HPG - Maintaining long-term growth potential
• In Q2 2024, HPG reported revenue of VND 39,600 billion (USD 1.6bn, +34% YoY, +28% QoQ). Construction steel sales volume continued to improve due to demand from public investment projects and real estate developments. However, hot-rolled coil (HRC) sales volume saw a slight decline compared to the previous quarter due to Europe's imposition of HRC import quotas. The gross profit margin in Q2 remained at 13.3%, with gross profit reaching VND 5,247 billion (USD 210mn, +26% QoQ, +64% YoY), supported by stable raw material prices and selling prices. As a result, HPG reached VND 3,320bn profit after tax (USD 133mn) that marked a strong growth of 129% compared to the same period last year.• In 2H2024, the domestic market is expected to continue its recovery momentum that supports the company's sales volume. With risks arising from the export market (mainly for HRC products), HPG may proactively shift orders to meet the demand of local coated steel companies. Net profit in 2H2024 could reach VND 5,800 billion (USD 232mn, +16% YoY, -6% HoH). For 2024, we maintain our forecast for HPG's net profit at VND 12,000 billion (USD 480mn, +77% YoY), corresponding to an EPS of VND 1,775.
• The construction progress of the Dung Quat 02 project is meeting expectations that allows the plant to begin producing commercial products and generating revenue in Q1 2025. We maintain our expectation that the plant can operate at a relatively high efficiency in 2025 (80% for phase 01, equivalent to 2.2 million tons), with substantial support from the domestic market, especially as the Ministry of Industry and Trade takes measures to protect the domestic steel industry.
• By using a combination of the FCFE and PB methods, the fair value of HPG stock is estimated at VND 34,000 per share that corresponds to a total expected return of +33% (based on the closing price as of August 29, 2024). HPG leads industry position and has strategic investment plans to capitalize on the recovery cycle, as it remains our top pick in the steel sector for the 2024-2025 period.
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