Construction material stocks (KSB) expected to benefit from public investment projects in 2022
Construction material stocks (KSB) expected to benefit from public investment projects in 2022
News about the commencement of 12 projects along the North-South expressway in 2022 is considered to be the main driving force for the construction materials group, including steel, stone and asphalt.
At a recent conference, Deputy Prime Minister Le Van Thanh asked the Ministry of Transport to find solutions to renew investment procedures and arrange human resources to develop plans and complete procedures for beginning 12 expressway projects in 2022, creating a premise for completing projects in 2025.
In the recent report on prospects for 2022, VNDirect Securities Corporation also sees public investment as the main driver for the construction materials industry.
The company believes that the disbursement of public investment capital in 2022 will increase by 15-25 per cent compared to the actual disbursement in 2021, as the bottleneck of a lack of construction stone and backfill has been resolved after the Government granted mining licences to new mines.
Besides, prices of construction materials such as iron and steel, cement and construction stone are expected to decrease in 2022, which will create favourable conditions for public investment. As commodity prices surged in 2021, the actual disbursement of public investment capital was at a low level, only 85-95 per cent of the whole year's plan.
Meanwhile, many key transport infrastructure projects have completed preparations and site clearance, with main work to begin in 2022. This will increase demand for construction materials, improving revenue and profits of enterprises in the industry.
In the report, VNDirect said that asphalt businesses will enter a strong growth cycle, and the 2022-23 period will be a profitable time for the group, because asphalt laying usually takes place in the later phase of road construction projects.
For example, data from Petrolimex showed that its asphalt revenue skyrocketed in the 2014-15 period, when public investment capital in transport infrastructure rose sharply. By 2016-19, as spending on infrastructure cooled down, the company’s revenue in this segment decreased by about 50 per cent compared to the previous period.
With about 30 per cent of the domestic asphalt market share during 2015-2020, Petrolimex is likely to win contracts thanks to its large warehouses, wide distribution system and long-term relationships with State-owned enterprises, the securities firm said, adding that Petrolimex also regularly fulfils contracts.
For the construction stone industry, due to the characteristics of the industry, transportation costs often account for a large proportion of the finished product's expense. Depending on the distance and type of transportation, prices of stone delivered to the site can be twice as high as the price of stone at the quarry.
Therefore, VNDirect believes that listed companies owning quarries located near expressway projects will be prioritised for mobilisation thanks to their advantages and product quality.
It is estimated that major infrastructure projects in the south, including the My Thuan-Can Tho and Phan Thiet-Dau Giay expressways, will require 30-32 million cubic metres of construction stone in the 2020-25 period, equivalent to 150-160 per cent of licensed mining capacity of listed companies in the industry.
Accordingly, businesses that own high-quality quarries with favourable locations will be the main source of supply, especially Tan Cang and Thien Tan quarries owned by four companies including Binh Duong Mineral and Construction JSC (KSB), Bien Hoa Building Materials Production and Construction JSC (VLB), Hoa An JSC (DHA) and Dong Nai Materials & Building Investment JSC (DND).
The key project will be a strong driving force in the profits of construction stone businesses in 2022-23.
Positive outlook for steel industry
VNDirect also sees a bright prospects in 2022 for the steel industry, which has attracted a lot of attention recently.
Boosting infrastructure development and the warming of the residential real estate market will help the country’s construction steel consumption increase by 10-15 per cent next year. Similarly, local coated steel consumption will also inch up slightly by 5 per cent in 2022 from strong growth of 39 per cent this year.
In addition, the export outlook is also positive as the global steel demand will increase significantly, thereby stimulating Vietnamese steel manufacturers to boost exports to major markets.
VNDirect forecasts that Vietnamese construction steel price will reach VND15,500 a kilo (US$0.68 a kilo) in 2021, up 38 per cent over last year, before falling 8 per cent and 5 per cent in 2022 and 2023, respectively, to VND14,300-13,600 a kilo.
The securities firm expects that Hoa Phat Group (HPG) will record compounded growth of 12 per cent and 9 per cent, respectively, in revenue and net profit in 2022-25 thanks to strong construction demand.
However, risks remain if domestic construction material prices rise too high, the Government may implement tariffs to cool down prices. Moreover, higher than expected input material prices will also reduce the industry's gross profit margin.
