Company Quarterly Earnings Update – HPG VN – 2019 Q1

Summary of the Q1/2019 results of Hoa Phat Group JSC (HPG VN) 

Q1/2019 results: highlights
  • HPG’s net revenue grew by 15.1% yoy to VND 14,963bn, mainly thanks to the solid expansion of the steel and the agriculture businesses. The steel business revenue increased by 10% yoy to VND 11,963bn, accounting for 80% of total sales. Construction steel was the largest component, achieving a volume increase of 28.7% yoy.
  • HPG’s gross margin fell to 17.5% from 22.8% in same period of last year, mainly due to lower profitability in construction steel as a result of the surge of the iron ore price. Consequently, net profit fell by 18.6% yoy to VND 1,801bn.
  • HPG’s cash and cash equivalent was VND 9,331bn at the end of Q1/2019, accounting for 11.0% of total assets. The financial leverage was moderate with a D/A ratio of 0.36x and a D/E ratio of 0.72x. VND 36.8 trillion or about 74% of total capex was disbursed for the Dung Quat steel complex. The project was delayed by two months, and its capex was about 25% higher than initially planned; however, capacity is also 25% higher.
Outlook
  • We maintain our view that the steel demand in Vietnam will continue to be strong. In the first four months of 2019, Consumption of construction steel was up by 15.9% yoy to 3.1 million tons in volume. HPG’s growth prospects are very bright, and we expect the company to expand faster that the Vietnamese steel sector on average as HPG will gradually seize more market share.
  • The recent rally of iron ore prices was stronger than we had expected, however we think it will be short-lived. We expect HPG’s net profit to decline by 17.9% yoy in 2019, but to rise by 31.8% yoy in 2020, followed by another 63.8% yoy in 2021.
Recommendation

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