HOA PHAT GROUP - HPG
Sector: Steel
Spotlight in steel industry
OVERWEIGHT
Target price
Current price
VND 44,300
VND 37,200
Le Minh Triet
(+84-8) 5413-5472
trietle@phs.vn
01.11.2013
Co. Profile
Ticker
HPG
Charter Capital (VND bln)
4,191
Outstanding shares (mln)
419.053
Market Capital (VND bln)
15,379
16.5 - 37.2
52W range (VND)
486,313
Ave. trading volume 3M
Beta
1.17
Foreign Ownership
44%
15/11/2007
First listing date
HOSE - Vietnam
Major shareholders
Trần Đình Long
24.12%
Vũ Thị Hiền
7.39%
Deutsche Bank AG &
Deutsche Asset Management
(Asia) Ltd
6.42%
Price movement
3M
6M
12M
Absolute
+8.3
+10.9
+20.7
Percentage (%)
+28.7
+41.4
+125
Soaring EAT after reversing the provision: Weakening real estate market
has caused the slump of construction steel sector since 2009. Furthermore,
the continuous downtrend of material price of steel has dragged the selling
price of HPG’s products down by 10% in 9M13. The consumption, ignited by
the lower selling price, recorded an impressive growth of 14% YoY and
boosted HPG’s net revenue up to VND 12,474 bln (+1.5% YoY). In contrast
with the mild growth in revenue, HPG’s gross profit surged to VND 2,184 bln
or 23.5% YoY thanks to the benefit from lower COGS. The reducing interest
expense, which decreased 44% in the first nine months due to the declining
streak of interest rate, also joined forces to enhance the company’s earnings
performance. Additionally, HPG has reversed VND 164 bln provision related
to a dispute between Hanoi ACB Investment Company and HPG’s subsidiary
– Hoa Phat steel company. Thus, SG&A expenses plummeted 35% and
propelled the EAT up to VND 1,520 bln (+12.2% YoY), a level which
surpassed 26.7% annual target.
Outperform the industry: According to the Vietnam Steel Association (VSA),
the consumption of steel industry grew only 2.5% YoY in 9M13 due to a weak
demand and fierce competition with cheap steel imported from China. In
contrast to the gloomy business situation, HPG reported a 3.2 times higher
growth rate in consumption than industrial average and stand firmly as the
most profitable company in Vietnam steel industry. Moreover, its largest
project, steel industrial complex in Hai Duong, was officially completed in early
October and expected to give HPG a cost-saving advantage over its domestic
rivals. This new fully-integrated blast furnace production line will bring down
HPG’s steel price to an attractive level to compete with that of imported steel
from China. By running 80% of designed capacity, which equivalent to
100,000 tons output, the company’s market shares is expected to increase
from 14% to 20% by the end of this year.
Positive outlook in 2013: FY13 will be the critical turning point for HPG. Its
net revenue and profit growth has bounced back to positive after a slight dip
last year. We forecasted that HPG’s FY13 net sales will rally to VND 17,980
bln, with an increase of 5% YoY. The downtrend of material price will reduce
COGS and improve gross profit margin to 18% from 14.8% last year. Cost
from financial activities also reduce 50% YoY to VND 208 bln thanks to the
contribution from a 43% YoY decline in interest expense and 74% robust
growth in interest income due to the incessant cash inflow. Estimated EAT,
therefore, will be at VND 2,097 bln (+104% YoY) and surpass 75% of the
annual target.
Overweight recommendation with a target price of 44,300 VND: We
evaluated HPG price at 44,300 VND by applying P/E (60% weight, expected
P/E of 9.0x multiplied 2013 EPS forecast) and P/B (40% weight, expected P/B
of 1.3x with figure of 2013 book value) evaluation method. In consideration of
HPG short-term prospect and its current stock price level, we recommend
OVERWEIGHT for HPG.
(VND bln)
www.phs.vn
Net Revenue
% gross margin
% OP margin
EBT
Net profit
% growth YoY
EPS (TTM)
BVPS
9M12
9M13
Co’s
plan
18,500
2013E
12,656
12,474
13.97%
17.51%
18%
7.93%
14.24%
14.94%
988
1,770
2,467
1,200
17,980
850
1,520
6.71%
78.94%
103.5%
2,097
2,793
3,913
4,917
23,751
21,729
22,689
P/E
13.14
9.38
9.5
P/B
1.55
1.69
1.8
Source: PHS, HPG
This report is for reference only and investors should be responsible for their own investment decisions.
Phu Hung Securities Corporation
Company description
Hoa Phat Group (HPG) is one of the largest industrial manufacturer in Vietnam. Their core business Steel and related products such as coking coal, iron ore, etc. - accounted for over 80% of annual
revenue. Hoa Phat Furniture is also a reputable brand with the largest market share in office furniture
segment.
Company history
 Starting with a trading company specializing in construction machines since 8/1992, Hoa Phat
steadily extended their business to the field of Furniture (1995), Steel Pipe (1996), Steel (2000),
Refrigeration (2001) and Real Estate (2001).
 In 2007, Hoa Phat reorganised under the group structure with Hoa Phat Group JSC as the holding
company and its subsidiaries.
 15/11/2007, Hoa Phat was officially listed in the Hochiminh Stock Exchange with the ticker of “HPG”.
Capital increase process (VND bln)
Source: HPG
This report is for reference only and investors should be responsible for their own investment decisions.
Phu Hung Securities Corporation
Financial ratio (VND bln)
Incomestatement
2010
2011
2012
Netsales
14,267
17,852
16,827
17,980
Growthrate
2011
2012
Costofgoodssold
11,808
14,979
14,342
14,744
Revenuegrowthrate
-2.9%
75.6%
25.1%
6.9%
2,459
2,873
2,485
3,236
Grossprofitgrowthrate
57.0%
24.4%
16.8%
30.2%
SG&Aexpense
454
619
861
550
Netprofitgrowthrate
15.7%
9.5%
6.9%
11.5%
Financialincome
205
329
165
286
Totalassetgrowthrate
81.6%
45.5%
17.6%
4.2%
Financialexpense
694
1,070
585
494
Equitygrowthrate
18.5%
32.6%
15.9%
17.6%
Interestexpense
413
766
527
301
Profitabilityratios
Operatingprofit
2,005
2,254
1,624
2,686
Grossprofitmargin
24.3%
17.2%
16.1%
18.0%
Profitbeforetax
1,564
1,489
1,218
2,467
EBTmargin
18.6%
11.0%
8.3%
13.7%
Profitaftertax
1,349
1,236
994
2,060
Netprofitmargin
15.7%
9.5%
6.9%
11.5%
BalanceSheet
2010
2011
2012
2013E
ROA
16.0%
10.7%
7.6%
10.6%
14,904
17,525
19,016
19,805
ROE
28.6%
24.0%
17.9%
23.4%
Currentassets
7,866
9,486
10,221
9,718
Cashandequivalentcash
1,047
1,064
1,294
998
15.7%
9.5%
6.9%
11.5%
Receivables
1,833
1,897
1,646
1,666
Assetturnover(2)
1.02
1.13
1.10
0.96
Inventories
4,541
6,347
6,822
6,602
Equitymultiplier(3)
1.79
2.24
2.35
2.21
Long-termassets
7,038
8,039
8,795
10,087
ROE=(1)x(2)x(3)
28.6%
24.0%
17.9%
24.4%
449
449
449
449
Fixedassets
4,604
5,920
7,007
8,077
39.09
46.16
38.28
33.83
Resources
14,904
17,525
19,016
19,805
Inventoryoutstandingdays
151.80
140.36
154.66
163.45
Liabilities
8,166
9,561
10,438
9,782
Payableoutstandingdays
23.56
23.76
20.48
30.65
Short-termloans
4,022
4,555
4,850
4,179
Assetturnover
1.02
1.13
1.10
0.96
898
942
1,521
1,279
Long-termassetturnover
2.65
3.10
3.02
2.23
Long-termloans
1,545
1,869
1,456
1,846
Fixassetturnover
0.38
0.32
0.33
0.45
Equities
6,398
7,414
8,085
9,508
Liquidityratios
Charteredcapital
3,178
3,178
4,191
4,191
Currentratio
1.17
1.28
1.43
1.48
Capitalsurplus
2,258
2,258
2,207
2,221
Quickratio
0.61
0.54
0.47
0.47
-
-
-
-
Cashratio
0.32
0.17
0.16
0.15
757
1,540
1,393
2,808
2010
2011
2012
2013E
Totaldebt/TotalEquity
1.07
1.28
1.29
1.03
Netoperatingcashflow
398
304
2,269
2,755
Totaldebt/TotalAsset
0.51
0.55
0.55
0.49
Netinvestingcashflow
(1,421)
(937)
(1,660)
(1,964)
Totalasset/TotalEquity
2.12
2.33
2.36
2.08
Netfinancingcashflow
586
649
(380)
(1,106)
Indexpershare
Netcashflows
(437)
16
230
(314)
PE
5.67
8.65
9.31
15.47
Cashatthebeginning
1,480
1,047
1,064
1,294
PBV
1.49
1.82
1.55
1.90
Cashattheend
1,047
1,064
1,294
998
PS
0.89
0.82
0.64
0.91
EPS
6,477
4,245
3,942
2,372
Cashearning/share
7,612
5,374
5,670
3,795
24,572
20,129
23,640
19,294
Grossprofit
Totalassets
Long-termreceivables
Payables
Developmentfund
Retainedprofit
Cashflow
2013E
Financialratio
2010
2013E
DuPontAnalysis
Netprofitmargin(1)
Managementratios
Receivableoutstandingdays
CapitalStructure
Bookvalue
Source:PHSestimation
This report is for reference only and investors should be responsible for their own investment decisions.
Phu Hung Securities Corporation
Analyst Certification
Each research analyst(s), strategist(s) or research associate(s) responsible for the preparation and content of all or any identified portion of this research
report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to each issuer or security that the
research analyst, strategist or research associate covers in this research report, all of the views expressed by that research analyst, strategist or research
associate in this research report accurately reflect their personal views about those issuer(s) or securities. Each research analyst(s), strategist(s) or
research associate(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or
view(s) expressed by that research analyst, strategist or research associate in this research report.
Ratings Definition
Overweight (OW) = Expected to outperform the local market by >10%
Neutral (N) = Expected to in line with the local market by +10%~ -10%
Underweight (UW) = Expected to underperform the local market by >10%.
Not Rated (NR) = The stock is not rated in Phu Hung’s coverage universe or not listed yet.
Performance is defined as 12-month total return (including dividends).
Disclaimer
This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. It
is not an offer to sell or solicitation of an offer to buy any securities. Phu Hung Securities and its affiliates and their officers and employees may or may not
have a position in or with respect to the securities mentioned herein. Phu Hung Securities (or one of its affiliates) may from time to time perform
investment banking or other services or solicit investment banking or other business for any company mentioned in this report. All opinions and estimates
included in this report constitute our judgment as of this date and are subject to change without notice.
Phu Hung Securities Corporation (PHS)
5 Floor, Lawrence S. Ting Building
801 Nguyen Van Linh., District 7
HoChiMinh City, Viet nam
Phone: (84-8) 5 413 5479 | Fax: (84-8) 5 413 5472
Website: www.phs.vn | E-mail: info@phs.vn
This report is for reference only and investors should be responsible for their own investment decisions.