According to Vietcombank Securities Company Ltd (VCBS), the construction plastic industry is divided into two main segments: construction plastic pipes (PVC, PPR, HDPE pipes) and plastics for construction materials (profile bars, plastic doors, ceiling panels, etc.).
4 big enterprises: Binh Minh Plastic Joint Stock Company, Tien Phong Plastic Joint Stock Company, Hoa Sen plastic pipes of Hoa Sen Group, and Tan A Dai Thanh Group, are the primary producer of construction pipes, accounting for 80-90% of the market.
Plastics for construction materials have a much more fragmented market with thin profit margins and stiff competition from imports, especially from China. Dong A Plastic Group Joint Stock Company accounts for about 20% of the national market share.
Vietnam has yet to master the construction plastic production value chain due to its dependence on imported PVC granules as input materials. Domestic production of PVC granules comes from 2 manufacturers, AGC Vietnam Chemicals Company Limited and TPC Vina Plastics and Chemicals Limited Liability Company, with a total capacity of 390,000 tons with the factories concentrated in the southern region. Every year, Vietnam still has to import up to 700,000 tons of PVC. The profit margin of Vietnamese construction plastic enterprises is subject to large fluctuations in global PVC prices.
According to VCBS, PVC prices in the second half of 2022 and 2023 will remain at a low level in the range of 800-1000 USD/ton. That will help the profit margin of plastic enterprises to be positive. Three factors leading to the low prices include:
The US has recovered from the supply shortage, and the world supply has increased sharply from the expansion plan of large enterprises. In the short term, major manufacturers in India, the US, and China have invested in expanding PVC production as soon as 2022 with a capacity of millions of tons. Specifically, from now to 2026, PVC capacity will increase by 17% to 70 million tons per year.
The demand for PVC dropped sharply in China due to the country’s sluggish real estate market. The demand for PVC for construction in China accounted for 62%. Until the end of 2023, VCBS believes that the demand for PVC will remain weak when the number of projects to be implemented in China is currently low.
PVC prices are tied with coke because most of the production now depends on China. According to Fitch Solutions, production costs of coke are forecasted to drop sharply to 280 USD/ton in 2023, helping PVC manufacturers in China maintain competitive prices with the EU and the US when these countries face a severe energy shortage and high anchor input prices.
The downward trend in input prices will be the driving force to help expand profit margins for Tien Phong Plastic Joint Stock Company and Binh Minh Plastic Joint Stock Company in the latter half of 2022 and 2023.
VCBS believes that the business results of these businesses in the third quarter of 2022 will grow very well compared to the low base of 2021, and this may be a story to support the uptrend of the stock price.
In the first half of 2022, the number of real estate apartments deployed in the North of Vietnam showed good growth after a long decline. That will help to boost plastic pipe consumption in this area in the second half of 2022 and 2023.
On the contrary, the number of newly developed and new apartments in the South region shows a negative number, which will put pressure on consumption in the coming time.
In the long term, VCBS believes that the sales volume of plastic pipes in civil engineering still has great growth potential since Vietnam's urbanization rate is still low. It is expected that the legal problems for real estate projects to be resolved soon in 2023 would be a launching pad to boost real estate supply in 2024.
However, with a relatively high per capita PVC consumption rate in the region and close to China, VCBS estimates that the industry's growth in the next growth period will be at 7-10%, much lower than 15-20% of the period 2014 - 2017.
Source: vietnamplus, tinnhanhchungkhoan
Compiled by VietnamCredit