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Brokerage revises down Vietnamese top steelmaker Hoa Phat's 2018 profit
Ngoc Thuy 16:00, 2018/10/11
Bao Viet Securities Company (BVSC) has cut forecast for Hoa Phat Group`s after-tax profit by 10% to VND11.7 trillion (US$502.79 million) in 2019. However, the Vietnamese steelmaker`s profit growth can still reach 28% in 2019.
BVSC hsd revised down Vietnam's top steelmaker Hoa Phat Group after-tax profit in 2018 by 4% to VND9.11 trillion (US$391.53 million), due to the later-than-expected launch of the Mandarin Garden 2 project and the delay of a galvanized steel production line. 
 
Illustrative photo.
Illustrative photo.
BVSC pointed to the issue that the prospect of galvanized steel and steel pipes is not as good as expected. Despite tariffs on Chinese styeel sheets sold in Vietnam, Chinese sheet prices are still 7% lower than domestic ones. 

The oversupply due to an increase in capacity of leading companies in 2017-2018 amid anti-dumping measures in many countries around the world has resulted in an unfavorable outlook of galvanized steel.

In addition, steel pipes have experienced a slowdown in growth and may enter a period of stabilization after an overheating growth over the past five years. 

Given this prospect of galvanized steel and steel pipes, BVSC cut forecast for Hoa Phat Group's after-tax profit by 10% to VND11.7 trillion (US$502.79 million) in 2019. However, the Vietnamese steelmaker's after-tax profit growth can still reach 28% in 2019. 

In the long run, BVSC still sees a bright outlook for Hoa Phat Group's profit. If working at full capacity, the Dung Quat complex's operation may be more effective than current operation of the Hai Duong complex.

Hoat Phat Group's production cost is about 10% lower than the average production cost of Chinese steel industry and 17% lower than the average production cost of Vietnam steel industry, which can help the company maintain its minimum gross profit margin at 15% -17%. 

In the worst scenario, Hoa Phat Group can still achieve double-digit growth of 17% per year in 2019-2020. BVSC uses the respective average P/E and EV/EBITDA of 13x and 7.4x from the world largest steel companies having capitalization of over US$3 billion to estimate fair value of Hoa Phat Group. 

By the time the US$2.6-billion Hoa Phat Dung Quat iron and steel production complex is completed in 2020, Hoa Phat Group aims to become one of the world's top 50 steel companies, said the Group's Chairman Tran Dinh Long.

Hoa Phat Group's profit in the third quarter of 2018 is estimated at VND2.25 trillion (US$96.73 million), up 5% year-on-year. 

In 2017, Hoa Phat Group's revenue reached VND46.8 trillion (US$2 billion) and after-tax profit of VND8 trillion (US$351.2 million), up 38% and 21% year-on-year, respectively.
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