Capitalizing on Public Investment
Deo Ca Transport Infrastructure Investment Joint Stock Company (HHV) operates within the extensive "ecosystem" of Deo Ca Group (DCG), focusing primarily on construction and the management and operation of traffic infrastructure. The company has successfully showcased its capabilities through the completion of various large-scale projects, including the Deo Ca tunnel (with a total investment of VND 11,378 billion), Cu Mong tunnel (VND 4,627 billion), Hai Van 2 tunnel (VND 7,296 billion), Bac Giang - Lang Son Expressway (VND 12,188 billion), and Trung Luong - My Thuan Expressway (VND 5,003 billion).
Notably, HHV holds the right to collect Build-Operate-Transfer (BOT) tolls on five crucial arterial traffic projects, connecting the North-South expressway, including a road tunnel system through Deo Ca (comprising four tunnel projects) and the Bac Giang - Lang Son Expressway project.
Looking ahead to the 2021-2030 socio-economic development plan, the Government has identified infrastructure development as its top priority. The medium-term public investment from 2021 to 2025 is set to reach VND 2,870,000 billion (equivalent to USD 118 billion), marking a 43.5% increase compared to the 2016-2020 period. Key projects in focus include the Northern Expressway - South phases 1 and 2. According to the General Statistics Office, the total value of disbursed public investment between 2021 and 2022 amounts to VND 980,700 billion (equivalent to USD 40 billion).
Consequently, the Government is expected to disburse an average of VND 630,000 billion per year (equivalent to USD 26 billion) during the 2023-2025 period, representing an 84% increase compared to the average actual disbursed public investment capital in the 2016-2020 period.
Deo Ca Transport Infrastructure Investment Joint Stock Company (HHV) and its affiliate, Deo Ca Group (DCG), are capitalizing on the favorable strides in the government's disbursement of public investment capital. In 2023, the duo secured numerous substantial bidding packages, with HHV's total participation value exceeding VND 19,600 billion. These accomplishments are gradually manifesting in HHV's operational performance.
According to estimates from the Board of Directors, HHV is poised to achieve a revenue of VND 2,560 billion (a 22% increase) and a post-tax profit of VND 370 billion (a 24% increase) in 2023. This notable result is attributed to the significant contributions from construction activities. In the first nine months of 2023, the construction segment witnessed an impressive 88% growth in revenue, reaching VND 519 billion - surpassing the VND 434 billion generated from Build-Operate-Transfer (BOT) toll collection activities during the same period in 2022 (where BOT activities constituted nearly 70% of revenue).
Building on the success of 2023, HHV's Board of Directors holds optimistic expectations for 2024, setting a target for revenue growth and post-tax profit to reach 16%. Specifically, revenue is projected to reach VND 2,915 billion, with a post-tax profit of VND 448 billion.
This ambitious goal is grounded in the execution plan for ongoing public investment projects and several favorable factors. Chief among these factors is the anticipated recovery of the tourism industry and an optimistic economic outlook for 2024, which is expected to bolster the positivity of traffic toll collection activities.
Anticipated Growth vs. Market Realities
In a bid to prepare for future expansion plans, HHV took a strategic step in the fourth quarter of 2023 by issuing preferential shares amounting to 25% of its charter capital to existing shareholders, priced at VND 10,000 per share. This move resulted in HHV raising VND 830 billion, with VND 752 billion allocated to existing shareholders and the remaining undistributed portion issued privately to the investment fund PYN Elite Fund at VND 11,000 per share.
The issuance price to PYN Elite Fund aligned with the average liquidity value of 1-2 trading days of HHV shares, with a transfer limit set within one year.
Mirae Asset Securities (MAS) conducted an analysis revealing that, post-additional issuance, HHV's book value at the end of 2023 stands at VND 11,300 per share. Projections anticipate that HHV will meet its 2024 profit plan, with the book value and Earnings Per Share (EPS) reaching VND 12,300 per share and VND 1,014 per share, respectively.
With a target Price/Earnings (P/E) ratio of 20x and Price/Book (P/B) ratio of 1.5x, the expected target price for HHV would be VND 19,350 per share. However, contrary to these optimistic forecasts and shareholder expectations, the HHV stock has remained relatively stagnant, hovering around VND 15,000 per share over the past three months.
This represents a significant decline of approximately 30% from its peak value of VND 22,000 per share in September 2021. The discrepancy between expectations and market performance raises questions about the future trajectory of HHV's stock.
The recent underwhelming performance of HHV, not living up to earlier predictions, aligns with the recent comments issued by VNDirect Securities (VND). In a noteworthy move, VND revised its HHV code recommendation from "positive" to "neutral," citing a mere 3% upside potential. The downgrade included an 18% reduction in the target price to VND 16,000 per share, despite a 6% increase in the share price since the latest report.
VND's decision to lower the target price stemmed from adjustments in valuation methods, incorporating Price/Earnings (P/E) and Price/Book (P/B) ratios, coupled with prolonged expectations for additional capital for the Deo Ca tunnel.
These adjustments factored in risks such as slower-than-expected progress in project construction, delays in newly signed contracts, and unexpected increases in the prices of construction materials. Notably, the current stock price is seen as fully reflecting HHV's anticipated profit growth in 2024, a result of the government's emphasis on public investment.
Despite the growth potential, HHV's move to increase capital at the end of 2023 by issuing more than 7.1 million shares has left investors perplexed. Although these shares were repurchased by the PYN Elite Fund, the foreign investment fund's track record of losses in the Vietnamese market has heightened shareholder uncertainty.
Notably, shareholders closely associated with the business, like Hai Thach BOT Investment Company, have opted to divest, transferring the majority of their over 66 million buying rights. This divergence in investor sentiment adds a layer of complexity to HHV's current market dynamics.
