The Long Thanh International Airport (LTIA) project, valued at over VND35 trillion ($1.46 billion), is seizing attention from the investment landscape, promising a vibrant yet challenging future for Vietnamese infrastructure development.

According to an investment report by Vietcap Securities, the project value constitutes 126 per cent of the annual value of fresh contracts signed by Coteccons and Hoa Binh Construction between 2019 and 2022. The magnitude of the project, coupled with its intricacies, is poised to be a catalyst for transformation across multiple sectors.

Three joint ventures, each with extensive experience in international infrastructure and airport projects, are battling for the lucrative tender package.

Among the contenders, the Hoa Lu Consoritum comprises elite domestic construction entities including Coteccons, Hoa Binh, Delta, Central, An Phong, Unicons, in association with Powerline Engineering PCL from Thailand, known for its involvement in Suvarnabhumi airport.

The CHEC-BCEG-Vietnam JV bid is driven by a pair of top Chinese contractors, whose portfolio boasts considerable airport construction both at home and abroad.

The third contender, Vietur, is led by Turkey's third-ranking contractor IC Istas, and features the talent of former executives from Coteccons and Vinaconex, market-leading infrastructure constructors with a rich repertoire in domestic airport development.

Victory in package 5.10 is anticipated to provide a significant lifeline for domestic contractors against the backdrop of a subdued real estate market.

As the annual value of new contracts for Coteccons and Hoa Binh dropped by 50 per cent and 21 per cent respectively during 2019-2022 compared to the preceding four years, a bid win could be a much-needed shot in the arm.

With the project expected to yield an approximate net profit margin of 3 per cent, the winning consortium could potentially accumulate a net profit totalling around $41.67 million. Vietcap projects a peak total net profit of VND525 billion ($21.88 million) for a contractor participating in package 5.10, assuming a completion of 50 per cent of the total backlog.

However, a caveat for eager investors is the anticipated timeline for construction. Spanning an estimated 39 months, with a projected completion by late 2026 or mid-2027, the profit recognition period extends over 3-3.5 years, which requires a medium to long-term investment perspective.

In terms of raw materials, the first phase of Long Thanh International Airport is predicted to require around 18 million tonnes of construction stone, and an additional cubic metre of stone for every square metre of highway or circular road. This opens a significant window of opportunity for quarries in Dong Nai province where the project is located, particularly given the significant transportation costs that form a large chunk of stone construction expenditure.

Entities like Hoa An JSC (DHA) and Bien Hoa Construction and Building Material Production JSC (VLB) stand to gain from this potential windfall.

Meanwhile, Vietcap posits that the impact on steel, cement, and other construction materials might be minimal, given the relatively small footprint of the project's demand on the total consumption of these sectors.

The aviation sector is also keenly watching developments, with the expectation of reaping benefits from 2027 onwards. Vietcap's analysis indicates that while the expansion of Tan Son Nhat airport may alleviate passenger terminal congestion from 2025, the airport's operational capacity will likely continue to be stretched to its limits. Increased runway exploitation will exculp these challenges.

However, the long-term view offers some solace, as new capacity from Long Thanh will eventually confer benefits on airlines and Airports Corporation of Vietnam (ACV). A critical consideration, though, is that ACV will need to grapple with a surge in investment flow and a higher leverage ratio, which could affect net financial income during the 2024-2026 period.