Company Quarterly Earnings Update – HPG VN – 2020 Q1

Summary of the 2020 Q1 results of Hoa Phat Group JSC (HPG VN)

Q1/2020 results highlights:
  • HPG’s net revenue advanced by 28.5% y/y to VND19.2 trillion in Q1/2020 thanks to a strong growth in both steel and agricultural business, which expanded 30.3% y/y and 58.5% y/y respectively. The steel business’s growth was attributed by the sales of steel billet produced in the new Dung Quat steel complex. The agricultural business benefited from improving utilization and higher live pig prices.
  • HPG’s gross margin improved two percentage points to 19.6% in Q1/2020 thanks to the higher profitability of the agriculture business. Net profit advanced 26.9% y/y to VND 2,285bn
  • By the end of Q1/2020, HPG has VND7,775bn in cash and cash equivalent, accounting for 7.3% of the total assets. Financial leverage was moderate with D/E of 0.82x and D/A of 0.38x. HPG will resume its cash dividend policy with a payment of VND500/share for FY2019. The company nearly finished all investments at the Dung Quat steel complex project while the cash flow is now very strong.
Outlook
  • Though the steel market was weakened in Q1/2020 amid the Covid-19 outbreak, we think it was rather short-lived as the government is determined to support the economy by speeding up investment on infrastructure. On a national scale, HPG is the lowest cost producer, enabling it to grow faster than the whole sector. The company also benefits from its large scale and enjoys higher profitability than competitors.
  • We expect the profitability of the steel business to improve while that of the agriculture business will gradually normalize in the coming quarters. As a result, net profit is projected to advance by 32.0% y/y in 2020 and by 42.3% y/y in 2021. The net profit should grow with a CAGR of 18.7% during the 2019 -2024 period.

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