HPG – Steel price rally fueled strong 4Q20 earnings growth – Earnings Flash

• HPG’s 4Q20 net profit (NP) surged 141.1% yoy, driven by 198.1% yoy earnings growth of steel segment and 4-fold yoy earnings rise of agriculture segment.
• Reiterate Add with unchanged TP of VND47,300.

4Q20 net profit has surprised us

• Hoa Phat Group (HPG) posted strong 4Q20 results, with revenue increasing 43.4% yoy to VND25,778bn and NP increasing 141.1% yoy to VND4,638bn.
• 4Q20 steel segment revenue surged 53.9% yoy thanks to 1) construction steel and billet combined sales volume grew by 27.1% yoy; 2) the average selling price of construction steel jumped to VND12,500/kg (+12.3% yoy and +16.8% qoq); and 3) Hot Rolled Coin (HRC) products started to contribute to 20.5% of HPG’s sales volume in 4Q20.
• In 4Q20, gross margin surged by 8.5% pts yoy, mainly due to the increase in the utilisation rate of all furnaces which reduced fixed production costs per steel unit and the new contribution of HRC products with higher margin.
• Accumulated FY20, HPG’s revenue and NP reached VND90,119bn (+41.6% yoy) and VND13,439bn (+78.5% yoy), respectively, and fulfilled 101.2%/106.1% of our full year forecasts.

HPG’s crude steel production capacity was lifted to 8 million per annum

• The fourth and also the last blast furnace of Dung Quat Steel Complex was successfully inaugurated in early Jan 21, lifting crude steel production capacity to c.8m tonnes p.a from 6.6m tonnes p.a. We estimate HPG’s furnaces to run at full utilisation rate after just 1-2 months. HRC production volume is expected to record 2.4m tonnes in 2021F (+246.2% yoy).
• In FY21F, HPG expects to sell 2.7m tonnes of HRC (+364.3% yoy) and 5m tonnes of long steel (-2.6% yoy). The company’s target is 19.7% higher than our forecast of total HRC and long steel sales volume this year.

Reiterate ADD with TP of VND47,300

• Our valuation is based on an equal weighting of: 1) a forward P/E of 10.0x on FY21F EPS, and 2) a DCF valuation over a 10-year projection period.
• Downside risk: slower-than-expected steel demand growth. Re-rating catalyst: lower-than-expected iron ore price.

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