Company Quarterly Earnings Update – HPG VN – 2019 Q2

Summary of the H1/2019 results of Hoa Phat Group JSC (HPG VN) 

H1/2019 results: highlights
  • HPG’s sales advanced by 12.2% yoy to VND 30,595bn, thanks 6.7% yoy higher sales in the steel business, which is the company’s largest market segment (79% of sales). In addition, the dynamic growth of 77.1% yoy in the agriculture business also contributed to HPG’s overall result. But this business is still small, making up a mere 12% of total sales.
  • HPG’s construction steel volume has increased by 22.9% yoy to 1.34 million tons. Almost all of the higher volume came from the company’s new factory – the Dung Quat steel complex in the Central area of Vietnam; a part of that factory also produced steel by processing steel billet. Besides, the company’s old factory was operating at full capacity. Most of the increased volume originated from the South and the Central market, while the North remained HPG’s largest market.
  • HPG’s gross margin declined to 18.5% from 21.4% in the same period of last year, mainly due to the surge in the iron ore price. Also, as the country’s lowest cost construction steel producer, HPG was able to reduce its selling prices in order to increase market share in the South and in the Central. Net profit decreased by 13.0% yoy to VND 3,836bn in H1/2019, but this was no surprise with our expectations.
Outlook
  • Thanks to economies of scale, HPG has a strong competitive advantage in each business line of the steel segment. We think that the company can continue to gain market share from domestic companies and from imported products.
  • We think that HPG’s the growth prospects are much brighter from 2020 onwards, mainly thanks to the increased contribution from the Dung Quat steel complex. We expect HPG’s net profit to decline by 8.2% yoy in 2019, but to rise by 22.0% yoy in 2020, followed by another 62.4% yoy in 2021.
Recommendation

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