The two “big guys” – Hoa Phat and Hoa Sen, have had a significant recovery in both revenue and profit after a difficult period for the steel industry. Meanwhile, Pomina and SMC Steel continued to record a series of losses.
Steel industry business picture: Two opposing extremes in the last quarter of the year and the whole year 2023
For the steel industry, a sector characterized by cyclical nature, the total domestic consumption of finished steel products in 2023 has recorded a decline, mainly due to the impact of the overall economic situation and the especially the real estate market.
In the fourth quarter of 2023, Vietnam’s No. 1 “big guy” – Hoa Phat Group (HPG) recorded revenue of 34,925 billion VND, an increase of 33% compared to the same period in 2023. Profit after tax recorded 2,969 billion VND , an increase of 48% compared to the previous quarter.
Accumulated for the whole year 2023, Hoa Phat will reach VND 120,355 billion in revenue, down 16% over the same period last year. Profit after tax is 6,800 billion VND, equivalent to completing 85% of the year plan.
In 2023, Hoa Phat produced 6.7 million tons of crude steel, down 10% compared to 2022. Sales of HRC steel products, construction steel, high quality steel and steel billets reached 6.72 million. tons, down 7%. Of which, construction steel and high quality steel reached 3.78 million tons, down 11% over the same period last year. HRC hot rolled steel coil recorded nearly 2.8 million tons, an increase of 6% compared to 2022. Besides traditional steel product lines, Hoa Phat has invested in deep processing, promoting production of quality steels. high to serve domestic and export needs.
Hoa Sen Group Joint Stock Company (HSG) also announced the consolidated financial situation of the first quarter of the 2023 – 2024 fiscal year (from October 1, 2023 to December 31, 2023) with positive results. In the first financial period, Hoa Sen Group recorded net revenue of more than 9,249 billion VND, an increase of 14.6% compared to the same period last year. Profit after tax reached 103.4 billion VND, a sharp increase compared to the loss of 680 billion VND in the first period of the 2022-2023 year.
Besides the above two businesses, many other businesses also have recovered profits, with an increase of hundreds of billions of dong compared to the fourth quarter of 2022, such as Nam Kim, VNSteel, and Ton Dong A.
The separate report for the last quarter of 2023 of Vicasa Steel Joint Stock Company – Vnsteel shows that corporate net revenue decreased slightly, at 470.7 billion VND. Profit after tax reached 3.6 billion VND, down 46% compared to the same period in 2022. Thus, the company has returned to profit after a loss in the third quarter of 2023.
Cumulatively for the whole year 2023, VCA will reach 1,725 billion VND in revenue, down 26%; Profit after tax reached 7.1 billion VND, a sharp increase compared to the loss of nearly 6 billion VND in 2022. The profit helped VCA overcome the accumulated loss compared to the end of 2022. However, the business This still did not meet the set profit target of 12 billion VND.
In contrast to the above businesses, Pomina Steel Joint Stock Company (POM) continues to record a serious decrease in revenue and profit. Specifically, in the fourth quarter of 2023, the Company’s revenue decreased by 82% over the same period, to only 333 billion VND. Although the company recorded a gross profit of 22 billion VND, better than the gross loss of 242 billion VND in the same period, it still had to bear interest expenses of up to 215 billion VND, an increase of 48%.
In addition, Pomina also recorded another loss of up to 148 billion VND in the fourth quarter of 2023. These factors led to a net loss of VND 313 billion in the quarter, far exceeding the previous quarter and also recording a net loss for 7 consecutive quarters.
The company’s leadership explained that the sudden decline in business results had two main causes. First, the Pomina 3 steel factory continues to shut down but still has to bear many costs, including interest expenses. Second, the real estate situation is still at a frozen level, leading to a sharp decline in revenue and steel demand, while high fixed costs and interest expenses have contributed to large losses. .
By the end of the year, Pomina only recorded net revenue of 3,281 billion VND, the loss after tax for the whole year was up to 960 billion VND, far exceeding the prediction of 150 billion VND.
Similar to POM, SMC Steel also continued its chain of business losses. According to the consolidated financial report of the fourth quarter of 2023, SMC recorded net revenue of VND 3,212 billion, down 24% over the same period last year. SMC reported a net loss of VND 330 billion in the fourth quarter, a loss of VND 515 billion in the same period in 2022.
Cumulatively for the whole year 2023, SMC Steel recorded 13,786 billion VND in net revenue, equal to 60% of the same period last year. Losing money for 3 consecutive quarters, so for the whole year, the company had a net loss of 879 billion VND, while in 2022 it lost 578 billion VND. This is also the year with the highest loss since SMC’s operation. The continuous loss caused the undistributed after-tax profit at the end of last year to be negative 163 billion VND.
The recovery in profits in the steel industry is uneven, but significant growth in the market price of steel stocks, with an average increase of 58% in 2023, far exceeding the 46% increase in VnIndex, is creating concerns among experts at the Analysis Center of SSI Securities Company (SSI Research). They question the current valuation of steel stocks, worrying that it may be too high and create difficulties for investors when deciding to invest in this group of stocks.
In terms of market price, the group of steel stocks is trading in a high valuation area, most of which reflect the prospects for the next year through the P/E index (an index that evaluates the relationship between the market price of steel stocks). shares and earnings per share). P/E forecast for the entire industry is in the range of 15-17 times, about 10 times higher than the historical average. In particular, according to data from SSI’s iBoard, some highly valued stocks include Hoa Sen’s HSG with a P/E index of up to 578.2 times, and Hoa Phat’s HPG stock is 88.1 times. as of January 24, 2024.
Steel industry: The domestic market is the main driving force
The year 2023 will witness a decrease in total domestic consumption of finished steel products due to the influence of the macroeconomic situation and the real estate market. However, positive signs from Hoa Phat and Hoa Sen, along with expectations of economic recovery, raise high hopes for the steel industry in 2024.
Experts predict that the steel industry has shown signs of bottoming out in the fourth quarter of 2023 and will experience more positive prosperity in the near future. 2024 could be an opening window for the steel industry, with hope for stability and recovery, although there are still challenges to overcome from market fluctuations and macro factors.
In the recently published Investment Strategy Report 2024, AFA Capital experts said that the steel industry is one of the industries with bright prospects in the new year. The domestic market is the main driving force for the industry’s growth.
AFA Capital believes that the low difference in domestic and Chinese steel prices will help the domestic steel industry avoid competition from Chinese steel imported into Vietnam. Currently, the difference between domestic and Chinese steel is at 30 – 35 USD/ton (lower than the average of 50 USD/ton).
The recovery of apartment supply will positively impact domestic construction steel demand.
Iron ore and coking coal prices are expected to decrease in 2024. According to the World Bank, iron ore prices in 2024 are expected to be at 108 USD/ton; down 11% compared to the expected level of 121.3 USD/ton in 2023. The average export price of Australian coking coal (FOB price) for the whole year is expected to be only 190 USD/ton; plummeted for the second consecutive year and down 24.0% compared to the expected level of 250 USD/ton in 2023.
However, there are risks from the Chinese Real Estate market. China’s real estate sector has not shown signs of warming up in the context of excess supply becoming a serious problem hindering recovery.
In addition, the EU’s carbon border adjustment mechanism (CBAM) could create long-term challenges for steel exports. The EU announces Implementing Regulation (EU) 2023/1773 regarding the obligation to report the purpose of the carbon border adjustment mechanism (CBAM) during the transition period, effective from September 16, 2023.