CONSTRUCTION INDUSTRY

PREPARED BY NGUYEN THIEN LUAT –

CREDIT DEPARTMENT - CHAILEASE
INTERNATIONAL LEASING CO., LTD
 CONTENT
INDUSTRY OVERVIEW

CHARACTERISTICS OF INDUSTRY

KEY PLAYERS

INDUSTRY OUTLOOK

INDUSTRY SWOT

OPPORTUNITIES FOR CILC

KEY POINTS TO CONSIDER

INDUSTRY OVERVIEW
• Construction industry is one of the most important industry in the economy, capital devoted
for construction industry accounts for 20% to 25% of Vietnam GDP. In 2013, total value of
construction industry was $36 billion whereas Vietnam GDP was only $171 billion.
• Construction industry is extremely interrelated to the economy cycles (lasted for 3 - 10
years). For example, from 2011 to 2013, tight monetary policy to control the boom stage of
economy pushed interest rate to 20% per year, which has dampened construction
investment inflow.
• Construction industry is also influenced by macro conditions (urbanization speed, Foreign
Direct Investment (FDI), interest rate and inflation rate) and macro regulations of
government. In addition, the government always wants maintain a certain level of
disbursement for this industry especially infrastructure because construction sector also
creates development foundation for other industries as well as the economy as a whole.
CHARACTERISTICS OF INDUSTRY
• Construction industry’s volatility is always greater than the GDP Index (See Figure 1). It always
grow and fall at larger rate compared to the growth rate of GDP.

Figure 1: Construction vs GDP growth rate

CHARACTERISTICS OF INDUSTRY
• In the period between 2011 and 2014,
private sector always held more than 80%
of total construction output and kept a
key role in stimulating the industry growth.
• Private investment contributes to
development of not only residential
sector, but also infrastructure segment via
BT, BOT, BOO and PPP contracts.
However, legal framework for public-
private partnership is still limited, so the
government could not efficiently boost
the private investment inflow into
infrastructure construction.

Figure 2: Sectors in construction industry

CHARACTERISTICS OF INDUSTRY
• Construction industry is divided within 3
categories:
• Residential sector: Houses, Office
Buildings, Retail Spaces.
• Infrastructure sector: Roads, Sewerage
Systems, Water Treatment Systems, Power
Plants & Refineries.
• Industrial sector: Factories, warehouses &
Industrial Zones
• Residential & Infrastructure sectors always
occupy for the highest percentage in the
industry structure. In which, infrastructure
construction takes 41,2% of total output, Figure 3: Structure in construction industry
residential construction accounts for 40,6%
and industrial construction takes the
remaining 18,3%.
CHARACTERISTICS OF INDUSTRY
• Vietnam imported approximately 15,000 construction machines annually, in which 95% is
used machines with average total imported value of $300 to $400 million. Vietnam mainly
import machines from Japan, China, Korea and USA
• At the beginning of September 2014, Circular No. 20/2014/TT-BKHCN officially takes effect
regulating the importation of used machinery, equipment and production lines. In order to
import, used machinery, equipment in construction with used time not more than 7 years
and remaining quality at least 80%.
• Necessary documents for imported used machinery:
• Technical documentation showing manufacturing year of machinery, equipment
imported.
• Quality-control certificate issued by eligible Inspection organization
VALUE CHAIN OF THE INDUSTRY
COST STRUCTURE OF ONE PROJECT
KEY PLAYERS IN FOUNDATION CONSTRUCTION

FDI Company

Private Company

Private Company
KEY PLAYERS IN CIVIL & INDUSTRIAL CONSTRUCTION

Private Company

FDI Company

Private Company
 KEY PLAYERS IN INDUSTRIAL &
INFRASTRUCTURE CONSTRUCTION

Private Company

JSC Company

State Company
PERFORMANCE OF KEY INDUSTRY PLAYERS
 PROSPECT OF CIVIL CONSTRUCTION
• Residential Construction market is largely supported by the real estate market with 5 main
drivers of
• Average population growth rate of Vietnam is 1.2 - 1.5% per year and average
urbanization rate is 3.4% per year. In 2030, Vietnam’s population is expected to be
105.45 million people in which urban population occupies 44.2% (equivalent to 46.6
million people).
• Borrowing and saving interest rate has fallen to 8% and 6% respectively. Lower rate
means lower mortgage cost & stimulate the real estate market’s recovery.
• New regulations and policies to support the real estate market recovery even further.
Specifically, Housing Law (2014) allows foreign individuals and businesses to own houses
in Vietnam. Additionally, Circular 36 further reduces risk coefficient of real estate related
loans from 250% to 150%.
• In 2015, projected GDP growth rate is 6 - 6.2%. This projection is based on (1) decreasing
inputs costs as an effect of falling energy prices, (2) low interest rate supporting
investment and consumption demand, (3) prospects from upcoming Free Trade
Agreements (FTAs).
 Prospect of civil construction is optimistic in near and long-term
 PROSPECT OF INDUSTRIAL CONSTRUCTION
• Growth in industrial construction is depended on new investments and expansion plan of
local and foreign enterprises:
• As mentioned earlier in previous slide, in 2015, projected GDP growth rate is 6 - 6.2%.
• The economy of countries with large FDI flow into Vietnam is brighten up including South
Korea, Japan, Singapore, Taiwan, and the United States.
• Vietnam is negotiating 6 Fair Trade Agreements (FTAs) with the major economies and
ready to join ASEAN Economic Community in 2015. With prospect of 14 FTAs within 2015
and 2020, Vietnam is becoming an important link connecting a network of 55 countries,
in which 15 of them are the G-20 members.
• Efforts to reform administrative procedures and the business environment will greatly
contribute to Vietnam’s FDI attractiveness. Vietnam Automated Cargo Clearance
System, Customs Intelligence Information System (VNACCS / VCIS) and the Nation Single
Window system (NSW) programs could reduce the clearance time by 3.5 of 4 days,
cutting down 10-20% of the cost.
 Prospect of industrial construction is optimistic in near and long-term
PROSPECT OF INDUSTRIAL CONSTRUCTION
PROSPECT OF INDUSTRIAL CONSTRUCTION
 PROSPECT OF INFRASTRUCTURE CONSTRUCTION
• Infrastructure is one of the basic requirement for attracting FDI, however, poor infrastructure
system is one of Vietnam’s weaknesses. A fully developed communications systems,
transportation networks, energy, water supply and sewerage system, and the financial
services facilities will act as leverage for FDI projects’ development. Therefore, government
implements many initiatives:
• Issued Decree No. 15/2015/ND on public-private partnership investments (PPP), created
a unified legal framework which will potentially promote private investment to
infrastructure projects in Vietnam.
• Implement transportation infrastructure projects of Urban Railway, Ha Noi – Hai Phong
Highway, Bac Giang – Lang Son Highway, Nga Ba Hue Overpass, Da Nang – Quang
Ngai Highway, Nha Trang – Phan Thiet Highway, Metro Line, Trung Luong – My Thuan
Highway, Ben Luc – Long Thanh Highway, My Thuan 2 – Bridge.
• Implement energy projects of Lai Chau Hydropower Plant (1,200 MW), Huoi Quang
Hydropower Plant (540 MW), Mao Khe Thermal Power Plant (1,320 MW), Cong Thanh
Thermal Power Plant (660 MW), Vinh Tan Power Centre 1,2,3,4 (5,600 MW), Phu My Power
Centre (3,600 MW), Song Hau 2 Thermal Power Plant (2,000 MW), Long Phú Thermal
Power Plant (1,200 MW), Quang Trach 1 Thermal Power Plant (1,400 MW).
 Prospect of infrastructure construction is optimistic in near and long-term
PROSPECT OF INFRASTRUCTURE CONSTRUCTION
PROSPECT OF INFRASTRUCTURE CONSTRUCTION
PROSPECT OF INFRASTRUCTURE CONSTRUCTION
SWOT OF CONSTRUCTION INDUSTRY
STRENGTH WEAKNESS
• Comprehensive policy and urban planning • Cumbersome administrative procedure
system open up opportunities for the create considerable barriers to investors
development of construction industry, • Most of the local contractors are small and
especially infrastructure sector. medium enterprises (SMEs) who do not have
• With the goal of promoting economic any sustainable competitive advantages.
growth, government is willing to pour a • Poor site management skills
considerable amount of capital in the focal
• Shortage of skilled labor
infrastructure projects
SWOT OF CONSTRUCTION INDUSTRY
OPPORTUNITIES THREATS
• The recovery of real estate market • The monopoly in critical industries such as
• High urbanization rate pushing the demand energy sector lead to the non-
for infrastructure development. transparency, which, in turn, create certain
risks for private and foreign investors
• The severe power shortage opens up a
huge need for expansion of electricity • Power shortage and weak infrastructure
generation infrastructure. system have dampened the potential
growth of manufacturing industry and then
• The trend of moving factories from China to
hurt FDI inflow stream.
Vietnam
• Low labor productivity causes the increase
• Legal framework for PPPs is constantly
in investment cost of FDI firms.
improving creating a better mechanism for
private investment attraction in • Inconsistency of legal system in several
infrastructure projects. areas such as tax system and business
registration
• Recent and upcoming FTAs are building the
path for FDI stream flowing to Vietnam
INDUSTRY OUTLOOK IN 20 YEARS
OPPORTUNITIES FOR CILC
MACHINES
Excavator
Crawler Crane & Wheel Crane
Concrete Mixer Truck
BRAND NAME PRICE
Komatsu, Kobelco, Tadano, , - Komatsu/PW160-7, Japan,
Kato, Hitachi, Hyundai 2006, bucket capacity of
0.97 m3 ($46,958)
- Volvo/EW145B, Sweden,
2007, bucket capacity of
0,58 m3 ($51,431)
Hitachi, Sumitomo, Kobelco, - Hitachi KH850-3, 1997, 150
XCMG, Sany tons ($476,978)
- Hitachi Sumitomo SCX2800-2,
2015, 275 tons ($1,440,000)
- Tadano, Japan, 1995, 50
tons ($107,286)
Sany, Zoomlion, Putzmeister - Concrete mixer truck, Sany
2010, 12m3 ($26,821)
- Concrete mixer truck, Howo,
2010, 10 m3 ($37,997)
OPPORTUNITIES FOR CILC
MACHINES BRAND NAME PRICE

Concrete Pumping Machine Sany, Zoomlion, XCMG, - Concrete pumping

Putsmeister machine, Putzmeister BSA
14000HP-D 1997, 110 m3 / h
($84,935)
- Concrete pumping
machine, Zoomlion HBT 90
2011, 90m3 / h ($38,014)
Concrete Pumping Truck Sany, Zoomlion, XCMG, - Concrete pumping truck
Putsmeister Sany 2008, arm length of 48
m, 90 m3 / h ($95,216)
- Concrete Pumping truck
Putzmeister 1991, arm length
of 48 m, 140 m3 / h
($134,108)
Roller, Bulldozer, Tower Crane,
Construction Hoist, Drilling
Machine
KEY POINTS TO CONSIDER
• Due to its nature, the industry always grow at higher rate than GDP growth rate  Select
established companies to finance & avoid newly-established companies in booming stage
of the industry
• Due to its nature, the construction companies normally use the short-term debt to fund their
projects & together with long days sales outstanding  Consider companies of short days
sales outstanding & positive cash flows from operations
REFERENCE LIST
• Construction industry report by FPT Security in 05/2015.
• Real estate industry report by Viet Capital Security in 2015