Earnings Report /
Vietnam

Hoa Phat Group: Ascending the ‘Steel King’ throne

  • Q4/FY 19 review – HPG continues to gain market share

  • FY 20 outlook – We adjust our 2020 revenue forecast slightly lower to VND79,893bn

  • Reiterate Buy with a 13% lower target price of VND27,300 per share

Thu Pham
Thu Pham

Industrial Real Estate

Follow
Rong Viet
16 March 2020
Published byRong Viet

Q4/FY 19 – HPG continues to gain market share

  • Due to new capacity from the Dung Quat Complex, there was strong growth in HPG’s revenue, but slower growth in PAT due to low steel prices (-9% yoy) and high iron ore price (+28% yoy).
  • Finished construction steel sales volume was 807,906 tons (+18% yoy), of which 187,886 tons were sold in the Southern market. At end-Q4/FY 19, HPG had 21% market share in the South.

2019 – Progress in both construction steel and agriculture 

  • Finished construction steel and steel pipe volumes came in at 2.8mn tons (+17% yoy) and 750,800 tons (+15% yoy), respectively. HPG’s market share in both construction steel and steel pipe increased significantly to 26% and 32%, respectively.
  • Agriculture’s contribution to 2019 consolidated profit increased significantly from 1.8% in 2018 to 7.4% in 2019 because of the positive impact on prices from the African swine flu outbreak.

FY 20 outlook

  • We cut our forecast on HPG’s construction steel volume by 7% to 3.9mn tons (previously 4.2mn tons) in 2020. The main reason is the impact of the coronavirus pandemic on HPG’s medium-term business results.
  • We maintain our 2020 ASP forecast at VND11.3mn per ton of rebar, -6% yoy. Our gross margin forecast remains the same as we predict that iron ore and coking coal prices will also go down.
  • As a result, our 2020 revenue forecast has been adjusted to VND79,893bn (US$3,444mn, +26% yoy), slightly lower than our previous forecast. HPG’s 2020 NPAT is estimated at VND11,044bn (US$476mn, +47% yoy).

Valuation and recommendation

In general, HPG’s 2019 performance as we expected. Its business results were impacted by the unfavourable steel market. However, we maintain our optimistic view on HPG’s growth potential for the next two years due to the new Dung Quat Steel Complex.

As mentioned in our recent company update, HPG is going to become the largest Vietnamese steel maker with high penetration in most steel segments including construction steel, steel pipe and hot-rolled coil (HRC). HPG is also going to take advantage of its modern integrated mills to improve profitability, cash flows and long-term solvency.

Using FCFF, PE and PB methods, we come up with a fair value of VND27,300 per share (change -13% from our TP in the 2020 strategy report), equivalent to a total return of 42% based on the closing price on 13 March 2020. Hence, we reiterate our Buy recommendation on this stock.