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Steel industry –Domestic sales to to be the key driver

• Overall, 2023 was still a challenging year for the construction steel sector, when domestic consumption decreased by 11% YoY. However, there have been signs of recovery in demand, whereas in 2H2023, consumption output recovered (especially in the fourth quarter) which is the peak construction period, along with demand for materials from public investment projects. For hot rolled coil (HRC) and downstream products (coated steel sheets, steel pipes), sales volume maintains positive growth in 2023, driven by demand from foreign markets (ASEAN, EU, USA).
• For 2024, we expect the domestic demand to be the key driver for output growth, especially in 2H2024, as: i/ The successful launch of residential projects (especially in 2H2024) will be a factor in promoting construction activities, and thereby increasing demand for steel products; ii/ Key infrastructure projects have started the construction phase, and major items in projects (bridges, elevated roads, etc.) will consume construction steel.
• In terms of profits, with the expectation that i/ Raw material prices may cool down and trade in a narrow range, ii/ Maintaining a conservative inventory policy, steel companies are expected to record double-digit growth, compared to low levels in 2023 (no longer affected by inventory write-down provision as in the 2H23).
• We believe that steel enterprises are entering the "early recovery" phase, when the industry's prospects for consumption and profit margin management have bottomed out and are gradually recovering in line with the economic cycle. However, due to the "commodity" factor and high beta characteristics, the stock prices of steel companies often fluctuate, followed with HRC price volatilities. Therefore, when trading stocks in the steel industry, investors need to pay attention to fluctuations in China HRC prices, which can potentially affect global HRC prices, in general, and Vietnam HRC prices, in particular. HPG (Accumulate, TP: 33,000 VND/share) is our favorite stock for long-term investment, while HSG (Accumulate, TP: 23,600 VND/share) and NKG (Neutral, TP: 23,000 VND /share) are stocks that investors can trade flexibly in short-term due to HRC price volatilities.