Gross margin remains stable

According to the Vietnam Steel Association, total steel sales volume is forecast to grow by 10% YoY in 2026, driven by residential construction and public investment. Product demand is expected to remain uneven, with construction steel and HRC volumes projected to rise by 12% and 30% YoY, respectively, versus only 5% YoY for galvanized steel. Against this backdrop, Hoa Phat Group is expected to outperform, supported by strong domestic demand and the full-capacity operation of Dung Quat 2, with 1Q26 sales volume projected to increase by 20% YoY. Meanwhile, Hoa Sen Group is forecast to post 5% YoY volume growth due to its domestic focus, while Nam Kim Steel may record a 17% YoY decline amid weaker export demand.

Steel prices showed signs of recovery in the quarter, with construction steel and HRC prices increasing by 4% and 3% YTD, respectively. MBS expects HRC prices to improve further due to the potential imposition of anti-dumping duties on wide-width HRC in 2Q26, while construction steel prices may benefit from stronger demand. Despite the recent recovery, steel prices remain broadly flat YoY. It forecasts construction steel and HRC prices to increase by 6% and 5% YoY, respectively, while stable coal prices and a slight 2% YoY decline in iron ore prices should support margins.

Despite slightly lower raw material prices, MBS expects Hoa Phat Group’s gross margin to remain stable YoY at 14.2%, as depreciation expenses from Dung Quat 2 offset input cost benefits. For galvanized steel producers, rising HRC prices alongside flat galvanized steel prices may lead to gross margin contraction of 1.2ppt and 1.0ppt YoY for Hoa Sen Group and Nam Kim Steel, respectively. As a result, Hoa Phat Group is forecast to deliver 14% YoY net profit growth to VND3,800bn, while Hoa Sen Group and Nam Kim Steel are projected to report net profit declines of 17% and 38% YoY, respectively.

In 2026, steel companies are expected to benefit from stronger sales volume and recovering domestic steel prices amid favorable construction activity and easing pressure from Chinese steel. MBS favors companies with strong domestic market share, particularly Hoa Phat Group and Hoa Sen Group, with 2026 net profit forecast to grow by 44% and 13% YoY, respectively.

For the export market, MBS expects anti-dumping duties to continue weighing on export prices and volume. Amid weaker gross margins and higher financial expenses due to interest cost pressure, Nam Kim Steel’s net profit is forecast to reach VND197bn, broadly flat YoY.

Investment strategy

Given the domestic market is expected to be the key growth driver for the steel industry in 2026, MBS prefers companies with strong domestic market share and greater leverage to steel price recovery, particularly HPG and HSG.

First, HPG is expected to benefit from positive demand for construction steel and HRC amid strong domestic market growth. Rebar volume and prices are projected to improve in the second half of the year, supported by rising demand from infrastructure and residential construction. Total sales volume is forecast to grow by 23% and 9% in 2026 and 2027, respectively, primarily driven by a sharp increase in HRC output from Dung Quat 2. Net profit is projected to increase by 44% in FY26 and 18% in FY27, supported by stronger sales volume and improving gross margins.

MBS believes HPG’s current valuation remains below fair value, with its current P/B at 1.9x versus the 2.2x average during previous steel industry upcycles. It maintains its target price unchanged from its previous report dated February 25, 2026. Despite raising earnings forecasts, it lowered its target P/B to 2.1x from 2.2x in the previous cycle, reflecting concerns over higher raw material costs, including coal and iron ore, as well as transportation expenses.

For HSG, MBS expects domestic galvanized steel prices to recover from 2026 onward, supported by stronger demand, with prices projected to increase by around 4% YoY this year. Net profit is forecast to grow by 13% and 20% YoY, supported by stronger sales volume and gross margin expansion. HSG is currently trading below the average P/B seen in the previous two steel cycles, at 0.8x versus 1.0x during past expansion periods. MBS lowered its target by 15% from its previous report dated August 6, 2025, reflecting weaker-than-expected galvanized and higher transportation costs, resulting in lower net profit forecasts.

As for NKG, this company has been negatively affected by trade protection measures in key export markets such as US and EU. Accordingly, sales volume is projected to decline 10% YoY in 2026 and recover modestly by 3% YoY in 2027, as export demand is expected to contract by around 25%. Net profit is forecast to remain flat in 2026 before recovering in 2027. MBS lowered its target price by 20% from its latest target price dated October 31, 2025, reflecting lower net profit forecasts. NKG is facing pressure from rising interest and transportation costs, with the company reporting a loss in Q4/25.