At its peak, Hoa Phat was the fourth most valuable enterprise on the stock exchange, but the capitalization lost more than VND 143,000 billion in the past 1 year, causing the “steel king” to fall.
The stock market is in a strong correction when important milestones are penetrated in turn under strong selling pressure in most stock groups. In that context, HPG shares of Hoa Phat Group could not avoid a sharp drop in price. HPG’s market price continuously dropped, “drifting” down to the 1x price range – something that few people thought about only a few months ago.
In fact, the time this stock experienced the 1x price range was about 30 months ago (April 2020). After 3 times of price adjustment due to dividends (July 29, 2020, May 31, 2021 and June 17, 2022), the market price decreased but never returned to this price range once.
At the market price at the end of the session on October 5, it was 19,200 dong/share, the capitalization of Hoa Phat was about 111,600 billion dong, respectively. This number is currently not enough for the leading steel company to maintain a position in the top 10 by capitalization on the stock exchange.
Just nearly a year ago, at the end of October 2021, Hoa Phat was still at its peak and was the 4th most valuable enterprise on the stock exchange after Vietcombank (code VCB), Vingroup (code VIC) and Vinhomes (VHM). Compared to the peak, Hoa Phat’s capitalization has lost nearly 143,000 billion dong (~ 6.2 billion USD), “falling off” the largest market capitalization group in Vietnam’s stock market while ranking 10th in the top of the largest market capitalization on HOSE.
Hoa Phat’s downgrade caused the top 10 market capitalization to lose sight of heavy industry. This group currently mainly consists of banks and real estate, besides a few leading enterprises in retailing consumer goods, food and beverage, and oil and gas such as Vinamilk (code VNM), Masan (code MSN), PV Gas (codename VNM), and PV Gas (code: VNM).
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Although it is no longer in the top 10 by market capitalization, Hoa Phat is still in the top 10 on all 3 exchanges in terms of charter capital with more than 58,000 billion dong, surpassing even the largest banks in the market and just behind VPB (more than 67,000 billion dong). At the same time, the number of free float shares of HPG was also the second largest on the floor with nearly 3.2 billion units.
However, this is now putting HPG’s stock price under a lot of pressure in the context that the cash flow is no longer abundant enough to absorb the “huge” amount of freefloat shares. This is in stark contrast to the explosive period at the end of 2021 when the trading value of this stock ticked up to trillions of dong thanks to the huge demand and the liquidity burden of the whole market.
At the same time, HPG stock dropped in the context of many unfavorable factors significantly affecting business results, typically steel price. Accordingly, the last 2nd quarter of 2022 can be considered as one of the most difficult periods in more than 2 years for the steel industry and Hoa Phat. Steel prices fell while input material costs were still high, causing the net profit of the leading steel company to decrease by 59% over the same period to about VND 4,000 billion.
Currently, after a period of continuous sharp decline in the 2nd and 3rd quarters, Hoa Phat’s construction steel price in the domestic market has increased in recent weeks, but the potential for price increase in the remaining months of the year may be in the remaining months of the year modest level. The trickle price increase of only 100-200 VND/kg each time of Hoa Phat partly shows that the demand of final consumers is still growing slowly. Meanwhile, the world rebar price is now only 1/3 of the peak.
Not only was there pressure from business results, HPG stock was also continuously under strong selling pressure from foreign investors recently. Even in the session of October 5, foreign investors also sold a strongly net worth of nearly 141 billion dong of HPG shares, contributing to the cause of a deep drop in the market price. In total, HPG has been net-sold by foreign investors of nearly 5,600 billion dong so far this year with focus on the first half of the year.
In addition, interest rates tend to increase, which is also a disadvantage when Hoa Phat’s financial structure recognizes that debt accounts for a large proportion. As of the end of the second quarter of 2022, the leading steel company has a debt of more than VND 70,000 billion, nearly twice as much as assets that enjoy interest. Hoa Phat estimates that each 100 basis point change in interest rates will increase or decrease VND 12.43 billion in consolidated net profit for the 6-month period. This number is not large compared to Hoa Phat’s profit, but it can still increase when the group prepares to invest in Dung Quat 2 project with a total investment of up to 85,000 billion VND, of which loan capital accounts for about 35,000 billion dong.
On the other hand, this steel business also suffers from the fear of escalating exchange rates. Particularly in the second quarter, the USD kept increasing, causing the company to lose 1,100 billion VND in the exchange rate…
A recent report of Rong Viet Securities (VDSC) said that the price of raw materials may decrease further in the fourth quarter of this year. In such a context, VDSC assesses that Hoa Phat Group’s crude steel production cost will be only slightly lower in the third quarter than in the second quarter and then will decrease further in the fourth quarter when HPG has actively limited stockpiling raw materials and cutting production in July-August. Thus, a large part of steel sold in Q3 can be produced from high-priced raw materials.
In the coming months and 2023, VDSC expects construction steel sales to recover faster than flat steel. Monthly construction steel consumption in Q4 is likely to return to normal after a spike in September while HRC and galvanized steel remain weak due to low demand from major markets (US and EU). In 2023, VDSC also expects construction steel to grow stronger than flat steel on the basis of the prospect that the disbursement of public investment by the Government of Vietnam will accelerate while inflation will remain high globally until midyear.
Regarding Dung Quat 2 project, after starting construction in May 2022, the project is in the ground clearance phase. Phase 1 will come into operation from mid-2024 and phase 2 from late 2024. With Dung Quat 2, Hoa Phat’s total capacity will increase by 66% compared to the end of 2021 to 14.6 million tons/year.