HPG Update – BUY

HOA PHAT GROUP JSC (HPG VN)

HPG’s 3Q2025 and 9M2025 results sustained strong growth, broadly in line with ACBS forecasts. The operation of Dung Quat 2 plant in 1Q2025 and 3Q2025 is expected to be a key earnings catalyst from 2025. We roll forward our valuation to YE2026 with a target price of VND35,700/share and reiterate our BUY rating, offering a total expected return of 31.7%.

Solid 9M2025 performance: In 9M2025, HPG posted revenue of VND111,031 bn (+5% YoY) and NPATMI of VND11,626 bn (+26% YoY), fulfilling 65% and 78% of its full-year guidance and equivalent to 65% and 71% of our forecasts, respectively. Crude steel output reached 7.9 mn tons (+23% YoY), while sales of finished steel totaled 7.4 mn tons (+22% YoY), with construction steel and HRC accounting for more than 94% of total volume. The key growth driver was HRC, with 9M2025 output rising sharply to 3.4 mn tons (+51% YoY), supported by capacity expansion and favorable anti-dumping tariff protection. Outlook for 4Q2025 and 2026 remains positive, underpinned by accelerating public investment disbursement and an ongoing recovery of the real estate market.

Margin expansion on lower input costs. In 9M2025, average selling price for major steel products hovered around VND13,000/kg, broadly unchanged YoY, reflecting persistent competitive pressure from Chinese steel supply. The upside in margin came from a sharper decline in input costs compared with selling prices, with iron ore down 10% YoY, coking coal down 27% YoY and scrap steel down 11% YoY. This favorable cost environment lifted the gross margin to 16.5%, up from 13.5% in 9M2024. Looking into 2026, raw material prices are expected to ease slightly, providing a supportive backdrop for maintaining stable gross margins.

Dung Quat 2: core growth driver. HPG commissioned Blast Furnace No.2 in September 2025. With DQ2 estimated to operate at 50% utilization in 2025 and 70–80% from 2026 onward, crude steel production for 2025 is projected to reach approximately 10.4 mn tons (+20% YoY). Upon full completion, HRC capacity will double to 8.6 mn tons per year. Furthermore, after the project adjustments, DQ2’s total capacity has been upgraded to 6.1 mn tons, including 5.6 mn tons of HRC (starting 2026) and 0.5 mn tons of high-quality wire rod (starting 2028), allowing HPG to diversify its product mix and move up the value chain. Given Vietnam’s persistent HRC supply deficit—currently only ~50% self-sufficient—and the ongoing effectiveness of trade defense measures against Chinese steel, we expect DQ2 to remain HPG’s primary growth engine over the coming years.