COMPANY UPDATE
12-Mar-18
HPG (HOSE) HOA PHAT JSC. - Expanding horizontally
OVERWEIGHT Pros

Rating

-

HPG in 2017 is the largest steel manufacturer in Viet Nam with market share of
construction steel and pipe steel of 24% and 26% respectively.
The phase 1 of Dung Quat complex project with capacity of 2 mil tons of construction steel
per year, which is planned to complete in 2019, will help HPG keep the number 1 position
of steel producer and boost the market share of construction steel up to 30%.
The phase 2 of Dung Quat complex project produces HRC in order to use for HPG’ other
high value products such as pipe steel and color coated steel sheet. HRC might give HPG
a significant advantage compared to other competitors in color coated steel sheet market.
The policy to cut the excess capacity of steel producers and shut down those still using
old technology in China will decrease the oversupply of the global steel market by around
30 million tons in 2018. This policy probably boosts the price of global steel in the short
15,000
term.
- The first color coated steel sheet factory in Hung Yen is going to come into production in
quarter 2/2018 with total capacity of 400,000 tons/year, helping HPG join and gain share
10,000
from this market
In furniture, construction equipment and refrigeration industries, HPG is the one of the
5,000
leading brands in Viet Nam.
Cons:
0

Steel Industry
Market price (VND)
62,000 Target price (VND)
76,000
Annualized price return (%)
22%
Expected dividend yield (%)
0%
Expected annualized total
22%
return (%)
80

VND
'000

Price - Volume

60
40
20
0
09/2017

'000
shares

12/2017


Stock performance (%)
Absolute
Relative

YTD

1M

31%
16%

1%
-6%

3M

12M

53% 134% 29% 70%

Source: Bloomberg, compare to VNI

Stock Statistics

-

12/03/2018

-


Cost of raw materials such as ore, charcoal, graphite…are forecasted to rise in 2018 due
to policies of many coutries to control more effectively the exploitation of these natural
resources.
Deb increased significantly in 2017 to nearly VND13,000 billion, creating high pressure to
HPG in paying interest and principal in 2018.
Regarding to the U.S. market, HPG will be adversely affected by the new import tax rate
of 25% imposed on imported steel
Aside from other producers in Viet Nam such as Pomina, TIS, Kyoei, etc, CPTPP will put
HPG under higher pressure of competition of the imported steel from the other 11
countries.

52-week range (VND)
Shares o/s (m)
Mkt cap (VND bn.)
Mkt cap ($m)
Foreign % owned
Est. free float (ml. shrs)
3m avg. daily vol. (shrs)
VND/USD
Index: VN-Index/HNX

25.8k-66.7k
Recommendation:
1,517
- We forecast net sales and net profit of HPG in 2018 at VND56,802 billion (+23% YoY)
93,288
and VND9,032 billion (+16% YoY). We value HPG share at VND76k per share at the end
4,101
of 2018. Total return is 22% at the current price of VND62k. OVERWEIGHT.
40%

893
VND bn.
2016
2017
2018E
2019F
6,230,798
Net revenue (VND bn.)
33,283
46,162
56,802
67,970
Growth (%)
22,760
21%
39%
23%
20%
Operating profit (VND bn.)
7,856
9,622
11,899
14,591
1,126/129
Margin (%)
24%
21%
21%
26%
Source: Bloomberg, KISVN

Net profit (VND bn.)
6,606
8,015
9,032
11,118
Margin (%)
20%
17.5%
16%
16.5%
Ownership
12/03/2018
843
1,517
1,517
1,517
Outstanding shares (million)
Chairman & Related parties
32.4%
4,205
4,895
5,651
6,957
EPS (bonus-adjusted, VND)
82%
16%
15%
23%
Tran Tuan Duong
2.7%

Growth (%)
39%
31%
25%
24%
ROE (%) (excl. minority)
Nguyen Manh Tuan
2.6%
10%
27%
28%
23%
Net debt/Equity (%)
VOF Investment Ltd
2.6%
14.7
12.7
11
9
PER (x)
Source: Bloomberg, KISVN
2.8
2.9
2.3
1.8
PBR (x)
10.1
8.9
7.4
6.1

EV/EBITDA (x)
Mr. Duong N. Tran
1,500
DPS (VND, as reported)
(+84 28) 3914 8585 - Ext: 1462
21%
Dividend yield (%)

www.kisvn.vn
Page 1

Bloomberg: KISVN <GO>


COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

Vietnam’s steel market keeps high growth rate
Construction's steel share
market 2017
HPG
24%
Others
39%

Posco
9%
TIS
8%

POM
11%

Vinakyoei
9%

Pipe steel's share market
2017
HPG
26%

Others
33%

VGS
6%
SeAH VN
8%

HSG
18%
Minh Ngọc
9%
Source: VSA

Viet Nam market consumed 15.2 million tons of steel in 2017, increasing 17%
compared to 2016. As Vietnam still needs a lot of infrastructure development, steel
consumption increased 20% CAGR in the past 5 years and also Vietnam construction
steel market is estimated to increase from 20-25% in 2018 according to VSA. These
factors will keep the growth momentum of the steel industry in general and HPG in

particular.
Regarding to HPG, construction steel sales will increase by 2 million tons from 2.2
million tons of 2017 when the first phase of Dung Quat project complete and goes into
production in 2019, helping HPG increase its share market from 24% to 30%.
The number of steel exported in 2017 reached 3.8 million tons, increasing 27%
compared to 2016. In 2017, HPG exported 161,000 tons of steel to the U.S., Canada,
Australia, Malaysia, Cambodia, etc. Furthermore, in the first 2 months of 2018, HPG
exported nearly 31,000 tons of steel to the U.S., Australia and Asia.
In steel pipe segment, HPG still keeps the largest market share with total consumption
reaching 600,000 tons in 2017. In 2018, HPG expect to sell up to 684,000 tons of steel
pipe.
In color coated steel sheet segment, the first factory in Hung Yen with capacity of
400,000 tons per year when goes into production in quarter 2/2018 will help HPG join
this 3.5-mil-ton market. The steel sheet market is mainly consumed in the South whilst
HPG factory is located in the North, leading to some difficulties for HPG such as high
logistics cost and the low customer awareness of HPG-branded steel sheet. However,
when Dung Quat Project is completed, HPG could transport their products from the
North to the Middle and the South by sea with lower cost compared to road
transportation.
The pre-stressed steel factory with total capacity of 160,000 tons per year with high
quality products including pre-stressed steel, pre-stressed steel trans and prestressed steel wire is under construction and planned to complete in 2018 at Dung
Quat complex project.
In 2017, the phase 1 of the steel wire factory with capacity of 40,000 tons per year
went into production certified ASTM A510/A510-13 helped HPG supply to local
projects, distributors and export.

Production & Revenue of Construction steel and
Pipe steel
50,000


39,738

40,000

28,855

30,000
20,000
10,000

13,209
785

19,795

14,645
866

1,248

22,586

1,749

2,420

2,747

2012


2013

2014
2015
Revenue
Production

2016

2017

Source: VSA

12-Mar-18
Equity Research - KIS VN

Page 2

Bloomberg: KISVN <GO>


COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

Real estate projects are as scheduled
In 2017, HPG has recorded 20% of revenue and profit from Mandarin Garden 2
Project. The remaining 80% will be recorded in 2018. Accordingly, in quarter 1/2018,
the revenue and net profit are VND1,300 billion and VND550 billion respectively.
Project 70 Nguyen Duc Canh, Hoang Mai District in Hanoi was launched in 2017 with

total area of 1,500 m2 including 2 commercial stores and 19 apartment stores (228
units). The basement is under construction and the apartments are planned to
handover in 2018 and 2019. Total investment of this project is VND300 billion.
Revenue and net profit estimated from this project are 400-500 billion VND and 160200 billion VND respectively.
Bac Pho Noi City project is the largest real estate project of HPG since Mandarin
Garden 1 with total area of 262 ha including 2 stages. Stage 1 with total investment
of VND2,700 billion and being under land clearance progress has 2 main products are
villas and apartments.
Hoa Phat’ Real Estate Projects
1. Mandarin Garden 2 Project
2. 70 Nguyen Duc Canh Apartment

Completed and transfer to clients in 2018
Complete and transfer to clients in 2019
- Total area: 262ha include 2 stages

3. North Pho Noi City Project (Hung Yen Province)

- Products: ajoining villas, apartments
- Clearing land and compensation

3. Pho Noi A Industrial Zone(Hung Yen Province)
4. Yen My II Industrial Zone( Hung Yen Province)
5. Hoa Mac Industrial Zone (Hà Nam Province)
6. Hoa Phat Tower in Giai Phong (Ha Noi)

- Total area: 600ha operating since 2004
- More than 100 companies located
- Total area: 230 ha formed since 2009
- Operating since 2017

- Total area: 203ha formed since 2008
- Operating since 2017
- 24 level with 5 commercial level and 19
apartment levels
- Operating since 2012
Source: HPG

Agribusiness is highly promising in 2018
The third animal feed factory of HPG is scheduled to complete in 2018, helping HPG
increase total capacity of animal feed to 1 million tons per year and gaining 5%
domestic share market.
According to the plan, in 2018, HPG will supply 20 million of chicken eggs to the
market and raise the number of Australia-originated cattle herd with the aim to supply
high quality beef product to the market.
HPG basically has completed their initial capital expenditure in the agricultural
segment and will expand its presence in the market in 2018-2020.

12-Mar-18
Equity Research - KIS VN

Page 3

Bloomberg: KISVN <GO>


COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

Revenue and Profit from Agricultural segment

3,500

2,895

3,000
2,500
2,000
1,500

1,395

1,332

1,000
500

(47)

56

26

(500)
2015

2016
Revenue
Profit

2017


Source: HPG

2018 forecasts
Based on good business results in 2017, we expect HPG to maintain its strong growth
2018 and 2019. Our assumptions for the forecast of 2018 are the prices of raw
materials including iron ore 62%, charcoal, scrap steel, graphite, HRC unchanged
compared to 2017.
We estimate revenue of HPG in 2018 and 2019 at VND56,802 billion (+23%YoY) and
VND67,970 billion (+20%YoY) and net profit in 2018 and 2019 at VND9,024 billion
(+16%YoY) and 11,151 billion (+16.5%YoY) respectively. EPS is estimated at
VND5,464 (+15%YoY) and VND6,978 (+24%YoY) respectively.

Forecast Revenue for 2018 and 2019
70,000
60,000
50,000

57,988
48,003

40,000
30,000
20,000
10,000

2,950 3,143

1,328 2,318


4,521 4,521

Real Estate

Agriculture

Steel

Other heavy
industries
2018F

12-Mar-18
Equity Research - KIS VN

2019F

Page 4

Bloomberg: KISVN <GO>


COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

FINANCIALS MODEL

Mkt cap: VND94,060bn
2016


2017

2018E

2019E

CASH FLOWS AND
BS ITEMS (VND bn.)

33,283

46,162

56,802

67,970

Receivable turnover (x)

21%

39%

23%

20%

28,855


39,738

48,003

57,988

2,598

2,768

2,950

3,143

Increase in WC

1,419

5,214

2,592

2,720

3,417

8,875

6,689


7,017

-270

2,710

2,723

2,419

3,684

-6,810

-1,434

810

Unit: Billion VND
Net Revenue
Sales growth (%)
Port Service
Logistics

2017

2018E

2019E


16.6

10.3

12.8

12.5

Inventory turnover (x)

2.7

3.0

2.9

2.9

Payable turnover (x)

4.4

4.9

4.8

4.8

435


760

1,328

2,318

Capex

1,395

2,895

4,521

4,521

Other cash flow items

24,533

35,536

43,668

51,902

26%

23%


23%

24%

Other
COGS
Gross margin (%)

2016

SG&A
EBITDA

895

1,004

1,235

1,478

9,499

11,595

14,276

17,454

Depr’n & Amort’n


28%

25%

25%

26%

Operating profit

1,643

1,974

2,377

2,863

7,856

9,622

11,899

14,591

24%

21%


21%

22%

EBITDA margin (%)

Operating margin (%)
Net interest expense
As % of avg. net debt

Free cash flow
Share issues

-

-

-

-

1,102

4

-

-


-2,581

6,814

2,768

324

1,902

8,715

11,483

11,807

Enterprise value

96,066

102,885

105,653

105,976

Total equity

19,850


32,398

40,978

51,569

106

111

100

104

Dividends paid
Increase in net debt
Net debt, end of year

Minority interests

142

371

609

692

Shareholder’s equity


19,745

32,287

40,878

51,465

Interest cover (x)

4%

7%

6%

6%

BVPS (VND)

23,425

21,282

26,945

33,924

Other profit/loss*


55.5

26

20

21

10%

27%

25%

18%

-13

38

-

-

0.2

0.8

0.7


0.5

1,096

1,274

2,258

2,780

33,227

53,022

59,223

69,562

14%

14%

20%

20%

6,606

8,015


9,032

11,118

20%

17.5%

16%

16.5%

2016

2017

2018E

2019E

4

8

8

8

6.9%


10%

7%

7%

6,602

8,007

9,024

11,109

2%

5%

5%

5%

843

1,517

1,517

1,517


ROIC (%)

3.9%

5.0%

5.0%

5.2%

4,205

4,895

5,651

6,957

WACC (%)

Tax
Effective tax rate (%)
Net profit
Net margin (%)
Minorities
Net attributable profit
Number of shares (m)
EPS (VND, bonusadjusted)
EPS growth (%)


Net debt / equity (%)
Net debt / EBITDA (x)
Total assets

Net debt = debts – cash & equivalent

KEY RETURN AND
VALUATION RATIOS
ROE (%)
(excl. minority interest)
ROA (%)

12.5%

12.5%

14.1%

14.3%

17

11

14

12

82%


16%

15%

23%

PER (x)

1,500

-

-

-

PBR (x)

1.1

1.0

0.9

0.8

21%

-


-

-

PSR (x)

6.4

4.8

3.6

3.3

EBITDA = Net revenue – (COGs -Depr’n&Amort’n)– SG&A expenses

EV/EBITDA (x)

24

23

12

11

EBIT = EBITDA – Depr’n&Amort’n

EV/Sales (x)
Dividend yield (%)

(bonus-adjusted)

12

7.7

4.9

4.4

0.0%

0.0%

0.0%

0.0%

DPS (VND)
Payout ratio (%)

Net interest expenses = interest expenses – interest income
Other profit/loss consists of other financial income/expenses, profit share
from JVs/associates and other income/loss
Payout ratio = Dividend paid / Net attributable profit
* We assume about the total value of withdrawal deals.

12-Mar-18
Equity Research - KIS VN


Page 5

Bloomberg: KISVN <GO>


COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

Contacts:
HCM City Head Office

Hanoi Branch

Level 3, Maritime Bank Tower
180-192 Nguyen Cong Tru St., District 1, HCM City
Tel: (+84 28) 3914 8585
Fax: (+84 28) 3821 6898

Level 6, CTM Tower
299 Cau Giay, Cau Giay District, Hanoi
Tel: (+84 4) 3974 4448
Fax: (+84 4) 3974 4501

Equity Research
Mr. Huy Hoang, CFA
Head of Equity Research
(+84 28) 3914 8585 (x1450)



Mr. Duong Tran

Mr. Danh Nguyen
Associate – Energy & Utilities
(+84 28) 3914 8585 (x1459)


Ms. Mai Tran

Senior Associate – Materials & ITC Associate – Property &
Construction
(+84 28) 3914 8585 (x1462)
(+84 28) 3914 8585 (x1461)



Macro Research
Mr. Vien Bach
Head of Macro Research
(+84 28) 3914 8585 (x1449)


Institutional Sales
Ms. Uyen Lam
Head of WholeSales
(+84 28) 3914 8585 (x1444)


Mr. Ha Nguyen
Associate – Pharma and F&B

(+84 28) 3914 8585 (x1463)


Mr. Bao Vo
Associate – Logistics, Aviation &
Automobiles
(+84 28) 3914 8585 (x1460)



COMPANY UPDATE – HPG

KIS Vietnam Securities JSC

Our Recommendation System
OVERWEIGHT: where we believe prospective 12 months VND total return (including dividends) will be 15% or more.
NEUTRAL: where we believe it will be -5% to 15%.
UNDERWEIGHT: where we believe it will be -5% or less.

Disclaimer
This report has been issued by the KIS VN Securities Corporation (“KIS”) with the instructional contributions of KIS VN Securities Corporation
whose employees are specified in the publication. This report is for information of its institutional and professional customers.
This report is and should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe for any investment. No
consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Investors are
advised make their own financial decisions based on their independent financial advisors as they believe necessary and based on their
particular circumstances such as their financial situation, investment objectives and other considerations.
In preparing this report, we have relied upon and assumed the accuracy and completeness of all information available from public and other
sources which we believe to be reliable, but which we have not independently verified. KIS makes no express or implied guarantee,
representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of such information.
Opinions, estimates, and projections expressed are current opinions of the authors as of the original publication date appearing on this report

only and the information, including the opinions contained herein, and are subject to change without notice.
KIS and its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business
from, companies mentioned herein. Further, KIS and its affiliates, and/or their officers, directors and employees involved in the preparation
or issuance of this report may, from time to time, have long or short positions in, and buy or sell, the securities, or derivatives (including
options) thereof, of companies mentioned herein, or related securities or derivatives in a manner that may be consistent or inconsistent with
this report and opinions expressed therein. As a result, investors should be aware that KIS and its affiliates and/or their officers, directors
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This report shall not be copied, reproduced, distributed (in whole or in part) or disclosed by recipients to any other person without the express
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