Weighing steel ticker appeal in the rest of 2021

August 24, 2021 | 10:59
Many steel tickers remain attractive to investors, who are aiming to leverage diverse supportive factors, despite the high prices that some of these tickers recorded recently.
Weighing steel ticker appeal in the rest of 2021
Steel remains one of the commodities luring investors’ attention

Favourable prices and high consumption volumes helped many steel firms set record second-quarter profits since going on the bourse. According to figures from VNDirect Securities, steel firms cashed in on higher prices and increased sales volumes and saw a more than 326 per cent jump in profits in Q2/2021 compared to a year ago.

Meanwhile, figures from Viet Dragon Securities (VDSC) figures show that the cumulative first-half profits of 98 per cent of steel firms almost reached their full-year profit targets. Some firms even surpassed the targets, despite having set them much higher than last year.

The outstanding growth in profits of most steel firms in H1/2021 came in the wake of soaring demands for steel both in Vietnam and globally.

Financial standing of certain steel firms in H1/2021

Ticker

Revenue growth

EBITDA growth

After-tax profit growth

ROA

ROE

P/E

P/B

HPG

29.6

56.5

86.6

18.3

39.5

8.4x

2.9x

NKG

37.3

53.3

143.7

18.3

47.6

4.9x

1.9x

HSG

61.4

143.4

374.9

14

39.2

4.3x

1.4x

SMC

24.8

158

222.7

12.9

53.3

3.0x

1.3x

VGS

15.9

33.2

138.7

4.5

10.3

7.9x

0.9x

TIS

17.3

27.4

500.2

1.2

5.8

16.2x

0.9x

(Source: Bloomberg, VDCS; Unit: %)

In the local stock market, steel tickers were making a splash, attracting investors with rising prices, particularly for leading players like Hoa Phat Group JSC (HSX: HPG), Hoa Sen Group JSC (HSX: HSG), and Nam Kim Steel JSC (HSX: NKG).

HPG jumped nearly 45 per cent since early April. In May alone, this ticker registered an 18 per cent hike. The growth of HPG, however, was less impressive than Tien Len Steel Group's TLH which soared 45.6 per cent in two months. In May alone, TLH rose 21.6 per cent.

Regarding the May growth alone, the ticker of Hoa Sen Group remained the champion with 28.3 per cent growth, followed by NKG at 23.5 per cent, while that of HPG was at 18.3 per cent.

The steel demand in Europe is forecast to pick up 10.2 per cent in 2021, and 4.8 per cent in 2022, pushing exports of coated steel products of local firms

According to VDSC analysts, in the latter months of 2021, local steel makers will be benefitting from higher steel prices that are poised to remain climbing until mid-2022 thanks to rising production costs and reduced output in the Chinese market, along with robust demand in the EU and US. Escalating demand for steel has been infused by the car industry’s booming development and a rebound of the global construction industry.

The steel demand in Europe is forecast to pick up 10.2 per cent in 2021, and 4.8 per cent in 2022, pushing exports of coated steel products of local firms. In addition, extended safeguard measures that the EU imposed on imported items have mostly been targeting products from China, India, South Korea, and Turkey.

Analyst Pham Minh Tu from VDSC noted that as price differences of hot-rolled steel items between the EU and Vietnam are expanding, ranging around $300-530 per tonne, accrued profit margins of domestic steel exporters will fluctuate around 15-25 per cent in H2/2021 and then abate to about 14 per cent in 2022, which is still higher than that in 2018 and 2019.

As for coated steel, the demand for Vietnamese products in the EU and North America remains stable. Leading performers in this field like Hoa Sen Group and Nam Kim Steel have orders until November, with their sales volume in H2 expected to jump 15 and 32 per cent on-year, respectively.

Amid soaring steel demand, large steel production centres like the EU, the US, Japan, and South Korea likely focus on meeting domestic demand and restrict imports. China – the world’s largest steel maker with 55 per cent of the market – may increase imports to meet soaring local demand against dwindling local supply, after the country restricted steel production to reduce carbon emissions.

In Vietnam, accelerated public investment may provide a boost to steel firms. On August 16, the prime minister enacted Dispatch No.1082/CD-TTg on accelerating the disbursement of public investment in 2021, striving to a disbursement rate of 95 per cent. In the first seven months, only $7.36 billion of public investment capital was disbursed, equal to 36.7 per cent of the target.

Despite diverse factors underpinning the surge of steel tickers in the months ahead, analysts at Viet Capital Securities warned that these mostly reflect expectations of a sharp increase in these firms' profits. Meanwhile, their profit margins will most likely go down in H2 as production costs rise. This would slow down growth.

In addition, steel consumption might experience its seasonal rebound in Q4 while delayed projects pick up pace from Q3, but this also depends on the COVID-19 situation.

By Bac Thuy

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