(HSV VIETNAM GROUP) – Steel companies' profits will achieve high growth in 2024 from a low base in 2023 thanks to improved consumption output.
Steel businesses are facing business opportunities when the real estate sector is expected to recover thanks to amended laws related to real estate such as the Land Law, Housing Law, and Real Estate Business Law taking effect from August 1, 2024 and at the same time, steel exports are forecast to be positive thanks to motivation from the North American and European markets.
Shinhan Securities Vietnam Limited Liability Company (SSV) believes that the domestic steel consumption market will be positive thanks to the recovery of real estate due to the removal of legal obstacles. Specifically, the number of new and ongoing licensed projects tends to improve each quarter, but in general is still quite low compared to the average for the 2020-2022 period. In addition, the early signal comes from increased credit growth for construction and real estate in the first months of 2024 on low interest rates.
Besides, growth in the infrastructure sector accounts for 16% of the country's total steel demand. With public investment capital being promoted by the Government to be disbursed in 2024, all projects have completed the bidding stage and are in the construction phase. Mobilizing large amounts of construction materials will be an important driving force for the steel industry. Key projects such as the North - South expressway, Long Thanh airport... are expected to be completed in the period 2025 - 2028.
In addition, the price of input materials (iron ore, coking coal) is forecast by large organizations such as the International Energy Agency (IEA), World Bank (WB), Citibank... to gradually decrease in 2024 and 2025 due to oversupply and emissions policies from many countries.
Hot rolled coil (HRC) steel prices are forecast to increase slightly in 2024 due to more stable supply and recovery in construction demand, especially in India, North America and the European Union (EU). Domestically, steel prices have a certain correlation with world steel prices and warming demand driven by support policies can help the real estate market recover from mid-2024.
According to CBRE Group, apartment supply could increase by 20%; The Government's continued investment in infrastructure will have a positive impact on the steel industry. Thanks to that, recovering selling prices and cooling raw material prices will support steel industry enterprises to improve profit margins in 2024. At the same time, export turnover is expected to continue with positive inertia in the next quarters, because steel prices in Europe and North America are higher than steel prices in Vietnam and China.
The World Steel Association (WSA) commented: Global steel consumption demand will increase 1.7% to 1,793 billion tons in 2024 and increase 1.2% to 1,815 billion tons in 2025. This will support the recovery of Vietnam's export steel output, expected to be a bright spot for the entire industry in 2024.
The Vietnam Steel Association (VSA) forecasts: Vietnam's steel production activities in 2024 may increase by 10% and in 2025 by 8%, when the demand for steel in domestic economic sectors recovers, partly thanks to the accelerated disbursement of public investment capital in the field of transport infrastructure. By 2024, the steel industry is forecast to have long growth steps, leading to a recovery in profits of businesses in the industry.
Reality also shows that clear positive signs of recovery in the steel industry are shown in business results reports. Specifically, Thong Nhat Steel Sheet Joint Stock Company (stock code: TNS) is the first steel enterprise to have just announced its financial report for the second quarter of 2024.
Accordingly, TNS's net revenue increased by 656%, reaching 920 billion VND. The cost of capital is also 7.5 times higher, approximately 900 billion VND. Gross profit reached 21 billion VND, corresponding to a gross profit margin of 2%.
After deducting expenses, the company's after-tax profit reached more than 13 billion VND, this figure reversed dramatically compared to the loss of more than 1 billion VND in the second quarter of 2023. This is also the highest quarterly profit for this steel enterprise in nearly 7 years from the third quarter of 2017.
Accumulated in the first 6 months of 2024, the company's net revenue reached more than 1,700 billion VND, 7 times higher than the figure of the same period last year. Profit after tax reached nearly 19 billion VND, while in the same period in 2023, the company lost nearly 3 billion VND.
In the recently published report, MB Securities Joint Stock Company (MBS) commented: The basic materials industry will continue to maintain recovery momentum in the second quarter with outstanding highlights from the group of steel enterprises.
According to MBS, the growth potential of domestic construction steel output and prices comes from the expected improvement in apartment supply, positively impacting steel demand; Infrastructure investment capital is expected to increase by 12% over the same period.
Apartment supply is expected to improve in 2024 and accordingly, the Hanoi area will increase by more than 33% in 2024, reaching 20,000 apartments, City. Ho Chi Minh City will increase by 31%, reaching about 1,000 units. Therefore, a favorable real estate supply situation can have a positive impact on constructive activities that contribute to promoting steel consumption. Furthermore, the disbursement of conventional investment reached 26 billion USD, an increase of 12% over the same period, positively impacting steel consumption demand.
Thanks to the recovery of the construction industry and growth in public investment, MBS forecasts that rebar prices will average 15 million VND/ton, up 8% over the same period, and output will reach 10.5 million tons, up 9% over the same period.
SSI Securities Joint Stock Company forecasts: The profits of steel companies will achieve high growth in 2024 from a low base in 2023 thanks to improved consumption output. Especially Hoa Phat Group Joint Stock Company (stock code: HPG) and Hoa Sen Group Joint Stock Company (stock code: HSG) with gross profit margin increasing again from a low level for many years, because steel prices have likely ended the downward trend of previous years.
SSI also believes that profit growth will be higher in the first half of 2024 thanks to the low profit base in the first half of 2023. The recovery trend may be maintained after 2024, although consumption demand and steel business profit margins are still likely to fluctuate.
Ha Diem HSV