Company Quarterly Earnings Update – HPG VN – 2020 H1

Summary of the 2020 H1 results of Hoa Phat Group JSC (HPG VN)

H1/2020 results highlights:
  • HPG posted a strong growth of 29.6% y/y in net revenue to VND39,654bn in H1/2020 mainly thanks to a growth of 36.5% y/y in steel business and an advance of 41.6% y/y in agriculture business. HPG sold totally 2.3 million tons of long steel products, up 74.1% y/y, of which the sales of construction steel were 1.5 million tons (+12.4% y/y) and sales of steel billet were 0.8 million tons (from nil in H1/2019), with most of billet sales being exports to China. The Dung Quat Steel Complex – phase 1 has been operating at full capacity after commencing operation since the end of 2019.
  • Meanwhile, total construction steel sales in Vietnam was down 8.6% y/y due to weak construction demand. As the lowest cost producer in the country, HPG has higher profitability than competitors, allowing the company to boost sales with competitive pricing policy.
  • HPG’s gross margin inched up slightly to 18.8% thanks to strong improvement in agricultural business, despite lower gross margin from the steel business. Net profit increased by 31.1% y/y to VND5,028bn.
Outlook
  • Though steel demand in Vietnam will continue to be weak in H2/2020, HPG’s construction steel volume should continue to grow faster than the whole sector, allowing the company to maintain its production at full utilization.
  • As for profitability, we expect HPG’s profitability to reduce slightly in H2/2020 due to the gradually normalizing profitability of the agriculture business and the slightly lower gross margin of the steel business due to rising iron ore price. Still, net profit is projected to grow by 27.7% y/y in 2020. In 2021, we expect net profit to jump 62.2% y/y thanks to new products (hot-rolled-coil) and improving gross margin of the steel business.

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