HPG - HPG guides for NPAT to grow 25% YoY – AGM Note

1. 2025 guidance

HPG announced its consolidated 2025 guidance:

• Revenue: VND170tn (USD6.67bn; +22% YoY; 106% of our full-year forecast).
• NPAT: VND15tn (USD588mn; 25% YoY; 100% of our full-year forecast). We note that our base case NPAT-MI forecast has not factored in the impact of the anti-dumping tariff on Chinese HRC (AD20).
• In our view, this guidance appears conservative, as HPG’s full-year target implies an NPAT margin of 8.8% (vs our forecast of 9.4%), while the company has already achieved an 8.9% margin in Q1 2025 (please see below). We note that AD20 only came into effect in March 2025, meaning HPG benefited from it for just one month in the quarter.
• Historically, HPG has set conservative NPAT guidance. Over the past 10 years, actual revenue results have been broadly in line with guidance, while earnings have outperformed by nearly 30% on both average and median bases. The only exceptions were in 2022 and 2023, when earnings fell short due to a weak market, sharp correction in steel prices from post-COVID highs, and subdued demand following the Van Thinh Phat crisis.
• DQSC2 Phase 2 will complete construction by September 2025, with earnings contributions from Q4 2025, slightly earlier than our prior estimate of Q1 2026.
• Strategic focus: HPG continues to prioritize production scale and the domestic market, maintaining export exposure at below 20% to mitigate external risks.
• According to the Chairman, HPG benefits from abundant input material supply — in line with our expectation.

Figure 1: HPG’s guidance track record

Source: HPG, Vietcap. *We use average 2022 NPAT guidance.

2. Q1 2025 preliminary results: 

• Revenue: VND37tn (USD1.45bn; +7% QoQ; +20% YoY; 23% of our full-year forecast).
• NPAT: VND3.3tn (USD129mn; +17% QoQ; +15% YoY; 22% of our full-year forecast), in which the agriculture segment contributed VND400bn (USD15.7mn), likely driven by higher pork prices due to reduced supply from African swine fever.
• We believe the results are strong, given that (1) Q1 is typically the low season for construction steel, and (2) AD20 only took effect in March 2025 - the last month of the quarter. This result is in line with our expectation.
• As a reminder, on April 14, 2025, the company also announced its Q1 sales volume as follows:

+ Construction steel: +25% YoY, attributed to strong demand from the warm-up of the real estate market, infrastructure spending, and exports to the US.

+ HRC: +23% YoY, attributed to the commercial operation of DQSC2 phase 1 in March and AD20 which also took effect in March. We estimate that HRC ran at a 106% utilzation rate in March 2025 (including capacity from both DQSC1 and DQSC2 phase 1).

Figure 2: HPG’s Q1 2025 preliminary results

Source: HPG, Vietcap

Figure 3: HPG’s Q1 2025 sales volume

Source: HPG, Vietcap

3. HRC sales and the impact of AD20 so far:

• The implementation of AD20 has led to a significant decline in Chinese steel imports into Vietnam. 
• However, prior to the tariff taking effect, local importers front-loaded low-cost Chinese HRC to build inventory, which may temporarily dampen the near-term impact of the measure.
• Despite this front-loading, HPG’s HRC operations achieved a 106% utilization rate in March 2025, its first month of full commercial operation — a result we view as highly encouraging.

4. Exports to the US after the 25% tariff on all steel imports:

• The impact on HPG has been positive as Vietnam has faced a 25% tariff since the first Trump administration, whereas US allies were previously exempted.
• As a result of the tariff, HRC’s price in the US has surged to above USD900/tonne. Per HPG’s calculation, if the price of HRC in the US stays above that level, Vietnam’s steel price would become competitive enough to compete in that market.
• The company, as a result, managed to secure some steel orders to the US.
• The only problem remaining for the US market is high freight rates – which, though declining recently from 2024’s high base, remain high vs historical levels. However, in our view, freight rates will further cool this year, which should unlock further potential for exports to the US.
• HPG’s direct exports to the US accounted for 1% of total sales volume in 2024.

5. Railway steel project:

• Capacity: 500,000 tonnes/year. This factory includes not only railway steel but also other types of steel.
• Capex: VND14tn (USD549mn).
• The main customers of this project would be the Government’s railway projects. Regarding the pricing mechanism, this is still under discussion.
• Per HPG, total steel demand for Vietnam’s upcoming railway projects: ~10mn tonnes. The Chairman noted that this figure is subject to further changes (which we think are upward changes) as new projects are announced.
• However, we think most of that would include demand for construction steel to develop the supporting infrastructure for the train, as the demand for railway steel is small. For example, we estimate the demand for railway steel of the North-South Highspeed Railway at ~185,000 tonnes only.
• Our estimation method: High-speed railway projects similar to what is planned in Vietnam typically use UIC60 steel (i.e., 60kg per meter). As the total length of the NSHSR is 1541 km, total railway steel demand is estimated as: 60 kg/m x 2 tracks x 1000m x 1,541km ≈ 185,000 tonnes.
• The contribution of railway steel to total revenue in the future: per the Chairman, the contribution would be small. This is in line with our expectation as stated above. However, this project would highlight HPG’s capability in producing sophisticated steel products.

6. Phu Yen project:

• Capacity: 6mn tonnes of steel per year.
• Types of steel products: Under review by the company.
• Capex: VND86tn (USD3.37bn) – comparable to DQSC2.
• Land advantage: The site is likely the last remaining coastal location in Vietnam suitable for a large-scale steel complex, per the Chairman.

7. Dividend plan:

• FY2024: 20% share dividend. This is a revision vs the initial plan of a 5% cash dividend and 15% share dividend as HPG wants to retain cash to guard against ongoing uncertainty in the market.
• FY2025 dividend: 20% share dividend; 0% cash dividend.

8. FY2024 earnings distribution plan:

• Development fund: 5% of consolidated NPAT.
• Bonus & welfare fund: 2.08% of consolidated NPAT.
• Remuneration for BOD and Board of Supervisors: 1% of consolidated NPAT.
• Remuneration for BOM: 5% of consolidated NPAT that exceeds the approved 2024 guidance.

9. FX risks:

Powered by Froala Editor