Hanoi Iron and Steel (HSV) - The Steel industry is facing common difficulties and the recent predictions of the chairman of Hoa Phat Group have come true. However, from another perspective, sooner or later the storm will pass and the views of the industry-leading business owner will at some point become a thing of the past.
The numbers speak
Enterprise business data for the second quarter of 2022 has been announced. According to our statistics, the profits of 6 steel industry enterprises HPG, HSG, NKG, SMC, TVN, POM reached 4.44 trillion VND, down about 67% compared to the same period last year.
This has realized the statements of the Chairman of the Board of Directors of Hoa Phat Group at the 2022 Annual General Meeting of Shareholders. According to Mr. Long, the business results of the second quarter, third quarter, and fourth quarter will reflect an unfavorable business picture, "shareholders will see how dire the situation is."
The reasons were also given by Chairman Hoa Phat at this congress such as the sharp increase in raw material prices due to the Russia-Ukraine conflict, especially the sharp increase in coal price. Along with that, steel prices have continuously declined recently.
In addition, inventory reaching a record level is also something to pay attention to. Statistics at the 6 businesses mentioned above show that the inventory value at the 6 businesses mentioned above alone is 96.6 trillion VND. In particular, HPG and TVN alone, POM are at the highest level in business history with the figures being 58 trillion VND, 8.41 trillion VND, 5.28 trillion VND.
Enterprises such as HSG, NKG, and SMC are also near the "peak of the times" in terms of inventory, in which HSG and NKG are the enterprises with the highest ratio of inventory to total assets in the industry.
Both output and input are unfavorable, which can cause steel businesses to reduce output and erode profits in the near future.
Hoa Phat is still the enterprise with the best endurance
The picture seems to be very "dark" for the Steel industry in general. However, when all variables are reflecting negativity, the investor's job is to look for bright spots to monitor and wait for opportunities.
First, the second quarter of 2021 was actually a record-high profitable quarter for the Steel industry in general. The decrease in profits of steel businesses by up to 67% is unavoidable but is unlikely to happen in the coming quarters.
In fact, profits in the third and fourth quarters of 2021 have declined quite rapidly, instead of continuing to set new records. The low profit base of these quarters may therefore help narrow the margin of decline.
Meanwhile, in terms of revenue, 6 businesses actually increased slightly from VND 75.76 trillion to VND 76.78 trillion. Notably, HPG increased by 6.5% in revenue and SMC increased by 11.26% in revenue. This shows that the priority of businesses is to maintain market share while the profit margin problem will be gradually resolved when the Ukraine-Russia conflict cools down.
According to SSI Securities' assessment of the Steel industry, the profit margin of steel companies is not expected to decrease to the profit margin level in the period 2018-2019.
In 2018-2019, strong profit growth in the period 2016-2017 motivated many companies to increase capacity from 50% - 100%, especially in the field of galvanized steel. At the same time, other construction steel manufacturing enterprises such as HPG and POM also participate in the galvanized steel business, increasing competition.
In addition, debt and inventory of steel enterprises in early 2018 were also very high, forcing them to cut profit margins in 2018-2019 to promote inventory reduction and debt reduction.
Meanwhile, there is no significant capacity increase in the galvanized steel and construction steel sectors in the period 2020-2021. Although some key enterprises in this field such as HPG, NKG and TDA have expansion plans for the coming years, SSI believes that the decline in steel prices and export prospects, as well as high inflation levels may lead to delays in the implementation of this project, as the factory's capacity utilization is expected to fall below maximum capacity by the end of 2022.
In addition, the debt level of galvanized steel companies has also decreased to a much safer level than in the previous period. Therefore, SSI believes that although the profit margin of galvanized steel companies may be suppressed in the short term, it will still be higher than the bottom level recorded in 2018-2019.