Company Quarterly Earnings Update – HPG VN – 2019 Q3

Summary of the 9M/2019 results of Hoa Phat Group JSC (HPG VN) 

9M/2019 results: highlights
  • HPG’s net revenue rose by 10.2% yoy to VND 45.7 trillion in 9M/2019, thanks to a 5.6% yoy increase of steel sales as well as 68.9% yoy higher sales of agriculture goods.
  • HPG’s construction steel volume increased by 16.1% yoy to 1.97 million tons, outperforming the general market, whose volume rose by 6.6% yoy. Most of HPG’s volume increase came from the company’s new factory – the Dung Quat steel complex in the Central area of Vietnam. The major part of the added volume went to the Southern and the Central markets, which are new markets for HPG, while the North remained HPG’s largest market, which did not grow much.
  • HPG’s gross margin declined to 18.3% from 22.0% in the same period of last year, mainly due to the surge of the iron ore price. In addition, the company reduced selling price to expand share in new markets in the South and in Central Vietnam. Net profit decreased by 17.9% yoy to VND 5,591bn in 9M/2019. These results were in line with our expectations.
Outlook
  • HPG has a strong competitive advantage as the lowest cost steel producer in Vietnam. The company can optimize economies of scale in the steel sector, allowing it to continuously gain market share.
  • The Q3/2019 results were the weakest ones this year, and we expect HPG to achieve solid earnings growth in the coming quarters thanks to more favorable material prices and the increasing capacity utilization at the Dung Quat steel complex. We expect HPG’s net profit to decline by 11.2% yoy in 2019, but to rise by 23.9% yoy in 2020, followed by another increase of 48.5% yoy in 2021.
Recommendation

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