NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAMS

GROUP ASSIGNMENT

SUBJECT: CORPORATE FINANCE

TOPIC: FINANCIAL STATEMENT ANALYSIS OF HOA PHAT

GROUP (HPG) FROM 2019 - 2023

GROUP : GROUP 8
CLASS : 64D CORPORATE FINANCE
LECTURER : LE DUC HOANG

HA NOI – 5/2024
 GROUP MEMBERS

NO NAME STUDENT ID
1 Lê Mậu Minh Đăng 11221202
2 Lê Tùng Dương 11221563
3 Lương Minh Hạnh 11222149
4 Nguyễn Phương Linh 11223631
5 Hoàng Đức Mạnh 11224115
6 Nguyễn Hoàng Ngân 11224563
7 Hoàng Lê Bảo Trân 11226322
HOA PHAT GROUP JSC (HOSE: HPG)
Date: 26/4/2024 Closing price: 28,400VND
Sector: Industry Materials Target price: 35,450VND
USD/VND: 25,345 Recommendation: BUY (24.82% Upside)

EXECUTIVE SUMMARY
Based on the viewpoint of an individual investor, we issue a BUY recommendation
Figure 1: HPG Overview
for HPG stock with a one-year target price of 35,450 VND/share representing an
24,82% Upside potential from current level of VND 28,400. Our recommendation
Market Capital (bn) 165,139.91
based on the below investment thesis:
Shares Outstanding (mn) 5,814 Dung Quat Super Project Phase 2 To Solidify No.1 Steel Producer Position In
Vietnam
52-Week High (VND) 31,150
The company dominates the construction steel and steel pipe market with 35%
52-Week Low (VND) 21,100 and 28% market share, respectively, thanks to large production capacity,
Beta . 1.09 competitive pricing strategy, superior product quality. The company plans to
complete the first blast furnace in December 2024 or Q1/2025 with a capacity of
Current Share Price (VND) 28,400
2.7-2.8 million tons/year through DQSC Project Phase 2 with 2 key drivers:
12 Month Target Price (VND) 35,450 Expansion to the Central and South of Vietnam & International markets with
P/E 17.84 Construction Steel and High sales from commercialized Hot Rolled Coil (HRC).
HRC – Strategic Product Portfolio Expansion To Bolster
BVPS 18,165
Future Growth With DQSCP2, HPG has been able to produce HRC for both internal
Source: Team consesus and external use in 2023 for almost companies in this sector. HPG and Formosa
Figure 2: Price History Rebased can only produce up to 8.2 million tons per annual (mpta), while demand was
Unit: VND
nearly 12 mn tons in 2023. The competitive pricing strategy will allow HPG’s HRC
45,000 to be entirely absorbed by the heavily undersupplied domestic market, especially
40,000
when HPG entirely operates its DQSCP2 with maximum capacity reach to 5.6 mpta
35,000
when the demand are exceeding its supply. Therefore, HRC can still bring a strong
30,000
growth revenue for their companies.
25,000 Waiting For The New Cycle Of The Steel Industry
20,000 Construction steel and iron ore prices in China have decreased by 16%/18%
15,000 respectively since the beginning of the year, reflecting weak demand in the
10,000
domestic market when new house prices and used house prices in 1Q2024
5,000
decreased by 2.3%. /5.4% over the same period, along with low transaction value.
We believe that this steel price adjustment rhythm is necessary because steel
2022 2023 2024
prices and input material prices are still anchored on a high base, in which the
history of price movements has had an adjustment rhythm to the low area of ​that
Source: Investing
Figure 3: HPG’s ownership structure (2023)
cycle before. when entering a new price increase period.
Input Materials Are Expected To Decrease Slightly
According to Fitch Ratings, we increase our commodity price assumptions for both
inputs (mainly iron ore and coking coal) and outputs due to an improving global
economic outlook driven by demand in the Southeast Asia gains, strong recovery
from the Turkish market and moderate growth in Europe, US and Brazil while
Chinese demand will soften slightly. This year, state sector investment capital is
expected to reach 657,000 billion VND with a disbursement target of 95%. This is a
great opportunity for Hoa Phat Steel, a group that has participated in many state
projects such as Hanoi-Hai Phong expressway projects, Noi Bai - Lao Cai
expressway, etc. Therefore, with estimated huge producst output can be
Source: :Company data produced with lower costs will helps HPG improve their business performance.

01
 Figure 4: HPG’s Revenue Breakdown 2023
BUSINESS OVERVIEW
Established in 1992, HPG started as a construction machine and equipment trading
company. Since then, it has expanded its business to trading and production in
different areas of steel, agriculture, real estate, and other industrial production with
11 subsidiaries. The company is also a steel exporter to 14 different countries. In
2019, the enterprise’s revenue is VND 63,658 billions (bn) with the 2015A 2019A
CAGR of 20.05% (Figure 4) and net profit after tax (NPAT) is VND 7,578.2 bn with the
CAGR of 18.4%.
Dominant Players In Diversified Segments
Source: Company Data

Figure 5: Raw material cost structure (2023)

8%

35.5%

Source: Company Data

42.2% 55.5%

Figure 6: Hoa Phat revenue and profit 2019 - 2023

Iron and Steel: (2023: 95% total revenue, 92% total NPAT) HPG’s principle activities in
the steel industry range from mining iron ore for internal use to trading various steel
products. HPG is the market leader in the Construction Steel and Steel Pipe with
respective market share of 40% and 27.5% and 5 manufacturing factories throughout
the country. Except for HPG Hung Yen with Electric Arc Furnace (EAF) technology, all
other HPG factories use Basic Oxygen Furnace (BOF) for steel production. HPG’s steel
products are mainly used in the construction, automotive, engineering & metal
goods and distributed via a nationwide network of 50 tier-1 agents.
Source: Company Data Agriculture: (2023: 5% total revenue, 3% total NPAT) HPG expanded to the
Figure 7: Construction Steel’s Market Shares Agriculture field in 2015 with a focus on the animal feed, hog raising, beef raising,
chicken eggs and hens raising . It has 2 main factories for cattle feeding and many
farms across the country. However, 2023 is still a difficult year for the agricultural
sector when the prices of output products (such as pigs, eggs, cows) are still at a low
average level.
Real Estate & Other Industrial Production: (2023: 1% total revenue, 5% total NPAT)
Focuses on the urban housing and industrial park (IP) development. The company
owns 2,429.5 ha of IPs for lease in Hung Yen and Ha Nam province with high
occupancy rates. There is strong growth in revenue and profit by 38% and 4%
respectively compared to 2022 thanks to the industrial park real estate segment
Source: VSA,VCI when an additional 23 hectares of land were handed over, bringing the Yen My II
Industrial Park project (Hung Yen) into operation.
Figure 8: Steel Pipe’s Market Shares
In terms of furniture and household appliances, revenue in 2023 will grow by 29%
thanks to diversifying products, distribution channels (including traditional and online
channels) and targeting exports.
CORPORATE STRATEGY
Leverage On HRC Production To Cement Market Leader Position
The ability to manufacture HRC allows HPG to fully self-supply the input for steel
pipes and galvanized steel, which will significantly enhance the profit margin in the
flat steel segments. This feature plays a key role in creating an upstream
integrated value chain for steel production (Appendix B6), further improving the
already superior gross margin in the domestic market. Moreover, HPG will also

Source: VSA,VCI
02
 Figure 9: Proportion of Export Revenue / sell 60% of its HRC to the heavily under-supplied domestic HRC market, which is
Total Revenue 2019-2023 expected to be entirely consumed thanks to its competitive pricing against the
imported HRC.
Enlarge International Footprint Through Diversified Export Markets
Thanks to the high-quality standards products, HPG has imprinted its presence
in the export markets of construction steel, steel pipe, steel sheets, and billets
(Figure 22). For future plans, HPG aims to gain more international purchases
with its competitive price compared to Chinese steel producers in construction
steel (Figure 23), which will be fueled by the strong production capacity from
DQSC and the low production cost. Moreover, as an attempt to reduce
dependency on any specific market, HPG also diversifies its export destinations
Source: Company Data

INDUSTRY OVERVIEW
Figure 10: Vietnam's infrastructure investment
forecast, 2025F-2040F
DEMAND OUTLOOK
Needed Capital Invested and Planned Capital
35 Real Estate and Government Spending To Bolster Demand For Construction
30 Steel
By 2025, with the targets to increase the infrastructure, the Vietnamese
government need about 22.2 billion USD capital sources for public investment,
25

20 with an average growth CAGR of about 4.3%, this figure will be 31.9 billion USD by
15
2040 to revitalize the economy over post-pandemic period (Figure X). In 2023, the
public investment disbursement rate recorded a 21.2% YoY increase, highest since
10
2010. The construction of infrastructure will not only propel the demand for
5 construction steel itself, but also enhance transport connectivity to facilitate real
0
estate projects which consume the majority of HPG’s high quality construction
2025F 2030F 2035F 2040F
steel. That said, construction steel consumption will be propelled by the
Source: Global Infrastructure Outlook
increasing residential real estate projects reflected through increasing
urbanization trend (2009A-2023A): from 29.7% to 38.6%, 2030F: 43.0%) supported
Figure 11: VietNam Demand for HRC
by the growing house purchasing power of Vietnamese people.
14
Domestic Supply HRC Import
Undersupply Of HRC In Domestic Market To Present Abundant Potentials For
DQSC 2
12
While domestic steel producers consumed around 11.6 millions (mn) tons of HRC
10 in 2023, nearly 30% (3.4 Million Tonnes Per Annum (mtpa) was domestically
8
supplied and more than 8 Million Tonnes was imported from another countries).
Such excessive demand bodes very well for HPG as the Phase 2 of DQSC
6
commences HRC production in 2025 with a maximum capacity of 5.6 mpta which
4 can increase the total supply of HRC steel in VietNam to 13.8 mpta. With a cost-
effective production chain, HRC products of HPG would have competitive prices
2
against Formosa Ha Tinh ( another company in VietNam can produce HRC steel)
0
2019 2020 2021 2022 2023
and imported products, thereby are expected to be entirely consumed in the
Source: VSA, Department of Custom domestic market.
SUPPLY OUTLOOK
Figure 12: Construction steel’s market shares Construction steel output decreased slightly in the difficult period of sector
in 9M/2022-2023 Domestic market demand recorded negative numbers in 9M.2023 and there are
no clear signs of recovery. In 9M.2023, domestic construction steel consumption
reached 5.37 million tons (-18% yoy); Steel pipes decreased by 7% and galvanized
steel decreased by 4.3%. This decline is due to (1) The domestic real estate market
has not recovered due to a shortage of new construction projects, (2)
Disbursement of public investment capital has not reached as planned, (3) Fierce
competition. for Chinese steel products in the context of this country's surplus
supply. In terms of market share: HSG slightly decreased its market share while
NKG and GDA increased their market share well in 9M.2023, mainly due to the
high export proportion of NKG and GDA, so they had a better recovery than HSG
in 9M.2023. Meanwhile, HPG continues to increase its market share by
consolidating its position in the domestic market in the context that
Source: VSA manufacturers in the industry have difficulty maintaining business operations.

03
Figure 13: Forecast Iron Ore and Hard Coking Raw Materials: Iron Ore and Hard Coking Coal Price Expected To Moderately
Coal Price Decrease
Specifically, iron ore prices are expected to decrease from more than 90 USD/ton
currently to 84 USD/ton by 2026 (according to Golman Sachs), and metallurgical coal
prices are also expected to decrease from 230 USD/ton at the end of 2023 to 200
USD/ton. tons by 2024 (according to the Australian Department of Industry, Science
and Resources). This trend will bring benefits to Hoa Phat, including: reducing iron
ore and metallurgical coal prices by an average of 15% and 7%, thereby reducing
billet steel production costs by 8%, and boosting gross profits for Group. However, it
should be noted that this data is based on reports and can fluctuate due to many
Source: Fool AU, AU Industry Department factors. In general, it is forecast that falling input raw material prices will be the
driving force to boost Hoa Phat's gross profit in the near future.

FINANCIAL ANALYSIS
INCOME STATEMENT
Figure 14: HRC, iron ore, and coking coal prices
Revenue and Gross Profit Structure
HPG’s revenue continues to grow between 2019 and 2023 with a CAGR of around
15% per year. In 2021, net revenue of HPG reached a peak of nearly 150,000 Billion
VND when Hoa Phat iron and steel production complexes in Hai Duong, Dung Quat -
Quang Ngai, and Hung Yen were still operating at full capacity to serve domestic and
foreign markets. Especially, in this year, Export activities made an important
contribution to 2021 output with 2.6 million tons of all kinds of products, double the
same period the previous year. Promoting exports helps Hoa Phat diversify consumer
markets while the domestic market is affected by the Covid 19 pandemic.However, in
2023, due to the weakening of the real estate and construction industry which leads
to output price from a strategic products namely Hot Rolled Coil (HRC- steel is a
specialised input material for manufacturing steel pipes, galvanized sheets, heat-
Source: WSA,ACBS treated processing in workshops, mechanical products)decreased substantially which
Figure 15: Revenue & Gross Profit Margin (2023) leads to HPG's revenue growth rate has decreased to 16% compared to the last year.

In 2023, HPG gross profit margin will decrease slightly as it accounts for 11.5% of
HPG's revenue in 2023, which got to the bottom of 5 years. because the company
focuses on reducing high-cost inventory and the average steel selling price decreases
by 5% svck although the average iron ore price remains unchanged and coking coal
price decreases 21% svck . However, HPG is still one of the few companies in the
industry that can maintain positive profit margins while other businesses have to sell
assets and lay off workers to improve profit margins.
Source: Company data

Cost Structure and Net Profit Margin

In general, 2023 is a difficult year for the steel industry when iron ore and scrap steel
Figure 16: NPM of HPG and its Peers (2019-2023)
prices fluctuate and decrease, although within a narrower range, but largely affect the
steel output price of the entire industry, accompanied by difficulties. In the context of
macroeconomics and the real estate market, the net profits of steel industry
companies decreased significantly. Besides, pressure from exchange rates is also a
factor causing businesses' exchange rate difference costs to increase more strongly
than the same period. In general, businesses that mainly import with large inventories
like HPG will incur exchange rate differences when the USD fluctuates strongly in a
short period of time. At that time, HPG's advantage in production costs was clearly
Source: Company data shown during difficult times when HPG produced steel products at nearly maximum
capacity, making operating costs lower than other companies. and managing other
types of financial costs helps HPG still have a significantly high net profit margin
compared to competitors in the same industry while there are many steel companies
record a negative business perfomance.

04
Profitability Ratio
Overall, since peaking in 2021, the ROA and ROE of steel companies have both plummeted. It is noticeable that when
compared to other firms in the same industry, HPG outperforms these profitability ratios, especially recorded ROA and
ROE was 6.84% and 3.82% respectively while even these ratios of many steel firms was negative. Moreover, it also
improved that HPG can utilize its own equity and use fewer leverage than others but it can generate profits regularly every
year from 2019 to 2023.
Figure 17: ROE of HPG and its peers Figure 18: ROA of HPG and its peers

Source: Company data, Team Estimate Source: Company data, Team Estimate

Figure 19: Total Current Assets and Non-

Current Assets 2019-2023
BALANCE SHEET

Asset structure
In 2023, HPG's total consolidated asset value increased notably by 10% and
reached VND 187,783 billion. HPG's asset structure continues to keep a balance
between short-term assets and long-term assets, in which the two items
accounting for the largest proportion are fixed assets (with nearly 39% of total
assets) inventory (nearly 19% of total assets) which suggests substantial
investments in infrastructure and long-term growth initiatives. This commitment
Source: Company data
signifies Hoa Phat's intent to expand production capacity and improve operational
Figure 20: Assets Structure of HPG 2019-2023 efficiency through capital expenditures. With regard to inventories, Inventories
are stable in 2023. In 2021, when commodity prices increase, HPG also increases
inventory of raw materials, accounting for 60% of total inventory compared to the
average of 50% in previous years. . The ratio of inventory to cost of goods sold is
also increased to approximately 40% compared to approximately 30% in the
previous period, showing that the company increased its stockpiling of raw
materials during this period to protect against sharp increases in commodity
prices. However, this caused the company to record a gross loss in Q4/2022 due
to having to deal with high-cost inventory when commodity prices decreased. By
the end of 2022, the rate of inventory over cost of goods sold decreased by 29%.
As commodity and steel prices stabilize, the company has slightly increased
inventory levels over cost of goods sold to 33% in 2023. In terms of long-term
unfinished assets, mainly construction in progress, increased significantly from
7.85% in 2022 to 13,9% in 2023, showing that Hoa Phat continues to invest and
build projects to expand production capacity for the future hybrid like Hoa Phat
Dung Quat Phase 2. Along with that, the downward in cash and cash equivalents
Source: Company data
to 6.52% in 2023 from 12.61% in 2021 suggests potential utilization of cash for
Figure 21: Total Assets Turnover of HPG and operational needs or investment opportunities. Despite this reduction, short-term
its peers 2019-2023
investments remained relatively stable at 11.81% in 2023, indicating a continued
focus on preserving liquidity while seeking modest returns on excess funds.
However, Hoa Phat still maintains a relatively large and stable level of cash from
steel trading n
and agricultural business activities. recorded at the end of 2023 as
VND 15,283 billion in a difficult year of out economy.
It can be seen that HPG is an enterprise with a large asset structure and
significantly greater asset utilization efficiency than enterprises in the steel
industry.

Source: Company data

05
Figure 22: HPG’s Capital Structure 2019-2023 Captial Structure
From 2019 to 2023, although HPG has to invest on Dung Quat Super Project Phase
2 Hoa Phat's, this firm still can use their own equity to do business activities
because of accumulating retained earnings from these previous years that
increases their amount of equity and reached a peak of nearly 31% in total capital
structure. Total liabilities at the beginning of 2023 are at VND 74,223 billion, down
more than 15% compared to the previous year. The two items with the sharpest
decrease are short-term payables to sellers (-53.2%) and long-term financial loans
(-17.2%). This partly shows that the company has gradually lowered its financial
leverage and reduced the proportion of debt capital to avoid incurring additional
Source: Company data
loan costs when the exchange rate of USD/VND were increasing that makes the
steel firms who has large amount of short-term loans would increase their D/E
Figure 23: Current Liabilities structure of HPG ratio higher. Therefore, we can see that the management of HPG could see this
before and hedge the risk when HPG had many large debts from foreign
institutions. Based on forecasts, both long-term and short-term borrowings of the
corporation are expected to increase from 2024 onwards. The primary objective
of this increased borrowing is to invest in the Dung Quat 2 project. Specifically,
long-term borrowings are projected to increase from 10,399 billion VND to 20,365
billion VND. The Debt-to-Equity (D/E) ratio of the corporation is expected to
remain balanced at over 1.2. Along with that, ecause of the high interest costs,
HPG had high interest rates in 2022 and 2023 due to the Van Thinh Phat event
cause HPG's actual loan interest rates to increase from 4.41% in 2021 to 6.33% in
Source: Company data
2023 that leads to the interest coverage ratio decreased continiously. However,
with abundant cash and equivalents HPG still can manage its liquidity risk with
positive interest coverage ratios when many steel firms has negative ratios.

Liquidity Ratio
Current Ratio: We can observe that Hoa Phat's current ratio from 2019 to 2023 mainly remains above 1. This indicates
that the company has a better ability to pay short-term liabilities from its more liquid assets. This stability is a positive sign
and indicates that the company maintains good liquidity over the years, even when the influence of business environment
due to Covid-19 and the downtrend of real estate market.
Quick Ratio & Cash Ratio: Hoa Phat's quick ratio and cash ratio shows an uptrend over the years. Although, this firm has
to raised short-term loans to finance on inventory and fixed assets investments (short-term debt has increased more than
short-term assets), good performance on business activites still brings a large amount of cash and HPG can decrease large
amount of accounts payable. Also, in 2022 and 2023 when many real estate and construction customers of HPG had a
trouble with business activities, HPG still enlarged the days of accounts receivable for its customers which could lead to
decrease these ratio. However, we evaluate that this could be a stragety of company to retain customers and still assure
the liquidity of companies to pay debt.

Figure 24: Liquidity of HPG 2019-2023 Figure 25: Liquidity of HPG and its peers in 2023

Source: Company data

Source: Company data

06
 Figure 26: Effiency Ratios of HPG Operating Efficiency Ratios
At the end of 2023, in terms of inventory turnover decreased to 3.07 times
from 5.41 times in 2019. The reasons include: (1) difficulties in real estate and
construction purchasing power have slowed down the inventory turnover of the
FPT Shop chain, (2) continuous expansion of DQSCP2 when they prepares input
materials for 2 new BOF oxygen inQ4/2024, leading to a sharp increase in
inventory and a decrease in inventory turnover.
Accounts receivable turnover decreased significantly from 7.78 times in 2019 to ,
4.78 in 2023 which is the lowest in recent years for two reasons (1) The company
has decreased the output sales in 2023 and also the total accounts receivables
increases tremendously when HPG’s customers have trouble with their market and
consumption (2) The prices of the construction steel and HRC steel are generally
not too expensive in 2023 when this commodity price in the world decreased
Source: Company data
substantially, so the credit sales will decreased too. As a result, HPGs accounts
Figure 27: Effiency Ratios of HPG receivable turnover is consistently low in 2023
Accounts payable turnover increased wildly, at approximately 9.02 times mainly
because of HPG also increased account payables with the supplier of iron ore and
when many steel firms were in a difficult period. The great difference between the
AR and AP turnovers indicates that the company is both managing the receivables
and negotiating well with suppliers regarding repayment period.
Meanwhile, a significant increase in Days Inventory On Hand (DIO) has caused
the Cash Conversion Cycle (CCC = DSO + DIO - DPO) to increase again, which
means HPG’s ability to recover its cash and reinvest in its operation has weakened
in recent years.
Source: Company data

CASH FLOW STATEMENT

Cash flow from operating activities

Figure 27: CFO,CFI and CFF of HPG
In 2023, net cash flows from business activities of Hoa Phat Group was 8,643,030
million VND, and in 2022, net cash flows from HPG's operating activities was
12,277,636 million VND. So, in 2023, it decreased by 3,634,606 million VND
compared to 2022, corresponding to a proportion of 29.06%, continuing the
decreasing trend of 2022 compared to 2021, but slightly reduced by the proportion
of 50% in 2022. Thus, both 2022 and 2023 both witnessed a downward trend in net
circulation, after a period of strong increase in 2021 and 2020 because of (1) Profit
before tax: In 2023, profit before tax was 7,792,728 million VND. In 2022, pre-tax
profit is 9,922,941 million VND, accounting for 132.53%. Thus, in 2023 pre-tax profit
decreased by 21.47% compared to 2022. Although it was a decrease, this number
also shows a significant improvement in HPG's business operations when compared
Figure 28: HPG’s Operating Cash flow to the decrease in proportion of 73.22% in the year 2022 compared to 2021 and (2)
Change in inventories: In 2022, Hoa Phat Group's inventory fluctuations was
8,023,194 million VND, equivalent to 65.34%. In 2023, the inventory fluctuation of
Hoa Phat Group was 1,026,315 million VND, equivalent to 11.87%. Thus, in 2023 Hoa
Phat Group's inventory decreased by 53.47% million VND. Also, CFO/EBITDA ratio of
HPG tends to fluctuated from 0.53 to 0.63 which implies that in 2023 HPG can
manage accounts payables more effectively by reducing net working capital.
Net cash flow for the period in 2023 is recorded as positive because negative
investment cash flow in 2022 has decreased from -24,712 billion VND to -12,801
billion VND in 2023. We believe that in 2021 and 2022, the group will Need to
Source: Company data increase short-term financial investment to prepare for the construction plan of
Dung Quat 2 Steel Complex. It is expected that in the coming years, Hoa Phat will
maintain positive net cash flow due to investment activities in financial instruments.
short term will be limited

07
 Cash flow from investing activities
It is noticeable that in 2023, net cash flow for investment activities was much less
Figure 29: HPG’s Investing Cash flow
than last year, even at least in the past 5 years, and decreased more than 50%
compared to the previous year. In addition, Hoa Phat earned more than VND 2,000
billion from deposit and loan interest - a record high in the past 5 years. By the end
of 2023, the leading enterprise in the steel industry had nearly 22,200 billion in
bank deposits (short-term), an increase of 2,200 billion compared to the end of the
previous third quarter. The large amount of deposits helped Hoa Phat "pocket"
large amounts of interest, thereby partially offsetting the interest costs incurred. In
general, it was not uncommon for businesses to borrow a lot of debt and have
large bank deposits. Maintaining a sufficient amount of cash to meet payment
Source: Company data
requests from partners or investments was essential for any business. In the case
of Hoa Phat, the group was focusing its efforts on the key project Dung Quat 2
Complex with a scale of up to 3 billion USD, so it always has to be ready with a
Figure 30: HPG’s Financing Cash flow
large amount of money.

Cash flow from financing activities

Cash flow from financial activities had grown strongly after a negative year,
reaching VND 7,275 billion, but it still hadn’t caught up with previous years. In
2023, cash outflow was quite low compared to previous years, including dividend
payments to shareholders. In 2019 and 2020, this figure was 25% and 40%,
respectively. With a record profit in 2021, HPG pays dividends of 5% in cash and
30% in shares. In 2022, this was the first time Hoa Phat retained all profits to
continue developing the Dung Quat 2 project. By 2023, Hoa Phat planned to pay
Source: Company data dividends of 5% cash and 5% shares to shareholders.We believe that the reason
for this is that HPG wants to continue to retain money to finish the Dung Quat 2
project when paying dividends by stock will help rewarding shareholders without
reducing the firm’s cash balance.
Figure 31: Sum-of-the Parts Valuation Results
( Attributable Equity Value in VND bn) VALUATION
Our methodology stems from the rationale that since each segment carries
different risk profile and growth drivers, valuing HPG as a whole will lead to a
skewed result. Specifically, we value the Steel segment by the Discounted Cash Flow
(DCF) model, the Agriculture and Other industrial production segments by the
relative P/E (LTM) multiple, and the Real estate segment by the P/B (FY24) multiple.
Source: Company data, Team estimate Ultimately, we arrive at the 12-month target price of 35,450 VND per share,
Figure 32: Utilization Rate of HPG’s
presenting 24.82% upside from its closing price of VND 28,400 .
Construction Steel 1. DCF Steel
We apply the Discounted Free Cash Flow to Firm (FCFF) method to value the Steel
sector. This method estimates the equity value of steel from the steel enterprise
value and the net debt of steel. Particularly, the DCF analysis concentrates on the
steel-related operation such as key drivers of revenue and gross margin. To
forecast steel revenue, we focus on all five steel product lines and their historical
performance.
Construction steel: We maintain 10% YoY growth in sales volume forecast,
Source: Company data, Team estimate equivalent to 4.2 million tons (higher than previous forecast of 3.8 million tons).
Figure 33: Utilization Rate of HPG’s We revise up our ASP assumption to 15.4 million VND/ton (+5% YoY) from 14.8
Construction Steel
million VND/ton (+1% YoY) to reflect higher input material cost forecasts.
HRC Steel: We maintain our sales forecast of 2.8 million tons (flat YoY) because
HPG has reached 100% HRC capacity before DQSC Phase 2 comes into operation.
Steel pipes: We maintain 10% YoY growth in sales volume forecast, equivalent to
753,000 tons (lower than previous forecast of 799,000 tons).
Galvanized products: We maintain a 10% YoY growth in sales volume forecast,
equivalent to 362,000 tons (lower than the previous forecast of 799,000 tons).

Source: Company data, Team estimate

08
 Figure 34: Valuation Summary Weighted Average Cost Of Capital
We calculate the Weighted Average Cost of Capital (WACC) using the cost of debt,
cost of equity, and the market value of debt to equity of HPG’s steel segment.
Specifically, the cost of debt is computed by adding the default spread for HPG to
the risk-free rate to reflect the premium required by creditors to borrow capital for
investing long - term projects. For the cost of equity, we use the pure-play method
to arrive at the target beta for HPG’s steel segment at 1.02, and the country risk
Source: Team Estimate premium is also included to capture the risks inherent in the volatile equity
Figure 35: HPG’s Steel Segment Valuation
environment of Vietnam.
Summary

Source: Team Estimate

2. Relative Valuation
Figure 36: HPG’s Agriculture Segment Valuation
a. Agriculture Valuation
Summary We value the agriculture segment of HPG using the relative valuation method. A set
of comparable companies was generated based on the same business models and
revenue level in the last fiscal year. We use P/E (LTM) for this valuation part since it
can better reflect the triumph of HPG’s agriculture segment in Q3 and Q4/2024. As
different markets (exchanges) carry different level of P/E on average, we use
relative P/E by dividing company P/E by market P/E to adjust for this disparity
between the exchanges and arrive at target P/E (LTM) at 4.65x for HPG’s agriculture
segment.
Source: Team Estimate

Figure 37: HPG’s Other Industrial Production

Segment Valuation Summary

Source: Team Estimate

b. Other Industrial Production

Valuation
As for the other industrial production
segment of HPG, our valuation is based
on the relative valuation method with
the relative P/E (LTM) multiple. Since
HPG engages in two distinctive lines of
product, furniture and refrigerant
equipment, we set up two sets of
comparable companies for each sector
based on business model and revenue
level and compute a blended target P/E
(LTM) with a 60% weight for furniture
and 40% weight for refrigerant
equipment according to their average
revenue contribution in this other
industrial production segment. Our
target P/E (LTM) for this segment is
8.25x. 09
 Figure 38: Regression Analysis Between P/B c.Real Estate Valuation
and ROE (FY24) of Vietnamese Real Estate We also value the Real estate segment by Relative valuation method. For this
Companies
segment, we utilize the book-to-price multiple (P/B) because the key value of this
sector lies essentially in the owned lands, which is captured in the book value of
equity. Moreover, as the return on equity ROE is the fundamental driver of the
P/B, we can see the tight positive correlation between these variables in the
Vietnam’s real estate market (Figure 46). Bearing this in mind, we divide the P/B
by the ROE of the peers to arrive at a more accurate result. Out target P/B (FY24)
for HPG’s real estate segment is 0.35x

SENSITIVY ANALYSIS
SENSITIVITY
We analyze price sensitivity to changes in input factors including WACC and
sustainable growth rate. (1) Sustainable growth rate (g) fluctuates from 0.5% -
3.5%; (2) Average cost of capital (WACC) fluctuates from 11.7%-14.7%

Figure 39: Price sensitivity analysis

Source: Company data, Team estimate

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Appendix: Key Financial Metrics OF HPG
2019-2023

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