Company Initiation Report – HPG VN

Summary of the company initiation report for Hoa Phat Group JSC (HPG VN) 

New products and better business model

HPG currently specializes in rebar steel, which is a low-value product. The company also processes steel pipes and coated steel sheet from imported hot rolled coil (HRC). The new Dung Quat steel complex will mostly focus on high-value products to partly self-supply the currently imported HRC and to partly replace imported material for other steel makers in Vietnam. Thanks to the new capacity, HPG will be the first company in Vietnam to offer the entire value chain of the steel industry.

The solid growth of the steel demand in Vietnam should support HPG to install more capacity and to seize more market share

We expect steel consumption to continue to grow strongly at a CAGR of 7.9% during the next five years. These bright prospects are based on a solid construction sector, which is supported by an upbeat long-term outlook of the real estate market, by the strong demand of infrastructure development and by solid industrial construction backed by substantial FDI inflows. HPG’s sales should grow faster than the average steel industry with a CAGR of 18.4% as the company is likely to benefit from its vertical integration business model that should help to further expand its market share.

Increasing competitive advantage against domestic and international companies

The vertical integration business model will allow HPG to increase its profitability, to enjoy a more stable market and to reduce the risk of commodity’s volatility. As the steel industry is capital intensive, the small domestic players are not capable to apply an integrated business model; instead, they might have to gradually leave the market, while HPG should be successful to increase its dominant position. Compared to imported products, low-value steel products such as rebar will continue to be protected by the government through its tariff policy. As for high-quality products, HPG has a similar cost base as Chinese companies. However, as a local steel company, HPG knows the characteristics and the preferences of the Vietnamese steel market, saving logistics costs and time for delivery to the benefit of the domestic clientele.

The era of low-priced steel products from China is over. We expect the steel supply for Chinese exports to level off

Therefore, steel products from China will no longer be cheap for other countries. Hence, Vietnam should benefit as it will install new capacities, and feeding the increasing domestic and international demand.


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