INTRODUCTION
AN OVERVIEW ON THE GLOBAL AND VIETNAM STEEL
Steel is one of the most widely used materials globally, alongside coal, cement, oil, and wood, due to its complexity and versatility It plays a crucial role in various sectors, including construction, infrastructure, automotive, transportation, packaging, manufacturing, and home appliances According to a 2019 World Steel Association report, the steel industry transformed iron ore into diverse products, achieving a total annual value of $2.5 trillion in 2017, while its industrial processes generated around $500 billion.
The steel industry supports over 6 million jobs worldwide, with an additional 13 jobs created in the supply chain for every two jobs in the sector Overall, the global steel supply chain employs nearly 40 million people and generates more than $1.2 trillion in added value.
In 2017, the global steel industry employed an additional 49 million workers (World Steel Association, 2019) However, after two decades of rapid growth, many developed countries are experiencing a slowdown in steel demand During the first nine months of 2020, steel exports declined significantly across various economies, with notable drops of 18.5% in the EU, 16.0% in China, and 13.1% in the US Other countries, including Turkey, Brazil, Chinese Taipei, Korea, and Japan, also saw decreases in steel exports Conversely, Russia and India reported increases in steel shipments, with growth rates of 12.4% and 45.2%, respectively (Fabien Mercier).
As Vietnam's economy continues to grow and living standards rise, the demand for steel in construction, transportation, and household appliances is increasing This surge in steel demand has attracted numerous steel companies to expand their production in the country Despite the challenges posed by the COVID-19 pandemic, Vietnam successfully managed the crisis, allowing its steel industry to remain resilient in 2020 Overall, the steel sector in Vietnam is on an upward trajectory, although the real estate market, which directly influences steel demand, experienced a temporary slowdown due to the pandemic.
2020 The recovery of the real estate and construction industries in 2021 will
2 increase the steel industry's output Moreover, if Vietnam's industrial and construction sectors grow quickly, so will the need for steel It is predicted that
Vietnam's infrastructure, encompassing highways, airports, and various buildings, is projected to experience rapid growth from 2022 to 2031 This expansion will also extend to housing, automotive, home appliances, and other sectors, as highlighted by the Ministry of Planning and Investment.
By 2025, the Government aims to expand Vietnam's roadways to 3,000 km, up from the current 1,163 km of highways This ambitious plan is supported by a projected 43.5% increase in medium-term public investment disbursements for 2021–2025 compared to the previous five years This growth presents both opportunities and challenges for indigenous steel companies in Vietnam, as they seek to scale and adapt to the evolving infrastructure landscape.
AREA OF THE STUDY
The steel industry plays a particularly significant role in the development of the country in accordance with the regulations of the Ministry of Industry and
Trade, according to the report proposing to build "Strategy for development of
Vietnam's steel industry is poised for significant growth by 2030, guided by the Ministry of Industry and Trade's vision for 2050 As a foundational industry, it plays a crucial role in supplying essential materials for key sectors like construction, manufacturing, and mechanical engineering This robust steel manufacturing sector not only enhances productivity and operational efficiency across various industries but also ensures a stable supply chain, fostering overall market growth and economic development in the country.
Researching and learning about the business growth potential of firms in the steel sector of Vietnam is therefore absolutely required
Four prominent Vietnamese steel businesses, Hoa Phat Group Joint Stock
Company (HPG), Hoa Sen Group (HSG), Nam Kim Steel Joint Stock Company
This study analyzes the performance and intrinsic values of NKG and POMINA Steel Corporation, both of which boast significant enterprise sizes and market capitalizations Currently, Hoa Phat Group (HPG) has a market value of VND 164,379 billion, holding a commanding market share of 32.5% in construction steel and 31.7% in steel pipes.
Vietnam's leading steel manufacturer, Hoa Phat, also excels in the domestic office furniture market As of May 2022, Hoa Phat Group (HSG) held a market value of VND 10,437 billion, solidifying its position at the forefront of the industry.
NKG has established a robust export network, supplying galvanized steel to over 87 countries, including key Southeast Asian markets such as Thailand, Indonesia, and Malaysia, as well as Italy and Germany With a market value of VND 6,581 billion, NKG has steadily increased its market share in galvanized steel, surpassing the largest competitor in the country Meanwhile, POM's market value has reached VND 2,492 billion, with a significant 30% market share in the South and Central Highlands regions.
This analysis highlights the major regions, particularly the global market and Vietnam, where key businesses operate in the steel sector By examining these areas, the dissertation aims to identify leading companies in the industry and provide informed investment recommendations for potential investors.
STUDY OBJECTIVES
The following report objectives were created to get a "comprehensive picture" of the steel industry and generate insightful investment advice
1) To offer commentary on the state of the steel industry today
2) To examine important macroeconomic issues in Vietnam and the major nations that buy the most steel goods, especially the US and Europe
3) To examine the financial ratios of four businesses that were chosen based on their financial statements, with a focus on the profitability ratios, gearing ratios, and investment ratios—the three primary ratio categories
4) Using valuation techniques, determine the intrinsic worth of each of the top four companies
5) To formulate last-minute investment suggestions after conducting analysis and assessing intrinsic value
METHODS OF THE STUDY
This research utilizes a top-down analysis approach to assess a firm's profitability potential by examining macroeconomic and industrial conditions It starts with an evaluation of the national economic landscape of the steel market, followed by a detailed analysis of the steel sector, and concludes with an examination of individual firms within the industry.
4 performance before making a price recommendation based on the used valuation models
This study employs PESTEL analysis to explore critical macroeconomic variables such as real GDP, nominal GDP, CPI, inflation, and exchange rates for each selected nation, highlighting key economic concerns.
This research examines key factors influencing market competition within the global steel industry, highlighting recent developments that affect business growth in this sector.
The report provides an overview of key financial ratios to assess the financial health and profitability potential of companies It utilizes data from company financial statements, prominent financial databases, and various financial websites such as WB, IMF, MarketLine, and Global Insights Furthermore, the analysis delves into the intrinsic values of companies through the application of specialized valuation models.
ORGANIZATION OF THE STUDY
This study is structured into five chapters, beginning with an introduction to the field and objectives in the first chapter The second chapter analyzes the global economy and its various sectors The third chapter delves into key indicators of the steel industry and the market dynamics influencing competitiveness Chapter four presents an overview of the top four firms, including their historical performance and future outlook, while also evaluating their intrinsic value and offering investment recommendations Finally, chapter five summarizes the findings and discusses the study's limitations.
MACROECONOMICS ANALYSIS
WORLD ECONOMIC OUTLOOK FOR 2021 AND 2022
The global recovery is progressing, but the COVID-19 pandemic continues to hinder momentum, with the death toll nearing 5 million and ongoing health concerns delaying a full return to normalcy The highly transmissible Delta variant has exacerbated the situation, leading to pandemic outbreaks in critical international supply chains and resulting in prolonged supply disruptions that are driving inflation in numerous countries Consequently, economic prospects are increasingly threatened, making policy trade-offs more challenging.
According to the latest World Economic Outlook update, the global economy experienced a growth of 5.9% in 2021, with a projected slowdown to 4.9% in 2022, reflecting a 0.1 percentage point decrease from the previous year This adjustment primarily affects developed countries due to weakening pandemic dynamics and supply disruptions However, stronger near-term prospects for several commodity-exporting emerging markets and developing nations help to balance the overall outlook Despite this, employment is expected to lag behind production recovery, with global growth anticipated to slow to an average of 3.3% after 2022 Notably, advanced economies are projected to exceed pre-pandemic production estimates, partly due to expected future policy support.
The United States is expected to see significant policy support aimed at enhancing economic potential, leading to production levels that exceed pre-pandemic forecasts In contrast, emerging markets and developing economies are likely to face long-term output losses due to slower vaccination rollouts and generally less governmental assistance compared to advanced nations.
Despite employment rates remaining below pre-pandemic levels, which highlights considerable labor market slack, the United States and several emerging markets have experienced a notable increase in headline inflation rates in recent months.
6 developing economies, although there are differences in the intensity of pressures across nations
Due to local shortages and increasing global food prices, several nations in sub-Saharan Africa, the Middle East, and Central Asia have experienced significant food price hikes Core inflation has also risen in many countries, albeit to a lesser degree, as it excludes food and energy costs This inflation surge is primarily attributed to supply-demand imbalances caused by the pandemic, escalating commodity prices, and policy changes, such as the end of Germany's temporary value-added tax cut and rising shelter costs in the US as rent and mortgage moratoria expire Additionally, exchange rate depreciations in various countries have further increased the cost of imported goods.
After an unstable recovery in 2021, developments in 2022 became more and more ominous as risks started to materialize Due to declines in China and
In the second quarter of this year, global production declined due to several economic shocks, including lower-than-expected US consumer spending and ongoing challenges from the pandemic Key factors contributing to this downturn were unexpectedly high global inflation, especially in the US and major European economies, tighter financial conditions, a significant slowdown in China driven by COVID-19 outbreaks and lockdowns, and the adverse impacts of the conflict in Ukraine.
The IMF's July 2022 investigation revealed a projected growth rate decline from 6.1% in the previous year to 3.2% in 2022, 0.4 percentage points lower than earlier forecasts The US GDP was downgraded by 1.4 percentage points due to reduced consumer purchasing power and tighter monetary policies China's growth was also revised down by 1.1 percentage points, impacted by ongoing lockdowns and a deteriorating real estate crisis Europe faced significant downgrades as well, reflecting the repercussions of the Ukraine crisis and stricter monetary policies Global growth is further hindered by rising food and energy prices and supply-demand imbalances For 2022, advanced economies are expected to grow by 6.6%, while emerging and developing economies may see a growth rate of 9.5% However, in 2023, overall product growth is anticipated to slow to just 2.9%, with unstable currency policies likely to exert negative effects.
Controlling inflation may prove more challenging than expected due to tighter labor markets and unanchored inflation expectations Additionally, stricter global financial conditions could lead to debt distress in emerging markets and developing economies Ongoing COVID-19 outbreaks and lockdowns, along with a worsening property sector crisis, could further hinder growth in China In a plausible alternative scenario where these threats materialize, inflation rises, and global growth declines to approximately 2.6% in 2022 and 2.0% in 2023, the growth rate would fall into the worst 10% of outcomes since 1970 (IMF, 2022).
THE VIETNAM ECONOMY
Vietnam's gross domestic product (GDP) is expected to grow by 5.22% in the fourth quarter of 2021 compared to the same period in 2018, as reported by GSO (2021) This growth reflects a recovery, although it is lower than the 4.61% growth rate recorded in 2020.
Between 2011 and 2019, the growth rates for various sectors in the fourth quarter showed notable expansion, with the service sector growing by 5.42%, industry and construction by 5.61%, and agriculture, forestry, and fisheries by 3.16% In the fourth quarter of 2021, GDP experienced a year-on-year increase of 3.86%, accompanied by a 3.37% rise in assets Additionally, exports of goods and services surged by 14.28%, while imports saw an increase of 11.36%.
In 2021, the GDP is expected to grow by 2.58% compared to the pre-COVID-19 year, with quarterly increases of 4.72%, 6.73%, 6.02%, and 5.22% The pandemic significantly impacted all economic sectors, especially in the third quarter when many key areas implemented extended social distancing measures Agriculture, forestry, and fisheries saw a 2.9% rise, contributing 13.97% to overall economic growth, while industry and construction grew by 4.05%, making up 63.80% of the total growth The service sector experienced a modest increase of 1.22%, accounting for 22.23% of the growth rate.
Final consumption rose 2.09% more in 2021 than it did in 2020, accumulated assets climbed by 3.96%, exports of goods and services increased by 14.01%, and imports of goods and services increased by 16.16% (GSO, 2021)
In 2021, the labor productivity in the economy is projected to reach VND 171.3 million per worker, equivalent to 7,398 USD, marking an increase of 538 USD from the previous year This growth is attributed to enhanced worker qualifications, with 26.1% of trained employees expected to possess degrees and certificates, up from 25.3% in 2020 Consequently, labor productivity is anticipated to rise by 4.71% at constant prices.
In the first half of 2022, Vietnam's economy experienced a robust recovery, bouncing back from the social disruptions caused by the COVID-19 pandemic Following a 5.2% growth in the fourth quarter of 2021, the economy expanded by 6.4% in early 2022, driven largely by increased exports of manufactured and processed goods to key markets such as the United States.
The recovery was significantly driven by support from the EU and China, alongside a strong rebound in domestic demand, especially within the services sector Additionally, the tourism industry is experiencing a resurgence due to the reopening of international borders in March 2022.
The GDP of Vietnam is anticipated to increase by 7.5% in 2022 and 6.7% in 2023 (Worldbank, 2022) As consumers raise their spending to meet the
The service sector in Vietnam is expected to continue its robust recovery, driven by a surge in international visitors during the Autumn 2022/Winter 2023 peak travel season However, the growth of processed and manufactured product exports may stabilize or decline, influenced by slowing economic growth in major markets such as the US, EU, and China Inflation rates are projected to hover around 4% throughout 2022 and 2023.
Vietnam faces significant economic challenges, including ongoing corporate difficulties in various sectors and labor shortages Rising inflation threatens household consumption, which had been robust in early 2022 The foreign economic slowdown has exceeded expectations, with China—Vietnam's primary trading partner—posing a major risk The continued social restrictions in China to manage the COVID-19 outbreak could adversely affect Vietnam's exports of processed and manufactured goods Additionally, as a highly open economy, Vietnam may experience disruptions from shifting trade and investment patterns due to escalating geopolitical tensions, increasing overall uncertainty.
The Socialist Republic of Vietnam is situated on the Indochina peninsula There are three political factors impacting Vietnam
Vietnam operates under a unitary Communist government, led by the sole ruling party, the Communist Party of Vietnam The President serves as both the head of state and military, while the Prime Minister oversees government operations Notably, Vietnam combines capitalist economic practices with a socialist political framework A stable political climate is essential for the growth of the steel industry in the country.
Vietnam's diplomatic landscape is shaped by its alliances with over 178 nations worldwide The country has established significant partnerships with key international organizations such as the United Nations, World Trade Organization, APEC, ASEAN, and the Non-Aligned Movement Despite a complicated history, Vietnam and the United States have moved past their differences to foster a cooperative relationship.
Over the past two decades, significant differences have emerged, creating advantageous opportunities for steel businesses These companies can now effectively market their products to countries involved in international organizations collaborating with the Vietnamese government.
Human rights issues significantly influence Vietnam's political landscape, with the government increasingly prioritizing their protection and promotion The Vietnamese people actively shape the nation's development trajectory, reflecting a growing commitment to human rights In recent years, the government has implemented decisive measures to combat corruption and create a conducive environment for sustainable growth, showcasing Vietnam's strong resolve, self-discipline, and commitment to the rule of law.
The financial market in Vietnam is undergoing significant changes, particularly impacting steel businesses seeking to fund projects While plans to raise capital through the stock market have received approval, these firms face challenges in securing funds amid market instability Additionally, despite Vietnam's advantages of a young workforce and low labor costs, the underdeveloped technical transport infrastructure increases costs and delays in goods transshipment for businesses.
Steel companies import billet, steel plates, and sheet steel for manufacturing products such as pipes, furniture, and spare parts Consequently, fluctuations in exchange rates significantly affect their ability to maintain stable profits.
High inflation is increasing input costs for businesses, negatively affecting their operations and profitability In response, the State is implementing monetary tightening measures, such as raising deposit rates The current challenges facing the global economy and Vietnam are causing the iron and steel industry, as well as the construction sector, to stagnate due to their significant reliance on loans for replication, leading to a decline in demand.
The stagnation of steel, billet, and completed steel products is tough for steel sector businesses
INDUSTRY ANALYSIS – PORTER 5 FORCES
THREAT OF NEW ENTRANTS
3.1.1 Barriers to entry, capital requirements
Vietnam's steel sector has grown significantly during the last ten years, and by 2021 it will rank first in Southeast Asia and 13th overall HPG and Formosa
Ha Tinh is one of Vietnam's two representatives in the top 100 largest steel companies globally, and notably, they are the only firms in the country capable of producing HRC steel, according to the World Steel Association’s 2022 report The steelmaking industry requires substantial initial investments in manufacturing technology, skilled labor, customer credit, inventory management, and loss mitigation, highlighting the significant capital barriers inherent in this sector.
The steel distribution chain encompasses suppliers, distributors, general agents, retailers, and their associated branches and factories This extensive retail network is spread throughout the nation, supported by various economic sectors For new businesses entering the steel production industry, establishing a unique distribution channel that diverges from traditional intermediary routes is essential for success.
High switching costs and significant barriers to entry in distribution networks create intense competition within the industry The sale of machinery with limited economic value compels many companies to persist in operations, even when their effectiveness has diminished.
Import and export taxes are crucial tariffs affecting the steel industry The Ministry of Industry and Trade has announced Decision No 918/QD-BCT on March 20, 2020, which extends safeguard measures for imported steel billet and long steel into Vietnam until 2023 The steel sector is included in the Appendix of Decree 111/2015/ND-CP, issued in November.
On November 11, 2015, the government initiated various technological support measures aimed at fostering the development of the steel sector Despite these efforts, the industry faces a considerable threat from new entrants, highlighting the need for strategic planning to maintain competitiveness.
BARGAINING POWER OF CUSTOMERS
3.2.1 Number and size of customers
The primary customers driving the demand for steel include construction contractors and industries such as prefabricated housing, shipbuilding, and processing plants In 2022, the Ministry of Industry and Trade reported that domestic construction steel production capacity reached approximately 14 million tons, fulfilling local consumption and partially supporting exports However, the production of hot-rolled coil (HRC) steel, essential for various industrial applications like steel pipe manufacturing and automotive production, remains insufficient, necessitating imports from China, Japan, and Korea The diverse and extensive customer base, coupled with high demand for processed steel products, allows distribution agents to influence pricing during steel shortages.
Although diversified and well-suited to the domestic market, steel types are still standard steel used in construction, serving the masses with great social demand
Vietnam's special steel manufacturing machinery remains underdeveloped due to the complex technology and significant investment required for unique steel products, coupled with a limited market capacity that hampers production efficiency The dominance of established global steel companies, which have perfected high-grade special steel over centuries, complicates the entry of domestic enterprises into this sector Consequently, the current steel offerings are highly standardized, leaving little room for companies to differentiate and adopt competitive strategies.
Switching from steel to alternative materials like wood or plastic involves high costs for buyers, as steel is a fundamental component in construction Steel offers precise dimensions, substantial load-bearing capabilities, and flexibility against environmental changes In contrast, while wood and plastic are lighter and cheaper, they lack durability and variety, deteriorating over time due to brittleness and susceptibility to pests Additionally, customers are often reluctant to change their habits, fearing the time and effort required to redesign projects, which can lead to increased costs from needing more raw materials to replace steel.
In Vietnam's steel industry, buyers often lack sufficient information and technology to assess product quality, leading to reliance on low-quality items Unfair competition exacerbates this issue, as consumers bear the costs associated with products like corrugated iron roofing sheets that rust and leak after a few years due to counterfeit materials The absence of warranties on these substandard goods further complicates the situation Domestic manufacturers, in an effort to compete with low-cost imports, are forced to use inferior raw materials and outdated technologies, ultimately compromising product quality.
Many small businesses engage in unfair competition by producing counterfeit products of reputable brands at lower prices, significantly compromising quality This practice creates confusion for customers, making it challenging to differentiate between genuine and fake products Additionally, the steel industry lacks robust anti-counterfeiting technologies, exacerbating the issue.
BARGAINING POWER OF SUPPLIERS
3.3.1 Number and size of suppliers
The average volume difference between steel exports and imports from
2011 to 2020 is 9 million tons per year; in particular, the gap in 2016 might reach
In 2021, Vietnam exported a remarkable 16 million tons of iron and steel, surpassing imports for the first time, with steel exports reaching approximately 13 million tons, marking a 32.9% increase and generating $11.79 billion, a 124.3% rise compared to 2020 In contrast, the country imported 12.31 million tons of steel last year, valued at $11.52 billion, reflecting a 7.1% decrease in volume but a 42.8% increase in revenue from the previous year, according to the General Department of Customs.
China remains the dominant supplier of iron and steel to Vietnam, accounting for 40.3% of the market share by volume, followed by Japan at 15.3% and South Korea at 12% In 2022, China represented 38% of Vietnam's total iron and steel imports, with a remarkable increase in volume and turnover of 32% and 79.9%, respectively, compared to 2020 However, the ongoing real estate crisis and extended anti-epidemic measures in China have led to reduced capacity and shutdowns in steel production, causing an oversupply of iron ore that significantly impacts Vietnam's steel industry Domestic steel prices in Vietnam tend to mirror global billet price fluctuations, as the industry relies heavily on imported raw materials, including iron ore, scrap steel, coking coal, and graphite electrodes Therefore, any changes in the cost of these input materials directly influence both domestic and global steel prices.
2020, with China accounting for 38% of the nation's total imports of iron and steel
3.3.2 Focal company’s ability to substitute
The steel industry relies heavily on input materials that have few substitutes, making them essential for production While China is the primary supplier, Vietnamese steel companies maintain a diverse supplier base to avoid dependency on a single source The uniformity of products among suppliers leads to low switching costs, as there are minimal differences between offerings Additionally, scrap, ore, and iron ingots are primarily sold to the steel industry, with customer choices driven by price, brand, and reputation This results in a competitive market with multiple vendors and low concentration.
3.3.3 Uniqueness of each supplier’s product
The steel sector is characterized by a diverse range of products and involves various market players, including competitors, suppliers, and partners Companies in this industry can produce multiple types of steel goods, leading to vertical integration and the formation of large steel conglomerates alongside smaller enterprises Consequently, the distinctiveness of each supplier's product tends to be relatively low.
In conclusion, the supplier’ bargaining power is low and declining further.
COMPETITIVE RIVALRY
3.4.1 Number and size of competitors
In 2021, the Vietnam Steel Association comprised 120 members across three main sectors: construction steel production, steel pipe production, and metal-plated & color-coated sheet production, representing various economic entities including state-owned, joint venture, joint stock, private, and fully foreign-owned companies The industry is predominantly characterized by small-scale manufacturers with average production technology, primarily engaged in the lower end of the value chain, resulting in low added value, revenue, and profit Additionally, these companies heavily depend on imported steel billets, making their profit margins vulnerable to fluctuations in global steel prices Overall, the Vietnam steel industry has a limited number of small businesses, highlighting the need for improvement and innovation.
Vietnam's steel industry has experienced remarkable growth, surpassing 10% in recent years, with total finished steel products reaching 33.29 million tons in 2021, a 19.1% increase from 2020 Despite global supply chain disruptions, the sector successfully exported over 14 million tons of steel, generating more than $12.7 billion and significantly enhancing the country's foreign exchange earnings Vietnam's steel products have been imported by over 30 countries, allowing the industry to break previous export records and solidify its position among the top steel exporters globally, with revenues exceeding $10 billion USD.
Vietnam's steel industry is evolving through modernization and synchronized development to enhance its competitiveness Currently, construction steel products remain the backbone of the industry, with bar steel representing 40% of total steel production Despite these strengths, the future outlook for Vietnam's steel market presents both challenges and opportunities.
In 2022, the government's guidance is expected to stabilize and enhance production and business activities, adapting to the ongoing COVID-19 pandemic The rising demand for steel is primarily driven by accelerated urbanization, indicating that our steel consumption is still in its early stages Experts foresee a positive outlook for the steel sector in 2022, particularly due to increased infrastructure investment in the latter months of the year Key solutions identified by the government to sustain growth include revitalizing production, boosting exports, expediting public investment disbursement, and mobilizing resources for infrastructure development, all of which will significantly support the steel industry's expansion in 2022 and beyond.
The State's policy is increasingly favoring competition from low-priced imported goods, making it more challenging for domestic businesses to thrive as tariff barriers are reduced In response to the growing demand for steel, Vietnamese companies are compelled to enhance their investments and production capabilities to support national economic growth.
Barriers to withdrawing from the steel industry are high because enterprises have to bear a high cost if they want to give up producing products anymore due
High fixed costs associated with initial investments can create significant challenges for businesses When liquidating fixed assets proves to be complex and turnover remains low, companies may feel pressured to continue operating in the market, even during unfavorable business conditions This situation creates a barrier that can hinder a company's ability to exit the industry, ultimately affecting its competitiveness and sustainability.
In conclusion, competitive rivalry is strong and will continue to rise overtime.
THREAT OF SUBSTITUTES
Steel's durability and versatility make it essential in everyday applications, particularly in the construction industry where it is utilized for civil, industrial, and traffic projects through products like rebar, coil steel, and power steel bars Its tube form is ideal for creating water pipes, scaffolding, urban lighting poles, and pre-engineered buildings Cold rolled steel plays a significant role in the automotive sector, roofing, and the manufacturing of household appliances and furniture Additionally, galvanized steel is highly valued for its wide range of applications, including roofing, partitions, gutters, and various household items, safes, mechanical equipment, and machinery.
Products made from plastic, wood, and bamboo are considered alternatives to steel, primarily for individual and small-scale applications However, when comparing hardness, elasticity, flexibility, and tensile strength, plastic and wood fall short of steel's superior properties, which solidify steel's role as a primary material in construction and manufacturing Consequently, the likelihood of plastic and wood fully replacing steel remains minimal Additionally, composite materials, known for their lightweight and environmentally durable features, also serve as substitutes Despite the emergence of these alternatives, the extensive use and versatility of steel ensure that materials like composite, plastic, wood, and bamboo cannot completely supplant it.
Since alternative substitute goods cannot satisfy the specific product segment's high-quality requirements, the steel industry Furthermore, steel products are essential inputs for several industrial, processing, and notably the
25 building sectors Because there isn't now a product that can replace steel, there isn't a high level of demand to switch
In conclusion, threat of substitutes for the steel industry is low due to its outstanding properties
COMPANY ANALYSIS
HOA PHAT GROUP (HPG)
Founded in 1992, HPG initially focused on trading construction machinery and equipment, but has since expanded to include 11 subsidiaries and diversified into industries such as steel, agriculture, real estate, and other industrial outputs The company exports steel to 14 countries and achieved a remarkable compound annual growth rate (CAGR) of 20.05% from 2015 to 2019, with 2019 revenues reaching VND 63,658 billion and a net profit after tax (NPAT) of VND 7,578.2 billion, reflecting a CAGR of 18.4%.
Hoa Phat Iron and Steel JSC, also known as Hoa Phat Iron and Steel Corporation, is the primary entity responsible for managing the Group's iron and steel production and related activities, with a charter capital of VND 39,000 billion Its subsidiary companies include Hoa Phat Hai Duong Steel JSC, Hoa Phat Dung Quat Steel JSC, Hoa Phat Hung Yen Steel Ltd., and An Thong Mineral Investment JSC.
Figure 4.2 Organization structure of HPG
Hoa Phat, Vietnam's leading steel manufacturer, has maintained a dominant market share for years The company specializes in producing a wide range of high-quality steel varieties and grades that meet stringent standards both domestically and internationally, utilizing advanced refining techniques from iron ore.
Hoa Phat Steel products are distributed in 14 countries globally, including the United States, Canada, Australia, Japan, South Korea, Cambodia, and Malaysia, while also maintaining a strong presence in the domestic market.
Hoa Phat has been active in high-tech and biosafe agriculture since mid-
Founded in 2015, Hoa Phat Agriculture Development Joint Stock Company manages the production of animal feed, pig breeding, cow breeding, and poultry farming, overseeing all economic operations within the agricultural sector of the Hoa Phat Group.
HPG is actively investing in industrial parks, real estate, and urban development, leading to consistent annual revenue and profit growth In December 2020, the Group intensified its focus on real estate investments, expanding projects in key cities to foster economic growth The Hoa Phat Real Estate Development Joint Stock Company manages the entire real estate sector within the Group.
Table 4.1 SWOT analysis of HPG
- Long-standing reputation and prestige in the steel industry
- The only Vietnamese enterprise that can supply HRC products
- Due to the size of the business, staff management is challenging
- Consumers favor domestically produced steel products
- There is a lot of room for growth because the firm serves multiple industries
- Impact of input material prices
- The reputation of the brand is impacted by low quality counterfeit items
HPG Group has a rich history of growth and has become a well-recognized brand among Vietnamese consumers Operating across multiple sectors, the company offers a diverse range of products, which helps mitigate risks associated with economic fluctuations HPG's products serve as essential inputs for other units, enabling cost reduction and enhancing the stability of material supply The company is committed to advancing technology and investing in research and development to meet the evolving demands of consumers With a strategic leadership team focused on identifying investment opportunities that provide significant benefits to shareholders, HPG has established its own steel billet plant This initiative allows HPG to control its production process, unlike many competitors who depend on imported steel billets.
As HPG's industry size continues to expand, its business management system poses significant challenges, particularly in effectively utilizing available human resources The influx of new employees can lead to issues with loyalty and a prolonged adjustment period to the corporate culture and job responsibilities Additionally, the company has not prioritized the export market for its products, which could hinder its growth potential.
The current market offers numerous opportunities for HPG to expand, as consumer preferences are shifting towards Vietnamese-branded products The company is adaptable, aiming to boost production and promote its offerings to capture a larger share of the domestic market Despite the challenging macroeconomic conditions in Vietnam, there remains potential for significant long-term growth, attracting ongoing interest from foreign investors This presents a prime opportunity for HPG to enhance its production and trade in steel-related goods for infrastructure development, including hiring factory construction workers and leasing land The Vietnamese government's support for foreign investment further enhances these opportunities, particularly in countries like Laos, which favors Vietnamese companies With high localization rates for construction equipment, HPG is well-positioned to reduce import reliance and expand its market share.
HPG faces significant challenges due to global economic integration, which has led to the removal of trade barriers and increased foreign competition The rise of counterfeit goods and inadequate trademark protection poses risks to brand reputation and trademark infringement Additionally, the slowing economy and rising inflation have driven up raw material costs, complicating procurement for industrial operations This economic downturn affects furniture consumption, refrigeration demand, and the steel requirements for construction Furthermore, ambiguous import and export regulations for steel billets expose HPG to political risks that could adversely affect production and business operations Lastly, the ongoing issue of brain drain is a concern that impacts HPG, reflecting a broader challenge for businesses in retaining talent.
4.1.2 Financial statement analysis of HPG
4.1.2.1 Summary of essential financial statement items
Table 4.2 Summary of essential financial statement of HPG (2018-2021)
4.1.3.2 A discussion of critical financial ratio a Profitability ratios
Figure 4.3 Gross profit margin & net profit margin of HPG (2018-2021)
A company's gross profit margin reflects its efficiency in using labor and resources to produce goods or services From 2018 to 2021, HPG experienced a significant increase in this margin, rising from 20.9% to 27.5% However, in 2019, HPG's gross profit margin saw a decline of 3.3% due to direct market influences.
The profit margin for many steel mills has decreased due to rising input costs and stagnant selling prices, exacerbated by intense competition that has led to supply outpacing demand Despite these challenges, HPG managed to increase its gross profit margin to 3.4% in 2020, benefiting from high operational capacity and a global rise in steel prices This performance not only exceeds industry averages but also highlights HPG's superior profitability and cost management compared to its rivals Notably, HPG's net profit margin and gross profit margin index reflect significant fluctuations, with a sharp decline from 15.4% in 2018 to 11.9% in 2019, followed by a recovery trend that saw an increase to 23.1% by 2021.
Figure 4.4 ROE & ROA of HPG (2018-2021)
Between 2018 and 2021, HPG experienced a substantial rise in both Return on Assets (ROA) and Return on Equity (ROE), with ROA increasing from 10.96% to 19.34% and ROE from 21.1% to 37.98% These metrics not only reflect HPG's strong financial performance but also surpass industry averages of 4.83% for ROA and 14.09% for ROE, highlighting the company's competitive edge over its sector peers.
From 2018 to 2021, HPG's current and quick ratios exhibited a slight upward trend, reflecting positive business performance Nevertheless, the quick ratio fell from 0.42 in 2018 to 0.35 in 2019, suggesting challenges in utilizing current assets to meet maturing debts effectively Despite this, HPG's quick ratio in 2021 surpassed that of the steel industry, although both of HPG's liquidity ratios remained below the industry's average of 0.66.
Figure 4.5 Current ratio & quick ratio of HPG (2018-2021)
The COVID epidemic caused many firms to fail, yet the corporation could still handle immediate financial commitments like accounts payable, taxes, or other operational costs c Gearing ratios
Figure 4.6 Debt-equity & debt of HPG (2018-2021)
Gearing ratios assess a firm's financial leverage, illustrating the balance between shareholder funding and creditor financing Between 2018 and 2021, HPG's debt-to-equity ratio showed stability, rising from 0.93 to 0.96, which reflects a low overall financial risk for both the company and its shareholders Additionally, HPG's ratios remain significantly below the steel industry average of 2.03, highlighting the company's robust financial health.
HOA SEN GROUP (HSG)
Established in 2001, Hoa Sen Group Joint Stock Company is the leading enterprise in steel sheet production and trading in Vietnam and a prominent exporter in Southeast Asia The company's shares were listed on the HOSE under the stock code HSG in 2008 By 2021, Hoa Sen Group ranked 17th among Vietnam's largest enterprises, as reported by VNR500.
HSG is enhancing the domestic market by expanding its retail distribution network, which includes over 10,000 employees, 11 large factories, more than 55 branches, and 471 retail stores across the country Additionally, Hoa Sen's products are available in over 85 countries and territories worldwide (Company Report, 2021).
Hoa Sen offers two primary product categories: steel products, including zinc-aluminum alloy coated steel sheets, galvanized steel purlins, and color-coated steel sheets; and plastic products, featuring PVC pipes, plastic ceiling panels, and plastic beads.
Since 2009, HSG has ventured into the real estate sector by investing in residential projects As of the first half of 2021, Hoa Sen dominates the galvanized steel market with a consumption volume of 931,000 tons, representing 36.7% of the market share Notably, the export market constitutes two-thirds of Hoa Sen's total consumption, with an output exceeding 614,000 tons.
By 2016, HSG had established 4 subsidiaries specializing in real estate investment
Figure 4.9 Organization structure of HSG
HSG has garnered significant recognition as the first Vietnamese enterprise in the Metals and Mining sector to be awarded the title of "Asia's Best Managed Company" by EUROMONEY in 2014 Additionally, it was named among the Top 50 most effective business companies in Vietnam in both 2016 and 2017, and ranked in the top 10 listed companies for governance capacity in 2021.
Table 4.8 SWOT analysis of HSG
- Maintain a positive reputation and advance the company's brand identity
- Lack of input material independence
- There are still many opportunities in the wholesale material sector
HSG has successfully expanded its exports to over 85 countries and territories worldwide, experiencing a remarkable growth in export volume that exceeds expectations, even amid challenging market conditions faced by many companies Recent months have highlighted a substantial increase in HSG's export activities.
HSG has significantly increased its exports, particularly in established and emerging markets within selective regions such as the Americas and Europe With 10 strategically located facilities nationwide, HSG benefits from reduced logistical costs, facilitating smoother export operations.
HSG's products are recognized for their quality and competitive pricing in the global market, allowing them to rival large steel enterprises Following the implementation of the CPTPP and EVFTA agreements, HSG experienced a notable increase in export volumes Despite declining consumer demand in various markets due to trade conflicts and protective measures by importing countries, the rising exports present promising opportunities for both HSG and the broader Vietnamese steel industry.
HSG employs a unique branding strategy tailored to its target audience, prominently sponsoring major sporting events such as the Ton Hoa Sen Cup, VTV International Cycling Tournament, and Children's Futsal Football Tournament Through these sponsorships and charitable initiatives, Hoa Sen Group consistently showcases its commitment to social responsibility within the sports community.
Hot rolled coil (HRC) is essential for manufacturing galvanized steel sheets and steel pipes, which are key products of HSG As HSG relies on purchasing HRC due to a lack of self-sufficiency in raw materials, the company faces significant challenges amid fluctuating HRC steel prices from 2019 to 2021 To maintain competitive pricing and avoid costly inventory, HSG must carefully evaluate market conditions, especially during a period when HRC steel prices in China reached their highest levels in 13 years.
HSG is a leader in leveraging modern technology to enhance customer convenience through online sales at www.hoasengroup.vn, enabling customers to purchase high-quality products while saving time and effort.
With outstanding product quality and strict implementation of 4 commitments "Sell at the right price, at the right standard, with the right quality
41 and with warranty" at all branches nationwide, HSG has been bring consumers products of international standards, reasonable prices, fast delivery time and good after-sales service
During the 2020–2021 shareholders' meetings, the management board of Hoa Sen Group (HSG) presented several optimistic future scenarios, particularly focusing on the expansion of the Hoa Sen Home system for distributing building materials and furniture However, Chairman Mr Le Phuoc Vu and associated shareholders frequently sold and repurchased HSG shares in response to significant price drops, which notably impacted the trading decisions of many investors.
4.2.3 Financial statement analysis of HSG
4.2.3.1 Summary of essential financial statement items
Table 4.9 Summary of essential financial statement of HSG (2018-2021)
(VND bn) 34.100,21 27.074,35 30.045,34 56.560,56 Gross Profit 3,403.04 3,544.63 5,172.15 9,504.94 Gross Profit margin (%) 9.92% 13.06% 17.22% 16.79%
4.2.3.2 A discussion of critical financial ratio a Profitability ratios
From 2018 to 2021, HSG's gross profit margin rose significantly from 9.92% to 16.73% In the fiscal year 2018-2019, the gross profit margin increased from 9.92% to nearly 13% HSG aimed for VND 31,500 billion in sales for the 2018-2019 fiscal year, reflecting a 9% decrease from the prior year, with an expected post-tax profit of VND 500 billion.
Figure 4.10 Gross profit margin & net profit margin of HSG (2018-2021)
By the end of the year, HSG achieved 89% of its revenue target and 72.2% of its profit goal, demonstrating resilience in a challenging steel sector The company has recorded profits for four consecutive quarters since the 2018 crisis, likely due to effective cost-cutting measures and a favorable market environment with declining HRC steel prices HSG's net profit margin has risen significantly, from 0.4% in 2018 to 7.74% in 2021, surpassing the average gross profit margin of 7.37% in the steel industry during the same period.
Between 2018 and 2021, HSG experienced a remarkable improvement in both Return on Assets (ROA) and Return on Equity (ROE), with ROA rising from 0.62% to 21.74% and ROE increasing from 2.65% to 38.74% Despite being less competitive during the 2018-2019 fiscal year, HSG's significant growth in these metrics in 2020 and 2021 highlights its enhanced competitiveness in the market, especially considering that both ROA and ROE were initially below industry norms of 4.83% and 14.0%, respectively.
Figure 4.11 ROE & ROA of HSG (2018-2021)
Source: The company’s data b Liquidity ratios
Figure 4.12 Current ratio & quick ratio of HSG (2018-2021)
HSG's current ratio and quick ratio have changed negligibly over the 2018-
NAM KIM STEEL (NKG)
Nam Kim Steel Joint Stock Company, established in 2002, is Vietnam's pioneering steel manufacturer utilizing NOF technology for metal plating It ranks among the top three producers of metal-coated steel sheets in the country, following Hoa Sen Group and Dong A Ton Company The company's shares are publicly traded on the Ho Chi Minh Stock Exchange under the stock code NKG.
2011 In 2021, NKG ranked at 56th position in the list of 500 largest private enterprises in Vietnam according to the announcement of VNR500 - ranking of 500 largest enterprises in Vietnam
NKG is steadily enhancing its presence in the galvanized steel industry, differentiating itself from competitors like HSG and Ton Dong A With four factories, NKG produces a variety of steel products, including galvanized sheets, cold galvanized sheets (aluminum alloy and zinc), color-coated steel sheets, thick galvanized steel, and galvanized steel pipes, boasting an impressive annual capacity of 1.2 million tons The company's products are extensively utilized in civil and industrial construction projects across Vietnam and several Southeast Asian nations.
In 2021, Nam Kim achieved an impressive export revenue of 68%, showcasing its commitment to quality The company utilizes advanced production lines and technology to ensure its products meet both domestic and international standards, including JIS (Japan), AS (Australia), ASTM (USA), EN (Europe), as well as ISO 9001 and ISO 14001 certifications.
Figure 4.16 Organization structure of NKG
In 2021, NKG was honored with the prestigious title of "National Brand," marking a significant achievement in its reputation Additionally, NKG has maintained its position in the VNR500 Ranking for the 12th consecutive year, recognized as one of the "Top 500 Largest Enterprises in Vietnam" and "Top 500 Largest Private Enterprises in Vietnam."
Table 4.14 SWOT analysis of NKG
- Focusing on manufacturing and taking up a sizable portion of the market for goods made of galvanized steel
- Lack of input material independence
- Highly dependent on steel exports
Amid the global supply challenges posed by COVID-19, NKG prioritized its investment in research and development, enhancing quality standards to comply with the rigorous requirements of European, American, and Australian markets Additionally, the company undertook a strategic restructuring of its departments to optimize current resources while integrating skilled new talent.
NKG is focused on expanding its international market share, particularly in light of recent changes in China's steel industry policy, which now controls output and has eliminated tax refund subsidies for most steel exports, including galvanizing products This shift may drive investment in Vietnam's coated steel sheet enterprises, positioning them to enhance production capacity and boost exports in the near future.
Due of the extensive storage of input materials while the price of HRC steel is high, NKG has the drawback of being overly dependent on input materials
Chinese steel prices are expected to stay low in the latter half of 2022 due to stagnant demand, primarily driven by the ongoing decline in new housing supply and the absence of recovery signs in the housing market Additionally, NKG's income may face challenges because of its heavy dependence on niche export markets such as China.
The steel industry is expected to maintain a positive outlook in 2022, driven by significant investments in infrastructure, particularly benefiting construction materials like steel Notably, the North-South Expressway stands out among large-scale infrastructure projects, while a resurgence in the residential real estate market is also anticipated to contribute to the growth of the steel sector NKG, recognized for its quality steel products and consumer awards over the years, is poised to be a top choice for construction materials in public investment projects.
NKG is set to encounter intense competition from local competitors, particularly HSG, which currently dominates the galvanized sheet market and is actively enhancing its sales agent network nationwide Additionally, HPG, the leading contender in the steel industry, has been leveraging its HRC steel plant since May 2020 to optimize input sourcing and increase building steel production In contrast, NKG is planning to establish a new facility by 2027 to bolster its market position.
4.3.3 Financial statement analysis of NKG
4.3.3.1 Summary of essential financial statement items
Table 4.15 Summary of essential financial statement of NKG (2018-2021)
4.3.3.2 A discussion of critical financial ratio a Profitability ratios
With the supply chain disruption in 2021, steel prices rose to historic peaks in the second and third quarters with a significantly improved gross profit margins of 18.63% and 17.21%, respectively
Figure 4.17 Gross profit margin & net profit margin of NKG (2018-2021)
With the huge contribution of gross profit in these two quarters, NKG's gross profit margin in 2021 has increased significantly from 2.8% and 7.5% in
In 2021, NKG achieved a remarkable net profit of over VND 2.2 trillion, reflecting a staggering 654% year-on-year increase and a significant rise in net profit margin from 0.39% in 2019 and 2.55% in 2020 to over 7.9% This growth was largely driven by a sudden surge in steel prices during mid-2021, positioning NKG's net profit margin above the industry average of 7.03%, highlighting the company's substantial development and success in the steel sector.
Figure 4.18 ROE & ROA of NKG (2018-2021)
In the past four years, NKG has experienced significant fluctuations in its Return on Assets (ROA) and Return on Equity (ROE), with a slight decline from 2018 to 2019, followed by a resurgence in 2020 and remarkable growth in 2021 This trend indicates that the company is effectively generating higher profits with lower investments, showcasing efficient asset utilization Despite a temporary decrease, Nam Kim's ROE remained the highest in its sector, achieving 49.98% in 2021 and reaching 44% in the second quarter of 2022.
In general, there is not much change in NKG's quick ratio and current ratio over
4 years Inventory for NKG quadrupled in size in 2021, rising from $2,370 billion to $7,281 billion Short-term debt also shot up dramatically, from $2,520 billion to $3,773 billion, causing a decline in quick ratio
NKG's solvency is not a concern for investors because the Company's revenue in 2021 increased 2.6 times over the same period to VND 8,780 billion;
54 additionally, after deducting Nam Kim's costs, the gross profit of VND1,058 billion is more than three times higher than that of the fourth quarter of 2020
Figure 4.19 Current ratio & quick ratio of NKG (2018-2021)
Source: The company’s data c Gearing ratios
Figure 4.20 Debt-equity & debt of NKG (2018-2021)
Over the past four years, NKG's debt ratio has remained stable, highlighting the company's effectiveness despite a low debt-to-equity (D/E) ratio With ample equity for operational needs and minimal debt, NKG experiences less financial pressure compared to the industry average of 2.03 A debt ratio consistently below 1 over this period suggests that a significant portion of NKG's assets is financed through equity, reinforcing its strong financial standing.
NKG's asset turnover ratio generally declines during the mid-cycle of the four-year period but experiences a significant increase in 2021, driven by the company's income growth In that year, NKG achieved remarkable success, with export-related earnings soaring to VND 19,200 billion, quadrupling the previous year's figures This upward trend in the asset turnover index highlights the effectiveness of the company's development strategy and improved asset utilization efficiency.
Figure 4.21 Total asset turnover & fix asset turnover of NKG (2018-2021)
NKG has maintained a consistently high inventory turnover index compared to HPG and HSG, with its inventory value rising from VND 2,371 billion on January 1, 2021, to VND 5,958 billion by June 30, 2021 To mitigate costs amid falling steel and iron ore prices at the end of 2021, many companies, including NKG, increased their inventory provisions However, steel prices have shown a steady increase since early December 2021, particularly after the Lunar New Year break, leading to a strong rebound in NKG stock during the final trading sessions of the year.
The P/E index for NKG tends to decline over time, notably from 2019 to
In 2020, NKG stock experienced a decline of over 64%, signaling a growing interest among investors The following year, 2021, proved to be the most promising for NKG, culminating in a record price of VND 55,900 per share.
POMINA STEEL CORPORATION (POM)
POM, established in 1999, is a leading construction steel manufacturer in Vietnam, dominating the southern region's market share With three state-of-the-art steel mills, POM boasts an impressive annual production capacity of 1.1 million tons of construction steel and 1.5 million tons of billet The company further solidified its presence in the market by listing its shares on the HOSE under the stock code POM in 2010.
POM specializes in construction steel and coil steel, focusing on sustainable development through investments in modern, eco-friendly technology The company proudly operates the first steel plant in the South region to receive ISO 14001:2008 environmental protection certification and is a pioneer in utilizing the Consteel furnace horizontal continuous feeding system.
POM is establishing a source of recycled materials through a standard wastewater treatment system, positioning itself as a leader in quality with no direct competitors While domestic steel mills are the main rivals, many rely on imported billets POMINA has become synonymous with the development of several high-quality, essential domestic projects.
POM, a leading steel industry company in Vietnam since 2008, has consistently received national quality awards for its products since 2011 and has been recognized as a preferred choice among consumers In 2021, POM achieved the 62nd position in the prestigious VNR500 Ranking, solidifying its reputation for high-quality offerings.
“Top 500 Largest Enterprises in Vietnam.”
Figure 4.23 Organization structure of POM
Table 4.20 SWOT analysis of POM
- Prioritizing quality of the product and ecologically friendly production methods
- Lack of input material independence
- Changes in import and export policy
POM aims to produce high quality steels, using the most advanced, modern and environmentally friendly steelmaking technology This meets the company's slogan "Pomina Steel - Life Core"
POM is the pioneering steel company to implement the Consteel furnace horizontal continuous feeding system, a technology that effectively treats wastewater and promotes environmental sustainability This innovation has enabled POM to become the first steel plant in the South to receive ISO 14001:2008 certification Such advancements are crucial for POM's commitment to sustainable development, especially as Vietnam's environmental protection laws become more stringent and the government emphasizes the importance of prioritizing environmental integrity over economic gains.
POM's product range is limited, primarily offering steel products for the construction industry, which pales in comparison to the extensive offerings of major competitors like pipe and galvanized steel According to Vietnam Customs data from 2015, POM sources 50% of its steel billet materials from China However, with billet prices reaching a 13-year high and continuously fluctuating, the company's heavy reliance on affordable Chinese steel is no longer a strategic advantage for maintaining significant profits.
POM is recognized as a leading long-term steel producer, with a strong track record of supplying construction steel for major projects such as airports, railroad stations, and border ports in Vietnam As public spending is expected to increase in 2021 to stimulate economic growth, both POM and the broader steel market are poised to benefit significantly from this investment.
POM faces intense competition from both Vietnamese steel producers and foreign steel imports, which are increasingly penetrating the Vietnamese market The steel sector is also grappling with multiple trade remedy cases in export markets, including Malaysia, which imposed an anti-dumping tax on Vietnamese steel products in January 2021 Additionally, Canada has identified a dumping margin of 3.7% to 15.4% on Vietnam's reinforced concrete, leading to a temporary anti-dumping tax on these products Furthermore, countries like India and Indonesia have initiated anti-dumping investigations into Vietnamese steel products, further complicating the export landscape for Vietnam's steel industry.
4.4.3 Financial statement analysis of POM
4.4.3.1 Summary of essential financial statement items
Table 4.21 Summary of essential financial statement of POM
4.4.3.2 A discussion of critical financial ratio a Profitability ratios
POM has experienced a lower gross profit margin compared to its peers, with a notable net profit margin decline of -2.57% in 2019 This decrease can be attributed to high product costs that persisted despite reduced expenditures, alongside intensified market competition and declining sales volume Additionally, fluctuations in raw material costs have adversely affected the company's financial outcomes In 2020, POM increased investments in new factories amidst a challenging steel industry landscape, resulting in higher debt levels and deteriorating financial performance Consequently, by the end of the first quarter of 2020, POM reported a net loss, marking its sixth consecutive quarter of financial losses.
The recovered business results in Q4/2020 were largely responsible for the revenue of VND 9,820 billion (-18% YoY) and EAT of VND 16 billion that were
63 achieved in 2020 The business finished building a 1 million ton/year capacity blast furnace at the Pomina 3 facility at the end of 2020
Figure 4.24 Gross profit margin & net profit margin of POM (2018-2021)
Intense industry rivalry and high interest costs have hindered development potential and operational efficiency However, in 2020, POM showed a quicker recovery compared to 2019 The upcoming Pomina 3 Factory, set to commence operations by year-end with a capacity of 1 million tons per year, is expected to boost key performance indicators starting in 2020 Additionally, the rebound in the real estate sector has led to the current operation at 80-90% capacity, driving increased demand in the steel industry.
Figure 4.25 ROE & ROA of POM (2018-2021)
POM's ROE and ROA demonstrate notable fluctuations, yet the significant growth observed in these metrics during 2020 and 2021 reflects the company's increasing competitiveness in the market Additionally, an analysis of POM's liquidity ratios further highlights its financial health and operational efficiency.
Figure 4.26 Current ratio & quick ratio of POM (2018-2021)
After four years, POM's current and quick ratios have begun to decline, although they remain above safe levels (current ratio above 1 and quick ratio above 0.5) This trend indicates a decreasing ability for the company to meet its existing debts and short-term obligations with its most liquid assets, as reflected in the falling liquidity ratios.
Figure 4.27 Debt-equity & debt of POM (2018-2021)
In the past four years, POM's D/E ratio and debt ratio have tended to rise POM's D/E in 2021 is higher than the average for the steel sector (2.03), indicating
As bank interest rates continue to rise, the firm may encounter increased difficulties in repaying its debts or potentially facing bankruptcy However, utilizing debt offers the benefit of interest expenses being deductible from corporate income tax POM Company showcases its financial strength by maintaining a debt ratio of less than 1 over the past four years, indicating that a significant portion of its assets is funded by equity.
Figure 4.28 Total asset turnover & fix asset turnover of POM (2018-2021)
POM's total asset turnover ratio has steadily decreased from 1.22 in 2018 to 0.92 in 2021, highlighting the need for a change in corporate governance and development strategy Concurrently, the efficiency of usable assets is also on the decline Additionally, POM's inventory turnover index has shown a downward trend, with inventory rising by approximately VND 300 billion in 2019 to reach VND 3,036 billion, particularly driven by an increase in the value of completed product inventory.
In 2019, POM experienced a significant increase in inventory turnover, driven by a rise of VND 256 billion in overall inventory and a VND 313 billion increase in construction iron stock, despite a VND 317 billion decrease in completed goods inventory However, the combination of high inventory levels and substantial debt amid declining steel prices poses ongoing challenges for POM in 2022, potentially affecting the company's financial performance and investment ratios.
POMINA is a corporation with erratic financial performance; as of the second quarter of 2020, the total cumulative loss had reached around VND 166
66 billion, and this was the company's sixth straight quarter of loss-making operations
CONCLUSION
CONCLUSIONS AND RECOMMENDATIONS
This research assesses the financial performance of four prominent Vietnamese steel companies to evaluate their financial health and intrinsic value Key findings reveal critical insights into their operational effectiveness and market standing.
Macroeconomic evaluations indicate promising growth opportunities for the steel market in Vietnam, driven by a substantial demand for infrastructure investment Additionally, the country's urbanization rate remains relatively low, having increased rapidly since 1990 and projected to reach 37%.
In 2021, Vietnamese steel manufacturers experienced significant export growth, driven by strong demand from key markets such as China for long steel, as well as the EU and North America for flat steel This trend positions Vietnam as a potential contender to replace China as the world's leading steel producer, despite its current production levels being lower than many other countries in the region.
In Vietnam's steel sector, HPG and HSG are recognized as market leaders due to their consistent growth and strong financial performance, surpassing industry benchmarks NKG shows significant potential for future development based on its financial statistics Meanwhile, POM is viewed as a responsible long-term investment option, despite having lower financial metrics compared to its competitors in the industry.
Taking into account internal and external factors previously reviewed, Table below summarizes investment recommendations on each stock:
Table 5.1 Investment recommendations for HPG, HSG, NKG and POM Stock Market price Target price Recommendation
According to stock valuation techniques and financial performance analysis, HPG, HSG, NKG, and POM stocks are projected to have higher target prices than their current market values Consequently, the report recommends that investors consider these steel stocks for investment opportunities.
LIMITATIONS
This study faces certain limitations, primarily due to its reliance on historical financial statements for evaluations and projections, which may be several months outdated and not accurately represent the company's current financial condition Consequently, the data fails to deliver a complete view of the growth potential for businesses Furthermore, the investment recommendations in this report are based solely on fundamental analysis; to enhance the accuracy of stock trend predictions and investment advice, it should integrate technical analysis alongside this approach.
The study may draw inaccurate conclusions due to limited access to diverse data sources, especially in the realm of soft drink data Consequently, the outcomes from the financial predictions and valuation models might not consistently align.
Large corporations like HPG, HSG, NKG, and POM possess complex organizational structures Additionally, this article is constrained by time limitations, preventing a thorough analysis of each organization.
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BALANCE SHEET OF HPG
Consolidated Consolidated Consolidated Consolidated Consolidated
Total owner's equity and liabilities 78,223,008.00 101,776,030.00 131,511,434.00 178,236,422.00
INCOME STATEMENT OF HPG
Consolidated Consolidated Consolidated Consolidated Consolidated
Profit/Loss of investments in associates and joint ventures
Profit after tax for shareholders of the parent company 8,573,014.00 7,527,443.00 13,450,300.00 34,478,143.00
BALANCE SHEET OF HSG
Consolidated Consolidated Consolidated Consolidated Consolidated
Total owner's equity and liabilities 21,254,822.00 17,225,438.00 17,756,408.00 26,618,030.00
INCOME STATEMENT OF HSG
Consolidated Consolidated Consolidated Consolidated Consolidated
Profit/Loss of investments in associates and joint ventures
Profit after tax for shareholders of the parent company 409,234.00 361,352.00 1,153,328.00 4,313,507.00
BALANCE SHEET OF NKG
Consolidated Consolidated Consolidated Consolidated Consolidated
Total owner's equity and liabilities 8,122,018.00 8,064,358.00 7,763,093.00 15,397,915.00
INCOME STATEMENT OF NKG
Consolidated Consolidated Consolidated Consolidated Consolidated
Profit/Loss of investments in associates and joint ventures
Profit after tax for shareholders of the parent company 57,335.00 47,334.00 295,270.00 2,225,261.00
BALANCE SHEET OF POM
Consolidated Consolidated Consolidated Consolidated Consolidated
Total owner's equity and liabilities 11,007,680.00 11,798,755.00 11,174,479.00 14,985,379.00