allow service companies to prepare for the festive season at the beginning of the following year. Consequently, Q4 often marks the peak profit period for specialized construction companies in these two segments. This year, their revenue and profits are expected to show a significant improvement compared to the challenging years before.
In conclusion, both experts and businesses agree that the construction sector is experiencing a positive shift, although growth will vary across segments. Industrial and infrastructure construction are anticipated to outperform, and Q4 2024 is expected to be the most prosperous period of the year. The construction industry is entering a new growth cycle, and stocks in the industrial and infrastructure construction segments are likely to stand out in the market.
Ha Kim Thanh
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