(HSV VIETNAM GROUP) – It is undeniable that positive signals are increasingly appearing in the steel industry. However, the exact business results of businesses still have to wait until the end of the financial reporting season.
After a quiet period of giving the "stage" to the banking group, steel stocks suddenly became popular again. HPG, HSG, TVN, POM, VGS, TLH, GDA,... all simultaneously broke out strongly with an increase of over 3% on January 16. Even NKG and SMC increased to the limit, in which NKG recorded a sudden increase in liquidity.
According to some comments, steel stocks are simultaneously surging ahead of the peak financial reporting season, reflecting the positive profit growth forecast of steel businesses in the fourth quarter of 2023.
Typically, Hoa Phat (HPG), after information about higher-than-expected output, SSI Research has adjusted its 2023 net profit estimate from VND 5,950 billion to VND 6,150 billion (down 27.5% compared to 2022). This corresponds to Hoa Phat's fourth quarter net profit of about VND 2,300 billion, much better than the loss of VND 2,000 billion in the same period. If SSI Research's forecast is correct, the steel industry's leading enterprise will have the largest quarterly profit in 6 quarters.
Further in 2024, SSI Research expects Hoa Phat's profits to recover by 80% thanks to both sales volume and gross profit margin improving. The company's consumption output is expected to increase by 11% in 2024. The increased proportion of export channels in revenue will help Hoa Phat transfer the increase in raw material prices to steel selling prices more easily. In addition, the Dung Quat 2 expansion project is expected to begin operating in phases in 2025 and 2026, which is expected to promote long-term growth after 2024.
Regarding Hoa Sen (HSG), SSI Research forecasts that this group's profits can recover strongly in 2024, with an increase of more than 20 times compared to the low base level set in 2023 (lowest since 2006). The domestic market may recover better than the export channel in 2024. Outstanding debt decreased to a low of 2.3x in fiscal year 2023, equivalent to 0.22x equity compared to 35% in the previous fiscal year and the highest level of 2.26x in 2018.
Meanwhile, Nam Kim (NKG) is forecasted by KBSV to improve its gross profit margin in 4Q 2023 thanks to (1) an increase in cheap inventory from the third quarter of 2023 and (2) galvanized steel prices tend to increase in the fourth quarter in both domestic and international markets. This securities company forecasts that Nam Kim's net profit for the whole year will reach 205 billion VND, equivalent to more than 181 billion VND in the fourth quarter, much better than the same period in 2022 (loss of more than 356 billion VND).
Nam Kim's 2024 profit growth is estimated by KBSV to reach 45%, equivalent to a forecast profit of VND 297 billion. In the first quarter of 2024 alone, KBSV expects that Nam Kim's business results will be maintained thanks to the main motivation from the export channel with (1) competitive selling prices and (2) domestic manufacturers continuing to keep production capacity at a low level to maintain profit margins.
Many positive signals support the steel industry's prospects
Business results of steel enterprises are forecast to grow optimistically on the basis that key factors are expected to recover.
According to SSI Research, total steel consumption is likely to recover by more than 6% in 2024, of which domestic consumption is expected to grow by nearly 7%. Steel consumption in 2024 will be supported by the macroeconomic situation and a better real estate market. In the previous cycle, construction steel consumption in 2013 increased by about 3% compared to the bottom in 2012.
In fact, Hoa Phat's own sales volume of hot rolled coil (HRC) steel products, construction steel and steel billet has continuously increased for 8 consecutive months and reached 760,000 tons in December 2023, an increase of more than 7% compared to the previous month. This is the highest steel sales volume in a month for this group since March 2022.
Export activities are also forecast to flourish. SSI Research estimates that export output will improve in the first quarter of the year due to the increasing difference between steel prices in North America and Europe and steel prices in Vietnam. In addition, Europe's stricter control of the import of semi-finished steel products produced by Russia in 2024 will also support Vietnamese steel exports to Europe.
Regarding price, VCBS believes that the possibility of domestic steel bar prices decreasing further is not much because it is currently as low as the price of imported Chinese steel. However, the steel price cycle will fluctuate in correlation with Chinese steel prices and it is unlikely that prices will increase sharply in the near future. This securities company expects steel bar prices to maintain at 14-15 million VND/ton until the end of the first half of 2024 before there are subsequent waves of price increases.
Regarding the price of galvanized steel, BSC Research forecasts that Hoa Sen's selling price of galvanized steel in 2024 will increase by 6% compared to 2023 in the context that the price of HRC (3 mm type) - the input material for producing galvanized steel has been balanced and has shown signs of increasing again in recent weeks. The increase in HRC price will lead to an increase in the price of galvanized and color-coated steel products (usually with a delay of about 1-2 months).
This analysis department identifies the price range of 520-540 USD/ton as the equilibrium price range of HRC in the international market. At the same time, HRC prices in China will increase again in the fourth quarter of 2023-January 2024 thanks to seasonal factors and policies to support the real estate market in this country starting to take effect. Thereby, promoting HRC prices in the world and positively impacting galvanized steel prices.
It is undeniable that positive signals are increasingly appearing in the steel industry. However, the exact business results of businesses still have to wait until the end of the financial reporting season and it is still too early to confirm that the industry wave is truly "long-term" after just one session of strong increases.
Ha Diem HSV