Positive outlook for Vietnam's steel industry in 2024

The steel industry in Vietnam is expected to have a positive outlook for 2024, with major companies like Hoa Phat and Hoa Sen projected to experience significant recoveries, while small businesses may face challenges in finding output due to the recovery of steel prices and demand from large contractors.

According to Tien Phong Securities (TPS), the outlook for the steel industry to the end of 2024 is largely positive. The domestic economy is showing signs of improvement, with construction projects resuming, feeding into a more vibrant steel consumption market after the Lunar New Year holiday.

Steel enterprises have seen smooth progress in the first quarter of this year. However, the consumption of construction steel in Vietnam experienced a 20% decline compared to the fourth quarter of the previous year, mainly due to weak demand from the real estate market.

Financial reports from steel industry enterprises in the first quarter of 2024 indicate improved business results after a volatile period. TPS estimates that the revenue of steel industry enterprises increased by 22% to 68.8 trillion VND compared to the same period last year. Net profit also saw a significant increase of 571% to 3.3 trillion VND. These positive results can be attributed to the strong growth in finished steel exports and stable input material prices.

Hoa Phat Group (HPG) continues to dominate the steel industry, contributing 88% to the industry's after-tax profit ratio. HPG holds the largest market share in construction steel and steel pipe consumption, with 37.31% and 24.59% respectively. The success of HPG can be attributed to its hot rolled steel coil, which is in demand across various manufacturing industries. This product's market risk is relatively lower as it is not heavily dependent on specific consumer markets.

Looking ahead to the remainder of the year, TPS believes the overall picture is positive but there will be differentiation. Factors such as investments from the State budget, including large projects like the North-South Expressway and Long Thanh airport, as well as continued demand from the real estate industry, will drive business prospects.

Large enterprises like Hoa Phat Group and Hoa Sen Group are expected to experience significant recoveries, while small businesses may struggle to find output.

In spite of the buoyant business environment, the valuation of steel stocks is currently relatively high compared to the industry average. The P/E ratio for the steel group is at 23.1, which is higher than the previous three years. Stocks of prominent companies like Hoa Phat Group, Nam Kim Group and Hoa Sen Group have shown strong fundamentals, due to improved sales, better productivity and increased exports of finished steel products.

While the overall outlook for 2024 is positive, experts warn that caution should be exercised in terms of valuation, as steel stocks are currently trading at relatively high levels compared to their historical averages./.