SMC among good long-term investments, brokers recommend

Investors should consider on buying shares in the steel firm SMC, which is one of the best long-term investments on the stock market this year, brokers recommended.

Financial experts expected local steel companies would be booming in the next six months starting from April as constructions works usually kick off in the second and third quarters (Photo:Minh Tri)

Although the steel price has been volatile since 2008, the steel company SMC still managed to make stable profits.

The Ho Chi Minh City-based firm, which lists on the HCMC bourse, earned a net profit of around VND14.4 billion (US$720,000) in the first two months of the year, an
equivalent of an earnings-per-share ratio (EPS) of VND585.

SMC also announced in a financial report that it made a profit of VND57.6 billion from a net revenue of VND1.2 trillion ($60 million).

Analysts said the figure showed the steel industry was rallying strongly as most construction works were halted on the Tet [Lunar New Year] holiday, which was in February.

Financial experts expected local steel companies would be booming in the next six months starting from April as constructions works usually kick off in the second and third quarters.

SMC Trading - Investment JSC is expected to make a growth rate of 10-15 percent in 2011, with the after-tax profit rising slightly to VND90-100 billion ($5 million). Its total debt to equity ratio is around 3.5x.

By the end of February, the company's book value was posted at 1,169 dong per share. The net profit is expected to come from selling around 600,000 tons of steel, of which 100,000 tons will be produced by the company’s new factory.

Statistics show SMC captured 17 percent of the market shares in the south and 5 percent nationwide. The company is the main distributor of big steel producers including Pomina and the Southern Steel Corporation.

The global steel price is treading water, enabling local steel firms to set up detailed business plans, brokers said. SMC is focusing on distribution, which will help the firm to avoid losses if the international price fluctuates.

Despite this year’s negative macroeconomic factors with accelerating inflation and high interest rates, economists expected the steel consumption would remain high in 2011.

The government this year tightened the monetary policy in an effort to fight against inflation, prompting to a reduction in public spending. However, most of SMC’s sales came from private investment projects, so its revenue will continue to grow this year.

SMC increased 1.7 percent to close at VND17,800 on last Friday. The steel maker has lost 20 percent so far this year, while the benchmark VN-Index has declined 6 percent. 

According to the Vietnam Steel Association, local steel output has reached double the local demand. It expects total production to reach 8.8 million tons this year, up from 7.8 million tons in 2010.

By Luc Ton and Tam Tanh – Translated by Vu Minh

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