(HSV VIETNAM GROUP) – MBS forecasts that Hoa Phat's revenue and profit after tax in 2023 will reach VND 117,939 billion and VND 5,594 billion, respectively, down 16% and 37% compared to the previous year.
In the context of weak consumer demand, the downward trend in domestic construction steel prices has not yet stopped. After 16 consecutive adjustments, domestic steel prices have reached their lowest level since the end of 2020.
According to the Vietnam Steel Association (VSA), the domestic steel market is assessed to continue to be difficult in the short term. In addition to demand factors, steel prices are also falling because businesses have to compete with cheap steel from China when the country continuously lowers export steel prices.
In a recent report, MBS Securities said that the sharp decrease in steel consumption demand comes from difficulties in civil construction activities (accounting for 70% of consumption output). The real estate market will enter a period of decline from the end of the second quarter of 2022 after a growth cycle from 2017 to the first half of 2022.
However, according to MBS, the difference of 60 USD/ton between Vietnamese steel and Chinese steel will not put more pressure on domestic enterprises to reduce selling prices. Therefore, this securities company forecasts that domestic construction steel prices will likely maintain around 14,300-14,500 million VND/ton until the end of 2023.
In the world market, steel prices have also turned down and are trending towards a 3-year bottom. Current Chinese steel prices have dropped to the bottom in November 2022 when construction steel decreased by 15% compared to the beginning of the year, reaching 530 USD/ton. The country's real estate market is still in the adjustment phase as home sales continued to decline by 33% in July.
However, with the Chinese Government deciding to extend the "16 points to rescue the real estate market" policy until the end of 2024 and the inventory index in the second quarter of the country's steel manufacturers has decreased by about 20% compared to the same period last year, Steelhome believes that Chinese construction steel prices will maintain around 530-540 USD/ton in the second half of this year.
Difficulty reaching profit target?
Consumption demand is weak, sales of Hoa Phat's steel products also recover quite slowly. The group's sales volume of construction steel, hot-rolled coil steel (HRC) and steel billet in July reached 555,000 tons, although it increased 3% over the previous month and increased 6% over the same period in 2022, but still not equal to the sales volume in December last year.
Selling prices decreased while consumer demand recovered slowly, causing Hoa Phat's business results to continue to grow negatively compared to the same period last year. In the second quarter, the group recorded revenue of VND 29,800 billion, down 21% over the same period last year. Profit after tax reached 1,448 billion VND, although 3.8 times higher than the first quarter of the year, it was still down 64% compared to the second quarter of last year.
Accumulated for 6 months, Hoa Phat recorded revenue of 56,665 billion VND and profit after tax of 1,830 billion VND, down 30% and 85% respectively compared to the same period last year. With the results achieved, the group has only implemented 38% of the revenue plan (150,000 billion) and less than 1/4 of the profit target (8,000 billion) for the whole year.
With the forecast that steel prices will remain low, MBS forecasts that Hoa Phat's revenue and profit after tax in 2023 will reach VND 117,939 billion and VND 5,594 billion, respectively, down 16% and 37% compared to the previous year. If this securities company's forecast is correct, the leading enterprise in the steel industry will not be able to reach the profit target in time this year.
However, thanks to reduced input costs, MBS believes that Hoa Phat's gross profit margin will likely improve in the last two quarters of the year, expected to be 12% compared to 11.6% in the second quarter. This securities company forecasts that raw material prices will remain low in the second half of the year. Iron ore price will be at 110 USD/ton and coal price will reach 230 USD/ton, down 20% and 30% respectively over the same period last year.
In addition, Vietnam's foreign exchange reserves are currently at 95 billion USD, 6 billion higher than at the end of 2022. Abundant foreign exchange reserves are estimated to help the USD/VND exchange rate maintain around 23,900 in the second half of the year. According to MBS, exchange rate fluctuations of about 3% help Hoa Phat only have an exchange rate loss of about VND 1,100 billion this year, down 73% compared to the same period in 2022.
In other related information given in a recent report by SSI Research, after fully operating 7 blast furnaces from the beginning of the third quarter, Hoa Phat will temporarily stop blast furnace No. 3 at the Hai Duong complex - with a capacity of 1.2 million tons/year (14% of total capacity), within 3 months starting from September, for periodic maintenance.
Ha Diem (Summary)