SECTOR UPDATE
05 June 2015
CONSTRUCTION MATERIALS 1Q15 UPDATE
SPECTACULAR TOP LINE GROWTH
Table of Contents
1.
Sector Update: Both steel and cement demand is growing strongly YTD .....................................2
2.
Company 1Q15 Update ..........................................................................................................................4
2.1. Hoa Sen Group (HSG: HOSE) .........................................................................................................4
2.2. Hoa Phat Group (HPG: HOSE) ........................................................................................................7
2.3. Ha Tien 1 Cement JSC (HT1: HOSE) ........................................................................................... 10
2.4. Vicem Bim Son JSC (BCC: HNX) ................................................................................................. 12
CONTACT INFORMATION ............................................................................................................................ 14
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1. Sector Update:
Both steel and cement demand is
growing strongly YTD
According to statistics from Vietnam Steel Association (VSA), construction steel, steel
sheet and steel pipe sales volume advanced by 14.6%, 19.6%, and 47.7% YoY
respectively in 2014. In 1Q15, the numbers were 10.5%, 30.1%, and 22.2% YoY
respectively.
1,400
1,200
2011
4,000
3M12
1,000
3M13
2012
1,000
2014
3M14
600
400
200
147
176
230
281
2,000
2013
633
650
780
1,153
967
1,103
1,535
1,836
3,000
800
236
322
333
433
5,000
4,796
4,475
4,569
5,237
6,000
1,145
1,108
1,170
1,294
1Q sales volume of steel industry (1,000
tons)
2011-2014 sales volume of steel industry
(1,000 tons)
3M15
0
0
Construction
steel
Steel sheet
Steel pipe
Construction
steel
Steel sheet
Steel pipe
In 1Q15, domestic cement sales volume reached 10,381,421 tons (identical to the
previous year), and exported cement and clinker reached 3,857,602 tons (- 11%
YoY). 2015’s Tet festival was longer than that in 2014 which was mainly contributed
to the flat in cement sales volume in 1Q15. In April 2015, domestic cement sales
volume reached 5,452,476 tons (+ 13% YoY and 28% MoM). In addition, total
production volume of cement industry in May 2015 is estimated at 6.3mn tons
(+15.3% YoY) according to GSO.
As noted in our previous reports, growth in steel & cement demand was prompted by
the recovery of the economy. 2014 GDP growth reached 5.98%, compared with
5.42% in 2013 and 5.25% in 2012. Of which, growth of the construction industry
reached 7.07% in 2014, compared with 5.83% in 2013 and 2.09% in 2012. 1Q15
GDP growth reached 6.03%, compared with 4.96% in 1Q14. Of which, growth of the
construction industry reached 4.4%, compared with 3.4% in 1Q14. With the recovery
of the real estate market and growing investments in infrastructure, steel & cement
consumption is expected to maintain double-digit growth in 2015.
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2
At present, growing demand is crucial for profitability of steel companies
because growing demand will remedy sluggish steel price.
Steel price has
recovered since the beginning of April 2015. Iron ore price hit the bottom of USD
47/ton on 3 April 2015. Ever since, price has gradually increased to over USD 60/ton
at present. We believe that steel price might stabilized around this level. A survey by
Reuters in May 2015 revealed that average iron ore price in 2015 would reach USD
56/ton, not far below from current price of USD 60/ton.
Steel material price
700
600
(USD/ton)
500
400
300
Hot-rolled coil
Steel billet
Iron ore
200
100
0
Source: Bloomberg
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3
2. Company 1Q15 Update

Hoa Sen Group (HSG: HOSE), BUY, 1Y TP VND 47,200

Hoa Phat Group (HPG: HOSE), BUY, 1Y TP VND 29,500

Ha Tien 1 Cement JSC (HT1: HOSE), BUY, 1Y TP VND 25,000

Vicem Bim Son JSC (BCC: HNX), BUY, 1Y TP VND 22,000
2.1.
Hoa Sen Group (HSG: HOSE)
2Q15 business results were better than expected. Net revenue advanced by
30.3% YoY, reaching VND 4,355 bn. Net income advanced by 70.1% YoY, reaching
VND 116 bn. Despite the 2-week New Year holidays, revenue and profit only
declined by 1.3% and 7.6% QoQ respectively.
HSG has been able to maintain encouraging profit in four consecutive quarters. Since
3Q14, quarterly net profit has been stable, ranging from VND 112 bn to VND 129 bn
(HSG targets to earn net profit of VND 450 bn in 2015), despite a sharp decline in
hot-rolled coil (HRC) price. Since April 2014, HRC price has declined by roughly
30%, from ~USD 540/ton to ~USD 380/ton.
We believe that the encouraging business results were prompted by three major
factors: i) high sales volume growth, which was a result of both strong demand and
appropriate business strategy; ii) better inventory management (did not speculate in
raw materials, kept goods in inventory below 10 weeks, and quickly disposed of
goods during price downtrend); and iii) the two new cold-rolling lines helped to
generate better profit margin, as we mentioned in our earlier reports.
1H15 saw encouraging growth in sales volume, which reached 483,714 tons, a
34.9% YoY growth. Of which, domestic sales volume reached 253,227 tons, a 32.5%
YoY growth, and export sales volume reached 230,487 tons, a 37.6% YoY growth.
HSG has strengthened its position as a leading coated steel sheet manufacturer in
Vietnam. According to statistics from Vietnam Steel Association (VSA), HSG’s steel
sheet market share increased from 37.1% in 2014 to 43.6% in 1Q15. There is a large
gap between HSG and the 2
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nd
largest steel sheet producer, Nam Kim Steel JSC
4
(NKG: HOSE), which held 12.7% market share in 2014 and 13.3% market share in
1Q15.
In addition to strong distribution network (160 branches throughout Vietnam at
present, compared with 115 by the end of FY2013), we believe that HSG has
established an effective marketing and PR strategy. In an attempt to combat against
counterfeit steel sheets on the market, HSG has conducted a campaign to educate
consumers on counterfeit and inferior products. It launched advertisements on the
mass media, warning consumers about such products, and providing a telephone
hotline so that consumers can call anytime, asking about steel price and how to
purchase genuine steel sheets. And of course, it implies that if consumers go to HSG
stores, they will not be worried about product quality. We believe that the PR
campaign has been effective, prompting HSG’s market share to advance.
Regarding steel pipe market share, HSG maintained the 2
nd
position with 16.7%
market share in 1Q15 and 17.8% market share in 2014, not far behind from Hoa Phat
Group (HPG: HOSE) with 22% in 1Q15 and 19.8% in 2014. It should be noted that
HSG has made a significant progress in developing its steel pipe business as in
2013, it held only 14% market share.
Investment opinion
We expect HSG’s sales volume to reach 970,120 tons in 2015, a 19.7% YoY
increase. In 2016, due to concerns about trade disputes with Indonesia and possibly
similar cases with Thailand and Malaysia, we expect lower sales volume growth.
Therefore, we forecast 2016 sales volume may reach 1,097,532 tons, a 13.1% YoY
growth.
With encouraging 1H15 business results, we expect 2015 revenue to reach VND
17,027 bn, a 13.6% YoY growth, and net profit to reach VND 490 bn, a 19.3% YoY
growth, translating to an EPS of VND 4,728.
For 2016, we expect revenue to increase by 14.5% YoY, reaching VND 19,501 bn,
and net profit to advance by 17.2% YoY, reaching VND 574 bn, translating an EPS of
VND 5,541.
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Forecast of income statement
(VND bn)
Net sales
Net sales growth
Sales volume (tons)
Sales volume growth
Gross profit
Gross profit margin
Financial income
Financial expense
SG&A
Net other income
Profit before tax
Net income
Net income growth
Net income margin
EPS (VND)
2013
11,763
16.6%
601,671
32.7%
1,711
14.5%
40
-247
-842
20
682
584
58.7%
5.0%
5,525
2014
14,990
27.4%
810,226
34.7%
1,750
11.7%
30
-256
-1,066
65
523
410
-29.8%
2.7%
3,967
2015F
17,027
13.6%
970,120
19.7%
2,080
12.2%
40
-317
-1,209
34
628
490
19.3%
2.9%
4,728
2016F
19,501
14.5%
1,097,532
13.1%
2,378
12.2%
45
-361
-1,385
39
717
574
17.2%
2.9%
5,541
Source: HPG, SSI analysis
BUY Recommendation, 1Y Target price VND 47,200/share
According to our forecast, HSG is trading at 7.8x 2015 EPS and 6.7x 2016 EPS,
which we think is undervalued. Our estimate reveals that 1Y forward EPS of HSG will
reach VND 5,245, after deduction for the benefit and welfare fund in accordance with
Circular 200/2014/TT-BCT regarding Corporate Accounting Policy, taking effect from
1 Jan 2015.
We apply a 9x target P/E for HSG. We think it is conservative enough considering the
possible risk from trade disputes with importing countries and steel price decline.
With 9x target P/E, our 1Y target for HSG is VND 47,200/share, a 29% increase over
current price of VND 36,600/share. Our recommendation is to BUY HSG.
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2.2.
Hoa Phat Group (HPG: HOSE)
1Q15 business results were better than expected, given the fact that steel selling
price has significantly declined (~14% YoY and ~10% YTD decline). In terms of
revenue, we saw an encouraging growth in steel business (high steel sales volume
growth), while real estate revenue subsided because a large amount of revenue from
Mandarin Garden Apartment project was recorded last year. With such factors,
HPG’s 1Q15 revenue reached VND 5,838 bn, a 10.4% YoY and 11.3% QoQ decline.
In terms of profit, with insignificant profit recognized from Mandarin Garden project,
profit from real estate business tumbled YoY. Profit from steel business also declined
YoY, however the declining rate did not prompt disappointment. 1Q15 net profit
reached VND 650 bn, a 28.5% YoY decline, but a 31.2% QoQ increase. In the
previous quarter (4Q14), profit dropped because HPG had to book a VND 180-bn
provision for inventory as iron ore price significantly declined (30% decline in 2H14,
from USD 96/ton to USD 67/ton). With current iron ore price at around USD 60/ton,
we hope that HPG will not have to book further provision, at least in 2Q15.
Steel business
Steel sales volume attained high growth in 1Q15. Despite a ~14% YoY decline in
selling price, revenue from steel business reached VND 4,879 bn, a 12.3% YoY
increase. Construction steel sales volume reached 296,343 tons, a 49.3% YoY
growth. Steel pipe sales volume reached approximately 77,000 tons, a 44.5% YoY
growth. In 1Q14, HPG sold approximately 40,000 tons of steel billets. However, in
1Q15, all billets were produced into finished products, so there were no billet sales in
1Q15.
According to statistics from Vietnam Steel Association (VSA), HPG maintained the 1
st
position in both construction steel and steel pipe market share. HPG’s construction
steel market share advanced to 22.9% in 1Q15 from 19.1% in 2014. Steel pipe
market share advanced to 22% in 1Q15 from 19.8% in 2014.
Despite high growth in sales volume, the steel segment saw a decline in profit
because selling price decreased. Total net profit of the steel business reached VND
617 bn, a 12.1% YoY decline.
Investment opinion
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2015 Forecast
We forecast 2015 net revenue will reach VND 24,590 bn, a 3.7% YoY decline, and
net profit will reach VND 2,566 bn, a 21.1% YoY decline, based on the following
assumptions:

Revenue from steel business will reach VND 20,494 bn, a 3.5% YoY growth.
Construction steel sales volume will reach 1,237,342 tons, a 23.6% YoY growth.
Steel pipe sales volume will reach 375,000 tons, a 25% YoY growth. There will
be almost no billet sales in 2015, compared with ~100,000 tons in 2014. Average
selling price will decline 12% YoY.

HPG will record the remaining 15% revenue of Mandarin Garden Project in 2015
(~VND 682 bn in 2015 compared with ~VND 2,565 bn in 2014). The project will
generate a net profit of ~VND 120 bn in 2015, compared with ~VND 680 bn in
2014. If revenue from Mandarin Garden was excluded in both 2014 and
2015, HPG’s 2015 revenue would increase by 4.1% YoY, and net profit
would decline by 4.8% YoY.

2015 gross profit margin will decline to 16.9% compared with 20.3% in 2014 due
to: i) decline in steel selling price, which will prompt gross profit margin of the
steel business to decline from ~17.9% in 2014 to 15.7% in 2015; ii) tumbling
revenue from Mandarin Garden project, which generates significantly higher
profit margin than the group’s average.
Forecast of income statement
(VND bn)
Net sales
Net sales growth
Gross profit
Gross profit margin
Financial income
Financial expense
SG&A
Net other income
Profit before tax
Net income
Net income growth
EPS (VND)
2013
18,934
12.5%
3,284
17.3%
276
-528
-670
33
2,394
2,010
95.1%
2,666
2014
25,525
34.8%
5,187
20.3%
160
-564
-973
-40
3,770
3,250
61.7%
4,290
2015F
24,590
-3.7%
4,160
16.9%
190
-517
-910
-7
2,916
2,566
-21.1%
3,235
2016F
30,099
22.4%
4,662
15.5%
160
-482
-1,114
-9
3,217
2,734
6.6%
3,471
Source: HPG, SSI analysis
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2016 Forecast: In 2016, with Phase 3 of the Integrated Steel Complex commencing
operation, we expect HPG to sell 1,582,733 tons of construction steel, a 27.9% YoY
growth. We also assume that HPG will sell 140,000 tons of steel billets in 2016 due to
surplus production capacity, while billet sales will be minimal in 2015. Thanks to
increasing steel sales volume, we forecast 2016 revenue will reach VND 30,099 bn, a
22.4% YoY increase. Nevertheless, gross profit margin may decline to 15.5% in 2016
compared with 16.9% in 2015 due to higher depreciation expense. Net profit may
reach VND 2,734 bn, a 6.6% YoY growth.
1Y Target price VND 29,500/share
Our estimate reveals that 1Y forward EPS of HPG will reach VND 3,283, after
deducting for the benefit and welfare fund in accordance with Circular 200/2014/TTBCT regarding Corporate Accounting Policy, taking effect from 1 Jan 2015.
According to our forecast, HPG is trading at 7.7x 2015 EPS and 7.2x 2016 EPS,
which we think is slightly undervalued for a blue-chip stock. Since the beginning of
September 2014, HPG has declined by 34% due to investors’ concerns about steel
price and profit decline in 2015.
We apply a target P/E of 9x for HPG. With 9x target P/E, our 1Y target price for HPG
will reach VND 29,500/share. Our recommendation is to BUY the stock at the price
below VND 24,500/share. Although the stock is somewhat oversold, we remain
concerned about the uncertainty of steel price, possible risks from the Formosa
project, and negative earnings growth of HPG in 2015.
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2.3.
Ha Tien 1 Cement JSC (HT1: HOSE)
Impressive 1Q15’s earnings results in core business
In 1Q15, HT1 posted VND 1,600bn (+1.5% YoY) in revenue and VND 250bn in net
profit compared with VND 2bn in 1Q14. In 1Q15, total cement sales volume reached
approx. 1.1mn tons (+13% YoY) in which domestic sales growth stood at 11% YoY.
In 1Q15, total sales did not include any clinker sales resulting in the marginal
increase in revenue while cement sales volume increase by 13% YoY. HT1’s 1Q15
FX gain totaled approx. VND 183bn while the company incurred a loss of approx.
VND 110bn in 1Q14. If subtracting FX gain and loss in 1Q14 and 1Q15, HT1’s pretax
profit growth in 1Q15 would reach 22% YoY.
Gross profit margin stood at 22.2% in 1Q15 versus 21.6% in 1Q14 which was mainly
contributed by the increase in domestic cement sales volume with higher margin than
exported cement and clinker sales. Moreover, a decline of roughly 21% YoY in
interest expense also boosted the increase in pretax profit in 1Q15.
Speeding up the allocation of goodwill since 2014 which was derived from the IPO of
HT1 in 2007: – it should be noted that HT1 has allocated approx. VND 54bn of
goodwill in 2014 into operation costs compared with VND 15bn p.a in previous years
since 2010. In 1Q15, approx. VND 27bn was allocated which boosted the
administrative expense to increase by 50% YoY, and implies that the company will
completely allocate the remaining of approx. VND 107bn of goodwill in 2015.
Investment opinion
In 2015, HT1’s revenue and pretax profit are forecasted at VND 7,488bn (+ 11%
YoY), and VND 631bn (+ 60% YoY) respectively, translating to an EPS of VND
1,549. If subtracting the effects of FX gain/loss in 2014, HT1’s 2015 pretax profit
growth would reach 84% YoY (In 2014, the company gained approx. VND 264bn and
incurred a loss of approx. VND 211bn from FX, resulting a net gain of approx. VND
53bn from FX in 2014).
HT1’s FX loss from construction period was completely amortized by the end of
2014, therefore, in 2015 HT1’s will not incur amortization expense which is one of the
factors contributing to the significant improvement in HT1’s 2015 earnings forecast.
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10
In addition, the significant improvement in earnings have not taken into account FX
gain/loss, and based on the assumptions that:
(1) Binh Phuoc cement plant operates under normal conditions (its kiln tire was
crack in 2014 and forced to stop operation in 3 months).
(2) Cement sales volume growth is expected at 14% YoY thanks to increasing
demand deriving from housing demand and infrastructure investment.
(3) Clinker sales volume decreases 78% YoY.
(4) Average selling price increases 2% YoY.
(5) Electricity price increases 9.5% YoY.
(6) Approx. VND 108bn goodwill will be fully allocated in 2015 which will boost the
administrative expense in 2015 to approx. VND 227bn (+38% YoY).
At the price of VND 20,500/share, the stock is being traded at 2015PE and
EV/EBITDA of 13.9x and 7.71x respectively, which is higher than the overall market
PE and lower than its regional peers. HT1’s stock 1-year target price is derived from
an average of DCF, EV/EBITDA multiple, and PE multiple at VND 26,000/share, an
upside of
26% compared with the current price, equivalent to a BUY
recommendation.
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11
2.4.
Vicem Bim Son JSC (BCC: HNX)
1Q15 earnings
In 1Q15, BCC posted VND 893bn (- 9% YoY) in revenue and VND 163bn (+932%
YoY) in PBT. The decline in revenue was mainly stem from approx. 11% YoY decline
in cement sales volume. It should be noted that in 1Q15, BCC recorded approx. VND
112bn in FX gain. If subtracting the FX gain and loss in 1Q15 and 1Q14, BCC’s
1Q15 PBT would reach approx. VND 52bn, identical to the previous year.
In 1Q15, interest expense declined by 31% supporting BCC pretax profit in 1Q15. By
the end of 1Q15, BCC’s EUR debt totaled approx. 46.6mn versus 55.6mn by the end
of 2014.
Investment opinion
In April 2015, sales volume of BCC increased 12% YoY, and in May 2015 sale
volume increased by 6% YoY. In addition, according to GSO total production volume
of cement industry in May 2015 is estimated at 6.3mn tons (+15.3% YoY) implying an
increase in sales volume as inventory of cement industry is typically low.
The two significant expenses had been fully amortized by the end of 2014, including
FX loss during construction period of cement plant 3, and goodwill derived from the
IPO of BCC in 2005. These two expenses will not incurre in 2015 which will support
BCC’s 2015 earnings.
In 2015, we forecast that BCC’s revenue and pretax profit at VND 4,339bn (identical
to the previous year), and VND 329bn (+60% YoY) respectively, translating to an
EPS of VND 2,412. It is noted that the estimates do not include any FX gain/loss from
EUR outstanding debt. If subtracting FX gain and loss in 2014, BCC’s 2015 PBT from
core business would increase 40% YoY. The forecasts are based on the
assumptions that (1) cement sales volume will increase 8% YoY, and clinker sales
volume will decline 58% YoY, (2) 1.5% YoY increase in ASP, and (3) 5% decline in
interest expense, and electricity increase 9.5%.
At the price of VND 16,800/share, the stock is being traded at 2015PE of 6.9x which
is quite attractive given the potential expansion in profit margin and domestic cement
sales volume. We maintain our BUY recommendation for this stock with 1-year target
price of VND 22,000/share, an upside of 30% compared with the current price.
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12
Analyst Certification
The research analyst(s) on this report certifies that (1) the views expressed in this research report accurately
reflect his/her/our own personal views about the securities and/or the issuers and (2) no part of the research
analyst(s)’ compensation was, is, or will be directly or indirectly related to the specific recommendation or
views contained in this research report.
RATING
Within 12-month horizon, SSIResearch rates stocks as either BUY, HOLD or SELL determined by the stock’s
expected return relative to the market required rate of return, which is 16% (*). A BUY rating is given when the
security is expected to deliver absolute returns of 16% or greater. A SELL rating is given when the security is
expected to deliver returns below or equal to negative - 8%, while a HOLD rating implies returns between
negative - 8% and 16%.
Besides, SSIResearch also provides Short-term rating where stock price is expected to rise/reduce within
three months because of a stock catalyst or event. Short-term rating may be different from 12-month rating.
Industry Rating: We provide the analyst’ industry rating as follows:

Overweight: The analyst expects the performance of the industry over the next 6-12 months to be
attractive vs. the relevant broad market

Neutral: The analyst expects the performance of the industry over the next 6-12 months to be in line with
the relevant broad market

Underweight: The analyst expects the performance of the industry over the next 6-12 months with caution
vs. the relevant broad market.
*The market required rate of return is calculated based on 1-year Vietnam government bond yield and market risk premium derived from using
Relative Equity Market Standard Deviations method. Our rating bands are subject to changes at the time of any significant changes in the above
two constituents.
DISCLAIMER
The information, statements, forecasts and projections contained herein, including any expression of opinion,
are based upon sources believed to be reliable but their accuracy, completeness or correctness is not
guaranteed. Expressions of opinion herein were arrived at after due and careful consideration and they were
based upon the best information then known to us, and in our opinion are fair and reasonable in the
circumstances prevailing at the time; Expressions of opinion contained herein are subject to change without
notice; This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or
sell any securities; SSI and its affiliates and/or its officers, directors and employees may have positions and
may effect transactions in securities of companies mentioned herein and may also perform or seek to perform
investment banking services for these companies.
This document is for private circulation only and is not for publication in the press or elsewhere; SSI accepts no
liability whatsoever for any direct or consequential loss arising from any use of this document or its content;
The use of any information, statements forecasts and projections contained herein shall be at the sole
discretion and risk of the user.
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SAIGON SECURITIES
INC.
Member of the Ho Chi
Minh Stock Exchange,
Regulated
by the State Securities
Commission
HO CHI MINH CITY
HA NOI
72 Nguyen Hue Street,
District 1
Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn
1C Ngo Quyen Street
Ha Noi City
Tel:
(844) 3936 6321
Fax:
(844) 3936 6311
(848) 3824 2997 Email: info@ssi.c
CONTACT INFORMATION
Institutional Research & Investment Advisory
Minh Dinh
Kien Tran Nguyen
Research Manager
Analyst
Tel: (848) 3824 2897 ext. 2148
Tel: (844) 3936 6321 ext. 679
minhdd@ssi.com.vn
Kiennt1@ssi.com.vn
Phuong Hoang
Hung Pham
Giang Nguyen
Deputy Managing Director,
Associate Director
Associate Director
hungpl@ssi.com.vn
giangntt@ssi.com.vn
Head of Institutional Research &
Investment Advisory
phuonghv@ssi.com.vn
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SAIGON SECURITIES
INC.
Member of the Ho Chi
Minh Stock Exchange,
Regulated
by the State Securities
Commission
HO CHI MINH CITY
HA NOI
72 Nguyen Hue Street,
District 1
Ho Chi Minh City
Tel: (848) 3824 2897
Fax: (848) 3824 2997
Email: info@ssi.com.vn
1C Ngo Quyen Street
Ha Noi City
Tel:
(844) 3936 6321
Fax:
(844) 3936 6311
(848) 3824 2997 Email: info@ssi.c