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HPG - The Steel Titan Stirs

We have made an initial valuation for HPG stock. In our conservative view, the current share price does not fully reflect the long-term growth prospects and business position. We estimate the fair value at VND 33,800, equivalent to a projected P/B of 1.6x in 2025.
• Vietnam's largest steel manufacturer:
o Scale advantage: HPG is one of the pioneering enterprises in Vietnam to invest in steel production plants (using BOF technology). This enables HPG to promptly meet large orders from construction contractors at competitive prices, capturing market share from domestic producers from 2016 to the present.
o Strategic investment timing: The commissioning of HPG’s industrial complexes coincided with the steel industry’s recovery cycle, allowing the company to boost sales and operate at over 80% capacity in the first two years.
• Dung Quat Complex – Timely and Strategic Investment:
o From 2025, the company is expected to commence operation of the Dung Quat 2 steel complex (5.6 million tons/year, primarily producing hot-rolled coil – HRC). Leveraging by: 1/ HPG’s leading position in the industry, 2/ the imposition of anti-dumping duties (AD) on HRC imported from China, and 3/ long-term advantages in export markets due to the trend of reducing carbon emissions, we expect the production output of DQ02 from 2025- 2028 to achieve a CAGR of 42%.
o The DQ02 plant has made significant strides in product scale and manufacturing technology, not only to optimize production costs (maintaining short-term competitive advantages) but also to reduce carbon emissions in the production process (establishing long-term competitive advantages).
Risks
• HPG operates in a manufacturing industry that is highly sensitive to input material prices (iron ore, coking coal,…), negative fluctuations in raw material prices will have a significant impact on the company's profit margin and business results.
• Operational risks (due to increased production scale) if the steel market faces short-term difficulties – driven by the cyclical nature of the industry and greater-than-expected fluctuations in steel prices.