HPG – The domestic market to drive growth in 2024
- In 3Q2023, HPG recorded revenue of VND 28.5tn (USD 1.2bn, -16%YoY, -3%QoQ), with the recovery of construction steel volume (with 3Q volume of 919 thousand tons, +17%QoQ); supported by demand from public investment projects, when major projects (ring road and expressway systems) have handed over 70% of the land and moved into the construction phase. The 3Q gross profit margin (GPM) continued to improve to 12.6%, and gross profit reached VND 3,595bn (USD 148mn, +13%QoQ, +259% YoY), when the imported material (coking coal and iron ore) was at low-level.
- In 4Q23, we expect HPG's construction steel volume to reach 1.15 million tons (+25%QoQ), when public investment projects increase disbursement in the 4Q. Thereby, revenue can reach VND 33.3 tn (USD 1.4bn, +17%QoQ, +29%YoY); gross profit to reach VND 3,240 bn (USD 133mn, -10%QoQ), with GPM of 9.7% (impacted by the surge of raw material prices). In term of profit, NPAT can reach VND 1,868 bn (USD 76.9mn, -7%QoQ, continuing to improve compared to net loss in the 4Q22).
- For 2024, we expect HPG's business results to record significant growth in domestic market, supported by: 1/The real estate projects will promote sales in 2024, along with the construction phase which increases demand for materials; 2/ Major public investment projects will accelerate the construction process in the period 2024-2025. Thereby, we expect HPG's revenue in 2024 to reach VND 145.1 tn (USD 6bn, +23%YoY) and gross profit of VND 18.3 tn (USD 753mn, +60%YoY). In term of the bottom line, we estimate HPG’s 2024 net profit of VND 11tn (USD 453mn, +94%YoY). The corresponding EPS in 2024 will be VND 1,782.
- We use two methods (FCFF and PB) to evaluate the stock; our fair value comes at VND 29,100 per share, implying a total return of +4% as of the closing price on December 29th, 2023, equivalent to a NEUTRAL recommendation for Hoa Phat Group Jsc. However, with the prospect of long-term recovery, investors can accumulate shares during the correction sessions
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