HPG – Rising tide – Update

• HPG targets 33.1% and 33.3% yoy growth for FY21F revenue and net profit, respectively, above our previous forecasts.
• We lift our FY21-23F EPS forecasts by 32.8-46.3% on the back of higher steel sales volume and selling price.
• Reiterate Add with a higher TP of VND65,400.

HPG aims 33% yoy FY21F earnings growth
According to management’s guidance, FY21F revenue and net profit are expected to reach VND120,000bn (+33.2% yoy) and VND18,000bn (+33.3% yoy), respectively, 10.6% above than our previous forecast. In our view, earnings target is relatively conservative amid robust sales volume and accelerating steel price in 1Q21.

FY21-23 earnings upgrade on higher sale volume and ASP assumptions
We revised up FY21-23F EPS by 32.8-46.3% on the back of 1) 13.3-18.8% increase in FY21-23F steel selling price assumption, 2) 16.4-20.0% upward revision in FY21-23F sale volume following robust HRC sale volume in the past few months. We observe that long steel prices have picked up 11.2% ytd while flat steel prices have surged 31.1% ytd. We also take into account the capacity expansion by 60% since 2025F which helps to lift HPG’s DCF valuation by 8.5%.We expect FY22-23F NP CAGR to decelerate to 5.7% from the high base FY19- 21F.

Steel price likely to peak in 2021
Stepped-up production curbs in the steelmaking hub of Tangshan to improve air quality and to respond to a Chinese government target of reducing crude steel output in 2021 have pushed steel prices to soar recently. However, downstream steel demand recovery and reduced supply could drive prices and margins higher in the short term – encouraging higher steel production due to the risk of loose implementation of steel production curbs. Thus, steel prices will decrease gradually in longer term, in our view.

Is HPG‘s valuation still attractive?
HPG’s share price has rallied 21.3% in past 1 month, outperforming the VNIndex benchmark of 6.2%, since investors are optimistic about the company‘s outlook and steel price. HPG is currently traded at 9.2x FY21 P/E, which is 18.7% discount to regional peer average. Valuation is still attractive, in our view, as HPG‘s return on capital is far above those of regional peers. As the largest steel producer in South East Asia and likely among the global top 30 largest producer by 2025, HPG deserves for a higher valuation.

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