Infrastructure projects, regulatory changes seen driving strong recovery in Vietnam construction

Singapore

VIETNAM'S construction industry is set to continue its recovery in 2022 as several large-scale infrastructure projects move through different stages of development.

Amendments to the nation's construction and investment laws will likely bring further investment into the sector as well, analysts said.

This comes as companies in other parts of South-east Asia appear to be actively exploring opportunities in Vietnam.

Most recently, concrete and cement provider Pan-United Corporation signed a cooperation agreement with Vietnam property company Novaland Group. Its subsidiary, FiCO Pan-United Concrete (FiCO PanU), will provide sustainable concrete solutions to Novaland until 2024.

Under the agreement, FiCO PanU will build two on-site batching plants in Aqua City - a smart-eco integrated development in Vietnam's Dong Nai province.

Pan-United has also supplied projects in Ho Chi Minh City, such as the Urban Railway Construction Project, Cat Lai Port in District 2 as well as Keppel Land's 14.6-hectare integrated waterfront development in the Thu Thiem New Urban Area, according to its 2020 annual report.

Another Singapore-listed company with exposure to Vietnam's construction industry is AnnAik, whose operations include engineering construction and the distribution of steel products. Its presence in Vietnam is small, however, and made up less than 1 per cent of the group's revenue in the first half of 2021.

In Malaysia, Bursa-listed construction company Jaks Resources has said it would continue to actively bid for new construction projects in Vietnam to replenish its order book.

In its financial statement for the third quarter ended Sep 30, 2021, Jaks said its engineering, procurement, and construction projects in Vietnam had tapered off towards the end of 2021.

Jaks also has a 30 per cent equity interest in Jaks Hai Duong Power Company, a joint venture company that generates power in Vietnam. For the nine months ended 30 Sep, 2021, Jaks derived 51.7 per cent of its total revenue from Vietnam.

Vietnam's construction industry had a tough 2021, as economic activity was affected by Covid-related lockdowns.

In its latest financial statement ended Sep 30, 2021, Malaysia-listed tile maker Kim Hin Industry saw total sales in Vietnam fall to RM1.9 million (S$609,709) from RM3.2 million a year ago. The tile manufacturer attributed this to the resurgence of Covid-19, which resulted in full lockdowns during most of the financial quarter in Vietnam.

Another Malaysian tile manufacturer, White Horse, chose to exit the market. It sold its buildings, machinery and freehold land in Vietnam to Viglacera Tien Son for 630.27 billion dong (S$37.3 million) in June last year.

But analysts think the tide could be turning.

Fitch Solutions' infrastructure and power & renewables analyst Daine Loh, for one, said the country's construction sector could grow by 7.9 per cent in 2022.

"Vietnam will continue to be one of the fastest-growing construction markets in the region as the strengthening economy supports fiscal expenditure and attracts foreign and private investment in real estate and infrastructure," she said.

While she estimates that the sector grew 8.2 per cent in 2021, she noted that this seemingly faster rate was due largely to the low base effects from 2020.

In particular, she cites the government's most recent five-year plan and several transport plans that were enacted in recent months, as well as rising investor interests that will drive growth in the sector.

Similarly, Turner & Townsend Vietnam associate director Viet Hung Le said he is "very optimistic" on the construction sector and noted that many key infrastructure projects such as the metro, airport, bridges and roads are expected to commence contract works in 2022.

On Sep 1, 2021, Vietnam Prime Minister Phan Minh Chinh approved a plan to build more than 5,000 kilometres of expressways by 2030 and about 9,000 kilometres of expressways by 2050.

These include the building of the 2,000km eastern North-South Expressway from Lang Son to Ca Mau as well as a 1,200km North-South Expressway linking Tuyen Quang and Kieng Giang.

Le also said that Vietnam continues to see strong foreign investments. For instance, Lego Group is investing about US$1 billion for the first carbon-neutral factory in the south of Vietnam.

And, he noted, the amendments made to clarify and simplify licensing procedures for construction projects in Vietnam have taken effect.

According to a Baker McKenzie brief on the amended construction law, which took effect in 2021, the criteria to determine if projects require a preliminary feasibility report have been narrowed somewhat for private project developers.

"From a developer's perspective, the new law will provide more certainty on permissions and address unclear regulations under previous law which was one of the major concerns for developers who are looking into investment in Vietnam," Le said.

He noted, however, that labour shortages as a result of the Covid-19 pandemic could affect the construction sector, especially in larger cities like Hanoi and Ho Chi Minh City.

Similarly, Fitch's Loh said periodic lockdowns caused by the pandemic could be a key risk.

She also pointed out that construction input prices could remain high in 2022 on sustained construction demand, although they should still be lower than the levels seen in 2021 as global demand moderates and supply chain disruptions ease.

Said Loh: "As the economy normalises, risks related to high input prices, such as cost overruns and project delays, will decrease over the year."

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