The Rail Sector’s Profit Derailed by Storm Yagi

1 November, 2024

North-South railway line through a dragon fruit garden in Binh Thuan. Illustration

According to the General Statistics Office, domestic passenger transport in the first nine months of the year is estimated at over 3.6 billion passengers, up 7.4% over the same period. Among them, passenger transport by railway achieved a high growth rate of 17.8%. This was followed by inland waterway transport (9.3%) and sea transport (7.6%). This positive information is reflected in the business picture of the railway industry.

The Q3/2024 financial statements of Ha Noi Railway Transport JSC (UPCoM: HRT) showed revenue of over VND 782 billion, the second highest in its operating history (after Q1/2015 with revenue of VND 849 billion), up 23% over the same period in 2023. This is also the third consecutive quarter of positive revenue growth (each quarter higher than the previous one).

However, HRT said that due to the heavy impact of Storm No. 3 (Storm Yagi landed in the northern provinces from 07/09), the cost of repairing and overcoming architectural works increased. This was one of the main factors causing the net profit to reach only VND 35 billion, down 35% over the same period, but still the highest quarterly profit in the past year, even far exceeding the loss of VND 84 billion in Q4/2023.

HRT’s quarterly business results for the period 2020-2024

In the first nine months of the year, HRT‘s net revenue reached nearly VND 2,272 billion, up 20% over the same period, and almost equal to the revenue of 2023 (VND 2,460 billion). Net profit decreased by 23% to VND 75.5 billion, but was 5 times higher than the result in 2023. This is also the highest profit of the Enterprise in the past 10 years.

In contrast to HRT, Saigon Railway Transport JSC (UPCoM: SRT) achieved double-digit growth in both revenue and profit in Q3. Specifically, net revenue increased strongly by 27% over the same period to VND 563.5 billion, the second highest in its operating history (after Q1/2015 with revenue of VND 677 billion). After deducting expenses, net profit reached a record high of over VND 49 billion, up 14%.

The company said that revenue increased due to an increase in other income from passenger ticket fees. In addition, no provision for bad debt was made this quarter, and the reduction in interest expenses contributed to the increase in profit.

In the first nine months of the year, SRT recorded VND 1,645 billion in revenue, up 21% over the same period, and much higher than the revenue in the period 2019-2022. Net profit increased by 8% to nearly VND 87 billion, the highest ever and far exceeding the results achieved in many previous years.

In the first nine months of 2024, SRT reported a profit many times higher than the results of previous years

In 2024, both HRT and SRT set out cautious plans with pre-tax profits of over VND 12 billion and nearly VND 11 billion, respectively. In fact, these two enterprises far exceeded their annual profit targets right from Q1.

Previously, HRT and SRT had gone through a period of continuous business losses, causing both to incur heavy losses. But thanks to the recent positive results, HRT‘s accumulated loss as of 30/09/2024 decreased to VND 293.5 billion, while SRT reduced its accumulated loss to VND 294.5 billion.

Closing date for swapping HRT and SRT shares into shares of the consolidated company

Hanoi Railway and Saigon Railway are the two largest members of the Vietnam Railway Corporation (VNR), with charter capital of VND 800.6 billion and VND 503.1 billion, respectively. Of which, VNR owns 91.62% of HRT‘s capital and 78.44% of SRT‘s capital.

HRT manages routes from Hanoi to Ho Chi Minh City, Lao Cai, Dong Dang, Hai Phong, and two routes Yen Vien – Quan Trieu, Kep – Cai Lan. Meanwhile, SRT manages routes from Ho Chi Minh City to Hanoi, Nha Trang, Tuy Hoa, Da Nang, Hue, Vinh, Lao Cai, Hai Phong, Lang Son, etc.

Illustration

According to Decision No. 562/QD-TTg dated 26/06/2024 of the Prime Minister, VNR will complete the merger of its two member companies, Hanoi Railway and Saigon Railway, into Vietnam Railway Transport JSC (VRT) by the end of 2024. This plan is part of the VNR restructuring plan that has been implemented in recent years.

VNR leaders expect this consolidation to bring significant benefits, such as increased revenue, improved efficiency in the use of infrastructure of both units, and higher income for employees.

On 18/09, the State Securities Commission of Vietnam (SSC) issued a certificate of registration for the issuance of shares to be swapped under the consolidation contract between HRT and SRT.

Accordingly, the consolidated company, Vietnam Railway Transport JSC, will issue nearly 130.4 million shares to swap all the shares of HRT and SRT shareholders, corresponding to a total issuance value of nearly VND 1,304 billion at par value. The swap ratio is 1 HRT share for 1.09071 shares of the consolidated company, and 1 SRT share for 0.85565 shares of the consolidated company. These shares are not restricted from transfer.

Both HRT and SRT chose October 31, 2024, as the record date for shareholders to swap their shares for shares of the consolidated company, Vietnam Railway Transport JSC.

The Manh