What outlook for steel stocks?

Not all steel stocks, meanwhile, will have an upward trend. Investors must so carefully weigh their options in order to minimize risks.

Growth momentum

The Vietnam Steel Association reports that as demand from the real estate and infrastructure building sectors rebounded in the third quarter of 2024, the country's steel industry saw a positive shift.

The number of flats available in Hanoi and Ho Chi Minh City has considerably expanded, per CBRE data. With 16 finished commercial housing projects, up 38% from the previous quarter, 23 newly licensed projects, up 33%, and 38,398 successful individual apartment and house purchases, the real estate supply continued to expand in the fourth quarter of 2024. This demonstrates how the Vietnamese steel industry's demand has changed significantly.

The fact that development investment spending is expected to make up 32.2% of state budget spending in 2024, or more than VND 677 billion (or 95% of the public investment plan for 2023), is another benefit for the steel sector. In comparison to recent years, this is a high level. Furthermore, since the government concentrates on encouraging the development of transportation infrastructure to assist economic growth, the public investment distribution plan keeps expanding.

It is anticipated that the prices of HRC and building steel will rise in the Vietnamese market. On average, construction steel might cost USD 571 per ton. HRC and construction steel prices may rise by 6% and 7%, respectively, to USD 590/ton and USD 611/ton in 2025. The outlook for the steel sector at the end of 2024 is highlighted by this.

According to the World Steel Association's prediction, the demand for steel is likely to climb by 1.9% globally by the end of 2024, reaching 1,849 million tons. The demand is expected to increase by 5.2%, 5.8%, and 1.6%, respectively, in areas including ASEAN, Europe, and the United States. Vietnam's exports of steel will be fueled by this. 

The Chinese steel market continues to present competitive risks to the steel industry in addition to growth prospects. In the first nine months of 2024, the nation imported around 12.3 million tons of steel, valued at over USD 8.97 billion, of which 8.31 million tons came from China, making up 67.6% of the entire import volume, according to data from the General Department of Customs. As a result, Vietnam continues to import more steel. This puts a lot of strain on the Vietnamese steel industry's ability to recover.

Which stocks to pick?

Investors may want to look at the following steel stocks:

The Hoa Phat Group Joint Stock Company shares, HPG shares, come first. In terms of Q3 2024 business performance, HPG reported net sales of around VND 34 trillion, which was 19% higher than the same time in 2023. 75% of the yearly plan was completed with accumulated revenue of VND 105 trillion for the nine months, a 23% increase over the same period the previous year. With expenses subtracted, HPG's 3Q24 after-tax profit was VND 3,022 billion, a 51% increase over the same period the previous year. Compared to the same period last year, the cumulative after-tax profit for the nine months was VND 9.21 trillion, a 140% rise.

The recovery of the local market and export demand from important markets should lead to significant growth in HPG's business results for the entire year of 2024 compared to the low base of 2023. As the steel industry recovers and gross profit margins improve as a result of the decline in input material prices while steel prices have bottomed out, HPG can expand its market share thanks to the benefits of a full value chain and cost-effectiveness.

With a target price of VND34,300 and a 2025 P/B forward of 1.6x (below the five-year average), KBSV kept its buy recommendation for HPG. With strong medium- and long-term growth possibilities, the NPAT CAGR for 2024–2026 might be as high as 21% annually.

The second is Nam Kim Steel Joint Stock Company's NKG shares. Exports to the US and European markets are the primary source of NKG. Currently, this company has a competitive edge because of the high pricing gap between Vietnamese and EU HRC and the growing demand for steel in both Europe and the US when Donald Trump becomes president of the United States. Low-cost inventory, particularly inexpensive HRC steel, which is NKG's primary input material, is also anticipated to increase the company's gross profit margin.

Furthermore, the Nam Kim Phu My project, which is anticipated to be finished in 2027, will be implemented by NKG, increasing the total capacity to 2.2 million tons annually. This is what propels this business's long-term growth.

With a target price of VND31,000 per share, 37% above the closing price on November 29, 2024, KBSV issued a buy recommendation for NKG shares.

Third is Hoa Sen Steel Corporation's HSG stock. Domestic sales volume is beginning to rebound, as seen by the 29% and 28% MoM increases in April consumption of steel pipes and galvanized steel, respectively. KBSV anticipated a greater recovery in domestic consumption, bolstered by newly implemented projects and the residential real estate sector's resurgence. It believes that because HSG has the largest and second-largest market shares in galvanized steel and steel pipes (28.4% and 12.4%, respectively), it will gain the most from anti-dumping measures on galvanized steel imported from China and Korea (AD02).

HSG was recommended for purchase by KBSV. The goal price is VND27,400 per share, which is 30% more than the closing price on November 29, 2024, and represents an anticipated profit margin.