HPG’s AGM note

HPG held its AGM on May 24th 2022 with following highlights:

The company set 2022 targets at: 160,000 bil.VND  of revenue (+6.7% YoY) and net profit in a range of 25,000 to 30,000 bil.VND (-13% to -27.5% YoY). The planned net profit of HPG was inline with our  expectation for the company in our last report, as 2022 could be a hard year for HPG.

The chairman explained the expected reduction in net profit is partially due to the pessimism for the remainder of the year for the Chinese market as the long lockdowns in China could affect the export activity of the company, China is the main export market of Hoa Phat steel.

The company also plans for a 5% of par value cash dividend and 30% stock dividend for 2021 with the excecution date in quarter 2 or 3. Most of the cash would be retained in the company as the Dung Quat phase 2 needs a large amount of capital.

Hoa Phat almost reached it maximun capacity and can only increase the production for about 3% before finish the Dung Quat phase 2, the project is expected to run at early 2024.

The company also expects that the push in public investment can help the increase the consumption of construction materials in general and steel in specific.

The plans for the container factory are running at slower pace the expected, the first machine can only be set up after June 1st and trial production can come out  in early November. The container project can reach its maximum capacity in 2023, could be 2-3 months later than initial plan.

Regarding real estate investment: the company is not going to invest in new project as Hoa Phat hasn’t found any attractive opportunities yet. The chairman also stated that the company only invest in a real estate project while if it is very attractive, the company now still stick to its main activities in steel.

Analyst Comment: We think that shortterm conditions are not favorable for Hoa Phat, as the long lockdowns in China are having a negative effect on global steel prices. The Russia – Ukraine war has also pushed coal prices, which could increase input costs, therefore, reduce the gross margin for steel product. The company has almost reached its limit for capacity, which will hinder growth until the Dung Quat phase 2 comes online. However, we believe Hoa Phat has a high potential in the long term as the company has lowest production cost among Vietnamese steel companies thanks to the large scale, the Dung Quat phase 2 which runs in 2024 could add 5 millions tons of production to the company.