Vietcombank Securities (VCBS) has released a report stating that Hoa Phat Group’s (HPG) business results will continue to face difficulties, particularly in the second quarter of 2023.
This is in contrast to Chairman Tran Dinh Long’s comment at the annual General Meeting of Shareholders in March that the most difficult period for the steel industry was over. While HPG was profitable in the first quarter of 2023, its gross profit margin was only 6.3%. Excluding inventory reversal, the company still experienced a net loss of about VND 416 billion.
VCBS predicts that negative demand will continue to pressure steel prices and consumption volume. The real estate market in China remains problematic, and construction demand remains weak, leading to a negative impact on steel prices in 2023. Demand in markets such as the EU and the US is also less positive due to high interest rates. Moreover, the demand for steel products in Vietnam will continue to weaken in the coming quarters, and it will take time to recover when the residential real estate market has not undergone significant changes.
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Hoa Phat Hai Duong Steel ComplexVCBS also states that public investment is unlikely to boost the steel industry, as the proportion of steel consumption in public investment is insignificant, only 10%-15%, and the disbursement rate of public investment is quite slow. HPG is producing at about 70% efficiency compared to total designed capacity, which makes the gross profit margin of the enterprise only about 2-3% and does not achieve the economic benefits according to the plan.
In addition, HPG reopened one blast furnace despite declining construction steel consumption and steel prices, which could put downward pressure on provisioning large inventory prices. VCBS believes that HPG’s business results in the second quarter of 2023 will continue to face many difficulties.
For the whole year of 2023, HPG’s business results are forecast to continue to decelerate, with revenue estimated at VND 111,538 billion, equivalent to a decrease of 21% over the same period and equivalent to 74% of the target. Net profit after tax (NPAT) is estimated to decrease by 18% to VND 7,284 billion, reaching 91% of the plan set by management.
The biggest risk for HPG is that domestic and international steel prices will continue to see a downward trend in the near future. Moreover, the bottlenecks in the legal corridor affecting the real estate market, along with the delay in disbursement of public investment capital, may affect the company’s ability to consume steel, the CafeF reported.
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Source: Vietnam Insider