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HPG announced its consolidated Q32011 financial result with Q3 revenue of VND4,238bn and NPAT of VND111bn, up 6% in revenue but significantly down c.66.3% in NPAT respectively YoY. Accumulated nine months revenue reached VND13,606bn (up 36.9%) and NPAT at VND1,140bn (up 18.8%). HPG has reached c.77% of its revenue and c.61% of its NPAT targets.
The growth in 3Q revenue is attributed to an increase in selling price as well as volume traded. According to the Vietnam Steel Association, nine months sales volume reached 483,947 tons, up c.17% YoY. 3Q2011 average selling price was c20.7% higher YoY.
The steel market has been severely damaged by tightening monetary policy and limited public investment which led to a deterioration in the real estate sector and thus, heavily affected the steel demand starting in July. Another hard punch is the spike in lending interest rates resulting in high financial expenses. HPG’s interest expense in 3Q2011 was 127% higher YoY.
HPG’s steel pipe segment is performing stably in 3Q2011. With 135,789 tons of product consumed, recording revenue and NPAT of VND2,300bn and VND130bn, respectively.
The coke segment appears to be underperforming in Q3/2011 because of the lack of export contracts, rising input material costs but lower export prices. After making a VND215bn profit in 1H2011, HPG’s coke segment made a loss of 13bn in Q3. Although things could turnaround with Oct turning a profit and could lead to a promising final two months for HPG’s coke segment.
Despite worse than expected results recently due to external and internal problems, we think that HPG can still be consider a star in the sector owing to the fully integrated production chain, HPG has a better cost control ability and less exposure to volatile raw materials price. Once this difficult period passes, the fully integrated production chain will be a very good launch pad for HPG.
HPG has just proposed a 10% stock dividend for FY2010 to shareholders. The expected number of new shares is 31,361,883.
Earnings outlook
HPG expects its sales volume in the last two months to be as stable as in Oct with about 50k tons per month. The selling price will likely be stable to year end as demand is not strong enough to push up prices although Q4 is usually the steel industry’s peak season.
Contribution from the real estate segment includes profit from industrial zone leasing and a part of the 259 Giai Phong project which is expected to be around VND20bn in FY2011. The rest of 259 Giai Phong will be recorded in FY2012.
We estimate NPAT for FY2011 at VND1,394bn, up modestly by 3% YoY, equivalent to EPS of VND4,400/share. HPG is now being traded at 5.3x P/E forward against an average of 5.78x for the steel sector.