Vietnam steel industry still faces huge difficulties in Q3: KIS Securities

The third quarter of 2023 will be another challenging period for Vietnamese steel producers as market demand is forecast to remain weak due to the rainy season and falling prices that will affect companies’ profit margins.

In its recent report, broker KIS Vietnam Securities said that the total Q2/2023 revenue of 24 listed steel companies plunged nearly 28% from the same period last year.

Nine leading companies in the industry reported losses. Of which, giant Hoa Phat, listed on the Ho Chi Minh Stock Exchange (HoSE) as HPG, experienced a year-on-year decrease of more than 21% in revenue. Nam Kim Steel Corporation (NKG) and Hoa Sen Group (HSG) saw respective figures of 23.5% and 29%.

The 24 firms also recorded profit declines in Q2/2023, with half of them suffering losses.

Among the top nine steelmakers with the highest revenue, NKG posted a profit of VND125.4 billion ($5.28 million) after losses in the previous three quarters, while HSG earned only VND14.2 billion ($598,200) in profit.

The net profit of Hoa Phat, Vietnam's largest steelmaker, decreased by 64% year-on-year to VND1.45 trillion ($60.96 million). However, this figure showed a significant recovery from Q1/2023.

The gross profit margin of steel companies listed on the stock market improved in Q2, rising to 7.4% from 5.5% in Q1, as the pressure on inventory costs was removed. It is expected to go flat in Q3 thanks to low and stable input material costs despite falling selling prices.

KIS Securities believed that exports can be a fulcrum for Vietnamese steel producers in Q3 when domestic demand is forecast to slow. Total consumption in Q3 is estimated at 5.8 million tons, up 8% year-on-year but down 9% quarter-on-quarter.

The broker also expected that input prices of steel manufacturers will not increase at the same pace with the market's input prices. Therefore, their profit margins will be slightly affected by falling selling prices.

The hot rolled coil (HRC) price recovery in Q3 will positively affect the revenue and profit of the companies from the end of September and throughout the fourth quarter of this year, it added.

KIS Securities added that slowing global economic expansion and domestic issues related to the bond and real estate markets could further threaten the industry's business results.

In the first six months of 2023, Hoa Phat reported net revenues of VND56.67 trillion ($2.39 billion) and after-tax profits of VND1.83 trillion ($77.3 million), down 30% and 85% year-on-year, respectively. It sold 2.9 million tons of construction steel, billets and hot-rolled coils (HRC) in the period, down 27% year-on-year.

Hoa Phat has targeted revenues and after-tax profits of VND150 trillion ($6.29 billion) and VND8 trillion ($591,279) this year, up 6% and down 5% year-on-year, respectively.

In the stock market, HPG closed Friday at VND27,700 ($1.17) per share.

Meanwhile, Hoa Sen Group, Vietnam's leading steel sheet producer, posted net revenues of nearly VND8.65 trillion ($365.2 million) and after-tax profits of nearly VND14 billion ($464,200) in April-June, the third quarter of its 2022-2023 fiscal year, down 29% and down 94% year-on-year, respectively.

In the first nine months of its fiscal year (October 2022-June 2023), Hoa Sen suffered a total loss of VND410 billion ($17.3 million) on net revenues of VND23,544 billion ($993.63 million), down 44%.

On the HoSE, HSG closed Friday at VND19,850 ($0.84) per share.

Nam Kim Steel posted net revenues of VND9.88 trillion ($417 million) and after-tax profits of VND76 billion ($3.2 million) in H1, down 31% and 89% respectively.

Nam Kim Steel, listed on the HoSE as NKG, closed Friday at VND19,500 ($0.82) per share.

Steel sales in Vietnam fell 17.5% year-on-year to 12.48 million tons in the first half of this year, according to a report by the 100-member Vietnam Steel Association (VSA).

During the period, steel output reached 13.1 million tons, down 20.9% year-on-year. The association attributed the underperformance to lower demand, resulting from the gloomy real estate market, challenges in the corporate bond market, and inflation impacting the civil construction market.