South Mekong (VC3) has negative cash flow for 5 consecutive years

Financial revenue declines, no more profit from liquidation of investments

In Q2/2023, Nam Mekong (VC3) achieved revenue of VND 120.9 billion, a relative growth compared to Q2/2022, showing that the company's business activities have slightly recovered. Gross profit reached VND 36.8 billion, equivalent to a gross profit margin of 30.4%.

5 years of continuous development of Mekong Delta VC3, maintaining capital mobilization and borrowing, image 1 — South Mekong (VC3) has negative cash flow for 5 consecutive years from 2018-2022 (Photo TL)

However, the company's financial revenue dropped sharply from 17.3 billion to only 447.3 million VND. The reason is that the company no longer records profits from liquidating investments. In addition, interest on deposits also dropped from 4.4 billion to only 447 million VND, causing the company's revenue to drop sharply.

Investment activities in joint ventures are also losing 34 million VND. Sales expenses only account for 180 million VND while business management expenses still account for 8.8 billion VND. VC3's after-tax profit in the second quarter reached 15.8 billion VND.

Cash decreased 8.5 times, 80% of inventory is located at Bao Ninh 2 project

At the end of the second quarter of 2023, Nam Mekong's total assets reached VND 3,621.9 billion, a slight decrease compared to the beginning of the year. However, the amount of cash in the period decreased 8.5 times, from VND 49.3 billion to only VND 5.8 billion.

Cash equivalents, on the other hand, increased from VND83 billion to VND321.9 billion. These are all term deposits with terms of less than 3 months at banks. In addition, inventories recorded in Nam Mekong's total assets account for VND2,340 billion, equivalent to 64.6% of total assets.

Of which, the inventory at Bao Ninh 2 Urban Area Project alone is recorded at VND 1,847.7 billion, equivalent to nearly 80% of the total inventory that VC3 has. Compared to the asset structure, the inventory of Bao Ninh 2 Project accounts for 51% of Nam Mekong's assets.

5 consecutive years of negative cash flow, operating cash flow from debt is increasing

Another notable thing about Nam Mekong's operations is that for many years in a row, this unit has recorded negative cash flow on its financial statements. This means that in recent years, VC3's revenue has not been enough to cover its daily business activities.

Specifically, from 2018 to the end of 2020, VC3's net cash flow from operating activities was continuously negative, from tens to hundreds of billions of VND. The peaks were in 2018 and 2022 with negative cash flows of 181.6 billion and 214.3 billion VND, respectively.

5 years of continuous development of Mekong Delta VC3, maintaining capital mobilization and borrowing, image 2 — Negative operating cash flow for 5 consecutive years, VC3's debt is increasing.

Also during these 5 years, to compensate for the lack of cash flow, VC3 had to continuously increase its debt with increasing amounts, along with issuing shares to raise cash to invest in projects.

Nam Mekong's debt financing has been steadily increasing year by year, from VND178.7 billion in 2018 to a peak of VND734.6 billion in 2022. As mentioned above, more than half of Nam Mekong's assets are recorded as inventory at the Nam Bao Ninh 2 project, indicating that the unit is having to raise a large amount of money for the project.

To make up for the 5-year cash shortage, in addition to increasing debt, Nam Mekong also issued shares to increase capital by hundreds of billions of VND. In 2020 and 2022, VC3 issued 285.7 billion and 342.9 billion VND of shares, respectively, to raise capital for its projects.

Thus, it can be seen that VC3's profits over the past 5 years were not enough to cover expenses, and the negative cash flow for 5 consecutive years forced the company to increase debt and raise capital by issuing additional shares.

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