Steel maker Hoa Phat expects lower profit in 2022

Hoa Phat Group, Vietnam’s leading steel producer, expected a profit after tax of VND25,000-30,000 billion ($1.08-1.29 billion) in 2022, down 13-28% from 2021.

"The steel sector is now unfavorable, as evidenced by the coming financial reports for the second, third, and fourth quarters. You will realize how severe the situation is,” Hoa Phat Chairman Tran Dinh Long told the company’s annual general meeting on Tuesday.

The leader attributed the weaker profit to rising prices of raw materials due to the Russia-Ukraine conflict, as well as lower demand stemming from the zero-Covid policy in China, with the market accounting for 60% of global steel consumption.

"When the Russia-Ukraine war first erupted, many people believed that the Vietnamese steel industry would benefit from having two weaker competitors, Russia and Ukraine, which are major steel manufacturers. The reality, however, is not that rosy," Long said.

But the chairman reassured shareholders by stating that Hoa Phat consistently outperforms its competitors in the steel business.

Following Long’s statement, a series of steel stocks plunged deeply in Tuesday’s afternoon trading session, with the three largest stocks HPG (Hoa Phat Group), NKG (Nam Kim Steel), and HSG (Hoa Sen Group) hitting the floor at one point.

Hoa Phat expected a record-high consolidated revenue of VND160,000 billion ($6.89 billion) in 2022, up nearly 7% from last year’s result.

The higher revenue is attributed to the output of Hoa Phat Dung Quat Integrated Iron and Steel Complex, container products, and its household electronics segment.

However, the disproportionate volatility of steel prices given rising raw material and fuel expenses, along with increased financial costs reduced the group's profit after tax.

Hoa Phat planned to start building the Hoa Phat Dung Quat 2 Iron and Steel Complex in the central province of Quang Ngai this year. The firm has obtained financing agreements of VND35,000 billion ($1.5 billion) with eight major Vietnamese banks.

The group is expected to test-operate its container factory in the expanded Phu My II Industrial Park, Ba Ria-Vung Tau province by the end of the year. It also set a target to sell all of its products, maintaining its lead in terms of domestic steel market share.

Hoa Phat recorded a revenue of VND44,400 billion ($1.91 billion) and profit after tax of VND8,200 billion ($353.2 million) in the first quarter, fulfilling about 28% and 27% of its plans, respectively.