Company Quarterly Earnings Update – HPG VN – 2018 Q4

Summary of the 2018 results of Hoa Phat Group JSC (HPG VN) 

2018 results: highlights
  • HPG’s net revenue rose by 21.0% yoy to VND 55,836bn in 2018 thanks to a significant expansion of the construction steel and the steel pipe business. Construction steel, which is the largest sales component, reported revenue of VND 31,204bn, up by 27.1% yoy. HPG maintained its leading position in construction steel in Vietnam with a market share of 24.8% in 2018.
  • The gross margin fell to 20.9% from 23.0% in the previous year. Most of the decline happened in Q4/2018, when the iron ore price rebounded strongly. Meanwhile, the construction steel price has been on the downtrend since it reached its 5-year-peak in Q2/2018. Net profit was VND 8,573bn, up 7.1% yoy.
  • HPG’s cash and cash equivalent amounted to VND 6,240bn, accounting for 8.0% of total assets. Total debts were at VND 24.3 trillion, and the financial leverage was moderate with a D/A ratio of 0.31x and a D/E ratio of 0.60x. HPG has disbursed about VND 34 trillion for capex in 2018, mostly for the Dung Quat steel complex.
Outlook
  • Steel demand in Vietnam is likely to remain strong thanks to the solid development of the construction sector, which is supported by the rising demand for housing and infrastructure development. HPG is the lowest cost construction steel producer in Vietnam. This competitive advantage should allow HPG to steadily increase market share.
  • International iron ore prices have risen strongly by about 28% this year so far, which will most likely affect HPG’s H1/2019’s result. We expect that the company’s profitability to recover from H2/2019. HPG’s net profit should improve by 6.9% in 2019 and by 22.9% in 2020.
Recommendation

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