In effect, a significant discrepancy exists between the largest non-state-owned heavy construction contractor in Vietnam, an employer of over 3400 full-time workers, and the publicly-listed entity going for a little more than $5 Million on the NASDAQ as of the close on Monday. Cavico (CAVO) last traded just slightly above its 52-week low, suggesting a bottom has formed after several consecutive sessions of higher trading.
The company is expected to post its 10-K form any day now, after filing for an extension. Revenues won’t surprise, cash flows will continue to plead for improvement, and margins may be depressed by foreign currency translation losses as well as higher input costs due to rising commodity prices.
So what’s the upside?
First, management has vowed to instigate better cost controls. As stated in their last 10Q filing:
(a) reducing operating costs, (b) negotiation contracts with higher gross margins, (c) negotiating to obtain or extend the loans and credit lines with more attractive terms and expanded borrowing capacity; (d) raising equity capital on reasonable terms.
Second, Cavico will be the benefactor of revenue recognition in the upcoming periods as projects underway reach significant milestones in completion. A full list of projects, including their estimated revenue contribution, start/completion dates and location is available here.
Third, in dealing with large state-owned customers, Cavico is relatively ensured in receiving timely payment for their services. Cavico’s focus has shifted to singular infrastructure projects that contribute higher margins. Backlog, consisting mainly of tunnel and dam construction projects, tops $304 Million. And, despite the mounting projects, Cavico hasn’t neglected new bids as evidenced here and here.
On a global scale, Vietnam is contributing several billion dollars towards spending on infrastructure. State-scale projects may pose significant opportunity for Cavico to secure contracts that provide a steady and much-needed cash flow. Cavico reports:
Business Monitor International projects that Vietnam’s construction industry will grow by 8.5% year-over-year to reach $8.5 billion in 2011, driven by the Vietnamese government’s efforts to increase domestic electricity production and upgrade the nation’s infrastructure.
The story with Cavico isn’t a tale of fantastic growth or disruptive technology that will revolutionize the heavy construction industry; rather, it’s a turnaround play. Cash per share outpaces the market price and a price-to-sales ratio of 0.08 holds in itself hope for a brighter future.
Other notable undertakings include Cavico’s recent claim to an investment license that will allow the company to construct, own and operate a hydropower plant expected to contribute $1.25 Million in revenue each year. Incremental increases in revenue and gross profit will hopefully lead to a much-coveted net income. Investors who had formally overlooked a turnaround to the largest privately-owned heavy construction company in Vietnam may then be willing to view the company on par with cohorts such as Sterling Construction Co. Inc. (STRL), Hill International, Inc. (HIL), Chicago Bridge & Iron Company N.V. (CBI) and Shaw Group Inc. (SHAW).