HPG_BUY_TP 61,700_Upsize 27_SOLID FUTURE_BSC Company Update

Valuation

§  BSC maintained its recommendation to BUY HPG shares but revised down its one-year target price to VND42,100 per share, equivalent upside 27% of 07/06/2022 price.

§  We use two methods to value PE and EV/EBITDA, adjusting the target levels to P/E = 7.0x and EV/EBITDA = 5.5x from the previous report, reflecting the market's severe discounting in the face of inflation risks and declining demand.

Forecasting business results

§  We adjusted HPG's Net revenue and NPAT projections for 2022 to VND171,798 billion (+15% YoY) and VND27,576 billion (-20% YoY), respectively, EPS FW = VND 6,154/CP.

§  We maintained our forecast (i) Total steel consumption of all kinds increased by 8.7% yoy, but adjusted the assumption of steel prices and raw material prices based on actual fluctuations in 5M2022 as follows: (ii) Long steel price +10% yoy; (iii) Flat steel price +5% yoy; (iv) Iron ore price -25% yoy and Coal price +100% yoy.

Investment thesis

§  The long-term consumption forecast is positive, due to the benefits of big and closed production scales in lowering costs; and escalating demand in the market.

§  Low valuation compared to business position and long-term potential.

Risk    

§  Consumption demand decreased;

§  Fluctuations in steel prices and raw material prices.

Business updates

§  In Q1/2022, HPG's net revenue reached VND44,058 billion (+47% yoy), and NPAT reached VND8.206 billion (+17% yoy). The steel section continues to contribute significantly to this quarter's business achievements, with VND42,381 billion (+47% yoy).

§  Steel consumption in Q1/2022 +20% yoy, reaching 2.13 million tons, of which the main contribution came from finished construction steel with 1.34 million tons (+57% yoy) and HRC 466 thousand tons (-30% yoy).