HPG_BUY_TP 61,700_Upsize 23_BSC Company Update

 Valuation

• BSC recommends BUY HPG with 1-year target price of 61,700 VND/share, equivalent to the upside potential of 23% compared to the price on 03/03/2022 based on a combination of 2 valuation methods P/E = 8.0x and EV/ EBITDA = 6.5x.

• BSC forecasts that HPG's revenue and NPAT in 2022 will reach VND145,041 billion (-3.1% YoY) and VND36,202 billion (+4.8% YoY), EPS FW = 8,071 VND/share based on the following assumptions: (i) Total steel sales volume increases by 8.7% yoy, (ii) Adjusted steel price -10% yoy; (iii) Material prices fluctuate in the direction of Ore price -20% yoy and Coal price +10% yoy.

• We expect that in 2022, HPG's domestic steel consumption will be +9.5% yoy thanks to the policy of accelarating disbursement of public investment in infrastructure; offset export growth falling to +5% yoy due to competitive pressure.
• The closed production process helps HPG maintain the same gross profit margin of the steel segment as in 2021.
• Cheap valuation with PE forward 2022 at 6.2x.

• Steel selling price fell stronger than forecast;
• Material price fluctuations affect the profit margin of the steel segment.

• In 2021, HPG's revenue will reach VND149,680 billion (+66% yoy) and NPAT reached VND34,521 billion (+155% yoy), exceeding 91% of the plan in terms of profit in 2021. Steel segment continues to be the main contributor to business results in 2021, estimated revenue of steel segment is at VND138,471 billion, +81% yoy.
• Steel consumption volume in 2021 will grow by 52% yoy, reaching 8.8 million tons, of which the main contribution comes from finished construction steel with 3.9 million tons (+14% yoy) and HRC 2.6 million tons (x3 times yoy).