Building rock stocks (VLB) see positive prospect ahead
Building rock stocks (VLB) see positive prospect ahead
Despite posting poor business results from 2020 to the first quarter of 2023, many construction rock companies have seen their stock prices bounce strongly since the beginning of the year.
A mining site of Binh Duong Mineral and Construction. — Photo courtesy of KSB |
Listed construction rock businesses are struggling. During 2020-21, revenue for the group declined by 5.9-26.4 per cent over the year. Even if their performance improved by 11.8 per cent in 2022, it is still much lower than in 2019.
The group’s profit before tax in the period 2021-2022 also decreased by 28.5-57.4 per cent year-on-year.
The difficulty for the listed building rock firms persisted in the first quarter of 2023, as the group's revenue and profit before tax fell 25.8-37.8 per cent year on year.
VNDirect Securities Corporation said that the negative performances were due to the impact of social distancing orders and the high volatility of building material prices in 2020-22, with construction projects moving slowly.
The residential real estate market has also been stagnant since the second quarter of 2022 after many scandals bombarded the market while interest rates increased and credit was limited.
As real estate projects are the main output of high-quality stone products, the situation has an impact on the profitability of construction rock enterprises.
Moreover, many quarries with good locations and quality have been depleted and closed, lowering the production of the field's firms, such as Tan Dong Hiep mine, which expired at the end of 2019, and Nui Nho mine, which expired on December 31, 2017.
The remaining quarries are frequently located distant from HCM City, are of poor quality, and are difficult to exploit. As a result, these miners' profit margins are smaller.
Despite the tough time, many building rock stocks have performed well.
Particularly, Bien Hoa Building Materials Production and Construction (VLB)’s shares soared 68 per cent from the beginning of the year to close the Friday trade at VND42,000 a share (US$1.78). Binh Duong Mineral and Construction (KSB) climbed 54.2 per cent, Hoa An JSC (DHA) rose 31.7 per cent, CIC39 Corporation (C32) was up 5.6 per cent, and Easterns AHP Minerals increased 6.2 per cent.
The rallies were buoyed by many supportive factors.
Bright prospect
Yuanta Vietnam Securities believes that the construction rock sector will benefit from the public investment trend.
The Government is promoting public investment to stimulate economic recovery, with this year’s investment plan of VND707 trillion, up 22 per cent year-on-year.
Data from the Ministry of Finance shows that in the first five months of the year, the disbursement of the investment reached VND157 trillion, a gain of 35 per cent and reaching 22 per cent of the plan assigned by the Prime Minister.
The securities firm also said that a limited building rock supply is an opportunity for the listed enterprises.
The application for a new quarry licence and mine extension is restrained due to waiting for the amended draught Mineral Law (Amendment) at the end of 2023 and is expected to be issued in 2024.
As a result, the supply in 2023-24 will be limited when some quarries have expired for the past one to two years.
However, Yuanta Vietnam noted that due to the characteristics of the industry, transportation costs account for a high proportion of the cost, hence, the profit margin depends on the location of the mines relative to the project.
Meanwhile, VNDirect expects the construction rock group's business results to be supported by an increase of 32 per cent in the real estate supply in 2024.
"The supply of domestic real estate will only be able to recover in the third quarter of 2024, when the amendments to the Land Law are passed to remove and synchronise legal bottlenecks and financial crunches and interest rates are lowered as banks create more favourable conditions to access capital as well as stimulate demand for home buyers. This will be the growth driver for construction rock demand next year", said VNDirect.
It also said that downside risks include limited disbursement of public investment and higher-than-expected mineral mining licence fees that affect the net profit margin of construction stone companies.
