The upward wave of steel stock prices

In the early days of January, the construction steel market witnessed its first price surge in 2024. Domestic steel prices experienced a significant jump, fluctuating between $6.25 and $15.42 per ton, marking the fifth price increase in the past two months.

In the correction session on January 29, both Hoa Sen Group and Hoa Phat Group closed at their lowest points of the day with corresponding declines of 3 per cent and 1.2 per cent, reaching $0.95 per share and $1.17 per share, respectively.

However, their liquidity was the most vibrant in the market, reaching 22.5 million units and 21.58 million units, respectively. This indicates that the steel stock market is becoming more dynamic, making it easier to find buyers and sellers.

At present, following a significant upturn, the steel stock group is trading at elevated valuation levels, largely reflecting a one-year outlook with a projected price-to-earnings forward (P/E forward) ranging from 15 to 17 times, surpassing the historical average by about 10 times.

According to SSI's iBoard data that was made public on January 24, the P/E valuation for HSG stock is 578.2 times and HPG stock stands at 88.1 times.

According to SSI Research projections, the P/E forward ratios in 2023 for the three leading steel stocks, including HPG, HSG, and Nam Kim Steel, are expected to be 26 times, 452 times, and 36 times, respectively.

Looking ahead to 2024, the P/E forward ratios are forecast to be 14 times, 18 times, and 16 times, maintaining a level approximately 10 times higher than the historical average established by the steel stock group over the years.

Lam Van Van, representative of ECI Capital Investment Fund said, "Steel prices may experience a short-term surge as the market anticipates economic recovery and government initiatives to address challenges in the real estate, construction, and building materials sectors. Additionally, optimistic forecasts for the recovery of major global economies contribute to this positive sentiment. Stock markets tend to react promptly to positive information and investor expectations, potentially leading to a certain degree of positive momentum in steel stock prices in the short term."

The Vietnam Steel Association forecasts a potential 10 per cent increase in Vietnam's steel production in 2024 and 8 per cent in 2025, as the demand in various economic sectors is expected to rise due to increased disbursement of public investment capital for major transportation infrastructure projects.

Similarly, SSI Research anticipates significant profit growth for steel companies in 2024, rebounding from the low levels in 2023 thanks to improved consumption. Gross profit margins are also on the rise after years of low levels, possibly indicating the end of the previous downward trend in steel prices.

The growth is attributed to a robust push in public investment, exemplified by the initiation of 12 public ventures by the Ministry of Transport at the end of 2023. These projects span across the nation, from the Provincial Road 255 and Expanded Dien Bien Airport in the North to the My Thuan-Can Tho Expressway in the southernmost regions.

Nguyen Hong Khanh, head of Analysis at Vietnam International Securities said, "The steel industry has overcome its most challenging period in the past year and is currently in the process of recovery. Greater opportunities lie ahead for leading companies, and the upcoming year could be noteworthy for the steel sector. While the stock prices of many steel companies have already rebounded by 15-20 per cent in the latter part of the year, the potential for this stock group remains into 2024."

The driving force behind domestic steel consumption in 2024 primarily stems from the expectation of a robust recovery in the civil construction sector. This is explained by the National Assembly passing amendments to the Land Law on January 18, with changes that are considered appropriate and positive, contributing to the resurgence of the real estate and civil construction markets this year.

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