Construction & materials – Build resilience for the tough times

• We believe public investment will back to centre stage in 2023F, partially offsetting the weakening residential property segment.
• Basic materials prices are on the mend which likely blow tailwind for a few industries among this sector.
• We like companies that might ride on upcoming infrastructure development. Our stock picks are HPG, C4G while PLC is on watchlist.

Public investment will back to centre stage in 2023F
According to our estimates, disbursement of public investment in 2023F could increase by 20-25% yoy. We have optimistic view on the infrastructure development into 2023F as the issues of stone shortage and high building material prices have mostly been addressed. Mega infrastructure projects in the near-term pipeline include twelve sub-projects of East North-South Expressway (NSE phase 2), Long Thanh Int’l Airport, Ring road 4 (Hanoi) and Ring road 3 (HCMC).

Chances for top construction players to win the large-scale projects
Since Sep 22, Ministry of Transport has been allowed to directly appoint contractors for NSE phase 2 which is expected to shorten the time of project implementation. Financial capability and construction experience are critical criteria for selecting contractors. We believe top players with strong track-record profiles, ie: VCG, HHV, C4G, etc. … are likely to win the large portion of bidding packages. Additionally, we see 2023F could be a turnaround for construction stone and asphalt producers following the time lines of existing projects.

Headwinds persist with steel and cement industry
Vietnam’s steel and cement manufacturers have struggled with declining global construction demand, elevated input materials and increasing supply gluts since 3Q22. Look into 2023F, the stagnant residential property will cast shadow over these segments. However, a few signals that could be frontal passages for wind change in late-23, include: easing basic materials prices (coking coal, steel scrap), the re-openings of Chinese might boost the demand, and the acceleration in infrastructure development might partially offset the residential construction.

Our stock picks are HPG, C4G while put PLC on watchlist
We prefer companies that ride on upcoming infrastructure development (C4G, PLC). For HPG, its current valuation is attractive with limited downside risks given its leading position in the Southeast Asian steel industry and healthy balance sheet to allow HPG to grab more market share during the industry downcycle. Downside risks include sluggish disbursement of public investment, higher-than-expected interest rates, commodities price upturn maintain.

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