HPG 28092016 MIRAE(TA)

Vietnam Research This research report is a product of Mirae Asset Securities (Vietnam) Hoa Phat Group (HPG VN) Initiating coverage Vietnam / Steel BUY Low costs, steady profits 21 September 2016 VND50,000 VND45,450 Target price Last price (20 Sept 2016) Upside/downside (%) 10.0 VN-Index 659.7 Mkt cap (VND bn/USD bn) 38,303/1.72 52 week range (VND) 20,782 – 45,950 Avg trading value daily (VND bn) 183 Foreign ownership (%) 37.0 Source: Bloomberg Forecast earnings & valuation Fiscal year ending Dec-15 Revenue (VND bn) 27,453 30,267 33,888 EBIT (VND bn) 4,409 6,701 7,630 7,059 Net profit (VND bn) 3,485 5,461 6,339 5,995 Net profit (underlying) 3,485 5,461 6,339 5,995 EPS (VND) 4,755 6,479 7,520 7,113 EPS growth (%) 11 36 16 (5) P/E (x) 9.6 7.0 6.0 6.4 EV/EBITDA (x) 7.0 5.1 4.5 4.8 Dividend yield (%) 2.2 3.3 3.3 4.4 P/B (x) 2.3 2.0 1.6 1.3 ROE (%) 26.4 32.3 28.9 22.5 Net debt/equity (%) 12.0 (5.3) (12.8) (19.7) Dec-16E Dec-17 E Dec-18 E 37,277 HPG VN (LHS) Rel to VN-Index (RHS) (%) 170 40,000 150 35,000 130 30,000 110 25,000 20,000 Mar 15 90 Jun 15 Sep 15 Dec 15 Performance Absolute (%) Absolute (USD, %) Relative to VN Index (%) Mar 16 Jun 16 70 Sep 16 1M 3M 12M 12.0 36.1 74.6 - - - 11.9 30.5 57.6 Source: Bloomberg Duong Nguyen, Analyst * 84 3911 0636 duong.nguyen@miraeasset.com * Mirae Asset Securities Sector-leading profitability, thanks to low costs Hoa Phat began construction of an integrated steel mill in 2007, with the mill becoming operational in 2010 From 2010 until early 2016, Hoa Phat supplied its own iron ore to produce steel, and has imported soft coal and hard coal for coke outsourcing, which account for an estimated 40% of the cost of production of finished steel Thanks to current low global iron ore prices, the cost of outsourcing iron ore is below what it would be for Hoa Phat to produce its own In addition, iron ore and coke prices costs show less volatility than that of scrap iron As scrap iron accounts for 90% of the production costs of scrap-iron-derived steel, the input costs of steel produced from iron ore and coke are below that made from scrap iron This key competitive advantage has helped Hoa Phat to achieve growth above the industry average, even amid the steel sector’s stagnant growth period of 2011-2013 Strong cost control has enabled Hoa Phat to increase its market share gradually and become Vietnam’s largest construction steelmaker Stable profits Fluctuations in the input prices of materials for steel production, such as iron ore, coking coal, and scrap, have a significant impact on the selling price of the finished product Investors tend to view steelmakers as unattractive investments, due to their earnings fluctuations However, even during the Vietnamese steel industry’s crisis of 2011-2013, amid a stagnant real estate market, Hoa Phat enjoyed stable net profits, while many other steel producers went bankrupt We expect Hoa Phat to continue to enjoy high net profit growth and stable operational cash flow going forward Performance (VND) 45,000 Hoa Phat Group (HPG VN) is Vietnam’s biggest maker of construction steel, with a highly efficient production chain We think Hoa Phat is attractive, in light of its: 1) low production costs; and 2) stable profits We initiate Hoa Phat with a BUY rating and target price of VND50,000 Preview of 3Q16 earnings We forecast 3Q16 revenue of VND7.5tn (+8.9% YoY) for Hoa Phat Revenue should increase on increased sales volume of construction steel (+23% YoY), thanks to completion of Phase of the integrated mill operation However, we expect ASP to continue to decline (-15% YoY) in 3Q16, as the third quarter is a low season for steel consumption, due to heavy rainfall in Vietnam We forecast gross margin and operating margin of 25.8% and 22%, respectively (3Q15: 23% and 19%, respectively) Initiating with BUY and target price of VND50,000 We initiate coverage of Hoa Phat with a BUY recommendation and target price of VND50,000 (+10% upside) by using economic value added (EVA) model We believe the company, with its strong market position and stable operational cash flow, is undervalued Moreover, the company’s shares are currently trading at a 2016 P/B ratio of 2.0x, while the fair P/B ratio of 2.4x (2016 ROE of 32.3% and COE of 13.5%) Our target price is based on a 2016E P/E of 7.7x and P/B of 2.2x, while the company is currently trading at a 2016E P/E of 7.0x and P/B of 2.0x See the last page of this report for important disclosures Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN T a b l e Mirae Asset Securities o f c o n t e n t s I Recommendation and valuation II Investment thesis III DuPont analysis 12 IV Financial analysis 13 V Earnings outlook 13 VI Company background 16 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN I Recommendation and valuation Initiate with BUY and target price of VND50,000 We initiate coverage of Hoa Phat Group with a BUY recommendation and target price of VND50,000 (+10% upside) by using the economic value added (EVA) model to capture the long-term asset value of the steel manufacturer We believe that the company, with its strong market position and stable operational cash flow, is undervalued Moreover, the company’s shares are currently trading at 2016 P/B ratio of 2.0x while the fair P/B ratio of 2.4x (2016 ROE of 32.3% and COE of 13.5%) Our target price is based on a 2016E P/E of 7.7x and P/B of 2.2x, while the company is currently trading at a 2016E P/E of 7.0x and P/B of 2.0x Figure Hoa Phat’s EVA valuation (VND bn) 2016E 2017E 2018E 2019E 2020E IC average NOPAT ROIC (%) WACC (%) EVA spread (%) EVA Period Discount factor Discount EVA 24,626 5,693 19.9 12.0 7.9 2,744 28,987 6,503 20.1 12.0 8.1 3,032 1.0 0.9 2,708 33,173 6,017 16.8 12.0 4.8 2,045 2.0 0.8 1,630 36,628 5,651 14.7 12.0 2.8 1,265 3.0 0.7 901 40,131 5,933.2 14.5 12.0 2.5 1,127.7 4.0 0.6 717 Invested capital Present value of EVA Enterprise value 28,987 11,948 40,935 Terminal EVA Sustainable ROIC (%) WACC (%) Terminal growth (%) CV of EVA Period Discount factor Discount EVA Cash & equivalents 6,800 WACC Calculation Fair value of investment asset 51 6,852 Risk free rate (%) Non-operating asset value Short-term borrowings Long-term borrowings Total borrowings 5,317 639 5,956 Value of equity Shares outstanding (m) Appraised share price (VND) Target share price (VND) 6.4 Expected market return (%) 13 Market risk premium 6.6 Beta Cost of equity (%) Equity to capital (%) Cost of debt (%) Tax rate (%) After tax cost of debt (%) Debt to capital (%) WACC 41,831 843 49.627 50,000 14.5 12 9,418 0.64 5,991 1.07 13.5 70 10 15 30 12 Source: Hoa Phat, Mirae Asset Research Figure Hoa Phat’s EVA valuation analysis (VND bn) 60,000 50,000 40,000 30,000 20,000 10,000 Invested Capital Curent value of EVA Non-operating asset value Total borrowings Value of equity Market Cap Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Figure Vietnam steel companies’ comparison table Company name Ticker Market cap (VND bn) Share price (VND) Price Change (%) YoY YTD P/E (x) P/B (x) FY15 FY15 OPM (%) FY15 2Q16 ROE (%) Debt ratio (%) Debt/EBITDA (%) Revenue growth (% YoY) OP growth (% YoY) FY15 FY15 FY15 FY15/14 FY15/14 Construction steel Thai Nguyen Iron And Steel TIS VN 1,562 6,000 Vietnam Steel Corp TVN VN 3,661 6,300 Thu Duc Steel JSC TDS VN 178 14,600 102.8 40.4 3.4 0.6 Nha Be Steel JSC TNB VN 204 9,300 17.7 16.3 3.6 0.9 6.0 Hoa Phat Group HPG VN 38,303 45,450 71.0 76.8 5.8 1.5 16.1 29.8 Pomina Steel Corp POM VN 1,639 8,500 30.8 23.2 46.6 0.5 4.6 Vietnam-Italy Steel JSC VIS VN 733 15,100 125.4 96.1 0.6 DANA-Y Steel JSC DNY VN 132 6,800 15.3 38.8 16.0 0.4 Steel pipe 15.4 9.1 15.6 0.6 4.1 4.1 262.1 13.2 15.3 2.7 2.1 65.9 5.2 (32.3) 50.2 13.6 4.1 20.0 68.7 1.7 (14.9) 101.6 28.3 5.6 0.1 6.3 623.0 25.2 47.4 1.2 7.6 1.1 6.6 1.2 184.3 5.7 (9.2) 54.7 0.9 2.0 (8.2) 167.4 8.0 (17.6) (77.5) 3.7 5.7 2.3 400.8 7.5 (7.9) (11.8) 64.1 Nam Kim Steel JSC NKG VN 553 40,700 277.2 268.2 4.2 0.9 5.4 14.4 22.0 309.2 4.6 (1.5) Hoa Phat Group HPG VN 38,303 45,450 71.0 76.8 5.8 1.5 16.1 29.8 25.2 47.4 1.2 7.6 1.1 Vietnam Germany Steel Pipe JSC VGS VN 191 11,500 134.7 117.0 4.7 0.4 1.8 2.6 7.9 71.0 4.0 26.2 63.8 Huu Lien Asia Corp HLA VN 28 400 (55.6) (42.9) (86.8) (36.3) Hoa Sen Group HSG VN 8,451 43,000 110.8 109.5 6.0 1.4 6.9 13.4 24.7 188.7 3.3 16.4 75.6 6.0 1.4 6.9 13.4 24.7 188.7 3.3 16.4 75.6 0.6 2.9 13.2 (8.1) 138.3 8.6 (11.8) (43.0) 0.9 5.4 14.4 22.0 309.2 4.6 (1.5) 64.1 Flat steel (87.9) Hoa Sen Group HSG VN 8,451 43,000 110.8 109.5 Dai Thien Loc Corp DTL VN 477 16,500 81.3 101.2 Nam Kim Steel JSC NKG VN 553 40,700 277.2 268.2 4.2 Source: Bloomberg, Mirae Asset Research Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Share price analysis Hoa Phat’s share price has increased gradually from its January 2016 bottom of VND21,200 to the current level of VND42,000, following a downtrend from end-2014 to 2015, due to: 1) the impact of the temporary safeguard tariff in March and official safeguard tariff from August 2016; and 2) low raw-material (iron ore) input prices, which helped the company increase its revenue by 6.5% YoY and net profit by a whopping 65% YoY in 2Q16 Thanks to favorable conditions in Vietnam’s real estate market and the government’s protectionist policies for the steel industry, Hoa Phat Group - Vietnam’s largest producer of construction steel - achieved the company’s highest-ever gross margin (32%) and a healthy net profit in 2Q16 As a result, between January and August 2016, Hoa Phat’s share price increased by 104%, from VND20,900 to VND42,600 (versus +27% for the VN Index) The company’s shares are currently trading at 2.0x 2016E P/B, versus an average of 1.5x for its global peers, a level that reflects the company’s strong market position, stable operational cash flow, and solid earnings, amid a difficult environment for the steel sector, both in Vietnam and globally Figure Hoa Phat’s historical EV/EBITDA band chart Figure Hoa Phat’s 12-month forward EV/EBITDA 4.5x (VNDbn) EV 3.7x 27,000 2.9x 22,000 (x) +2 std +1 std 2.1x 17,000 5 yr avg 12,000 1.3x -1 std 7,000 2,000 2010 2011 2012 2013 2014 2015 -2 std 2010 2016 2011 2012 2013 2014 2015 Source: Hoa Phat, Mirae Asset Research Source: Hoa Phat, Mirae Asset Research Figure Hoa Phat’s historical P/E band chart Figure Hoa Phat’s 12-month forward P/E (VND) 50,000 Share price 7.0x 5.8x 40,000 4.5x 30,000 3.3x 20,000 2.0x 10,000 2010 2011 2012 (x) +2 std +1 std 5 yr avg -1 std 2013 2014 2015 2016 Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 2016 2010 -2 std 2011 2012 2013 2014 2015 2016 Source: Hoa Phat, Mirae Asset Research Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Figure Hoa Phat’s historical P/B band chart Figure Hoa Phat’s 12-month forward P/B (VND) (x) 2.0x 1.8 53,000 43,000 1.6 1.6x Share price +2 std 1.4 1.3x 33,000 +1 std 1.2 1.0 0.9x 23,000 yr avg 0.8 0.6 13,000 0.5x 3,000 2010 -1 std 0.4 -2 std 0.2 2011 2012 2013 2014 2015 2016 2010 Source: Hoa Phat, Mirae Asset Research 2011 2012 2013 2014 2015 2016 Source: Hoa Phat, Mirae Asset Research Figure 10 Hoa Phat’s event chart (VND) 50,000 Bank Invest fund divests all of its stake of 3.5% 45,000 40,000 Temporary safeguard tariff in March and official safeguard tariff from August 1H14 net revenue and profit up +58% YoY and +85% YoY 35,000 VinaCapital announces sale of 4.2m HPG shares 30,000 25,000 HPG surpasses 34% of full-year plan in months 20,000 VinaCapital announces purchase of 4m HPG shares VN Index declining amid stagnant real estate market YoY drop in net profit, due to low steel demand Strong 1Q09 earnings results and increase in dividend 15,000 Market share of construction steel increases from 10-14%, and gross margin improves, thanks to low prices of input materials 10,000 5,000 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Source: Bloomberg, Mirae Asset Research Mirae Asset Securities Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Figure 11 Hoa Phat’s peer comparison Company Code Trading currency Share price (local currency) Market cap (local currency) Free float Average volume (30 days) Average trading value (3 months) EPS EPS YoY growth (%) Sales (bn) Operating profit (bn) Net profit (bn) Net profit margin (%) P/B (x) P/E (x) EV/EBITDA (x) ROE (%) Hoa Phat Group Hoa Sen Group Tata Steel Maanshan Iron JSW Steel HPG VN Equity HSG VN Equity TATA IN EQUITY 323 HK EQUITY JSTL IN EQUITY VND VND INR HKD INR 45,450 43,000 392 1,847 38,303 8,451 381 23 447 % Shares USD m 2015 47 4,689,237 8.20 4,755.4 34 2,522,760 4.69 3,476.2 55 7,326,714 39.91 (31.4) 100 12,031,580 3.14 (0.6) 49 677,589 16.26 (33.2) 2016E 6,479.3 6,666.7 19.1 0.0 140.8 2017E 7,520.1 6,406.3 35.8 (0.0) 161.6 2018E 7,112.7 7,673.0 45.0 0.0 180.6 2015 10.9 NA 21.3 (2,237.9) (60.9) 2016E 36.3 101.2 157.5 103.4 393.5 2017E 16.1 (3.9) 87.3 (119.0) 14.7 2018E (5.4) 19.8 25.8 1,075.0 11.8 2015 27,452.9 17,446.9 1,171.5 44.9 418.8 2016E 30,266.8 17,367.7 1,203.3 43.8 536.8 2017E 33,888.0 20,832.0 1,216.2 43.7 589.4 2018E 37,276.8 23,835.0 1,086.8 45.4 615.5 2015 4,409.0 1,201.5 25.0 (4.4) 29.1 2016E 6,701.0 1,677.5 84.7 1.5 85.7 2017E 7,630.2 1,705.6 101.5 1.3 95.3 2018E 7,059.4 NA 72.1 1.8 93.6 2015 3,485.5 652.9 (30.5) (4.8) (8.0) 2016E 5,461.3 1,213.3 16.3 0.3 34.7 2017E 6,338.7 1,320.2 32.8 (0.1) 39.9 2018E 5,995.2 1,508.0 49.3 0.0 45.1 2015 12.7 3.7 (2.6) (10.7) (1.9) 2016E 18.0 7.0 1.4 0.6 6.5 2017E 18.7 6.3 2.7 (0.2) 6.8 2018E 16.1 6.3 4.5 0.0 7.3 2015 2.2 2.9 1.3 0.7 2.1 2016E 1.9 2.3 1.3 0.8 1.9 2017E 1.5 1.9 1.2 0.8 1.7 2018E 1.3 1.4 1.0 0.8 1.4 2015 9.1 12.4 (12.5) (3.0) (55.6) 2016E 6.7 6.4 20.5 89.0 13.1 2017E 5.8 6.7 10.9 (467.5) 11.4 2018E 6.1 5.6 8.7 47.9 10.2 2015 6.7 5.3 14.5 68.5 11.7 2016E 4.9 NA 8.7 8.9 7.1 2017E 4.3 NA 7.2 9.0 6.3 2018E 4.6 NA 6.9 7.6 5.9 2015 26.4 38.3 (10.2) (15.2) (3.7) 2016E 32.3 37.8 6.4 (0.5) 14.9 2017E 28.9 32.9 10.5 (2.6) 15.0 2018E 22.5 27.7 16.2 (2.8) 14.6 Source: Bloomberg, Mirae Asset Research Mirae Asset Securities Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN II Investment thesis Sector-leading profitability, thanks to low costs Figure 12 Cost of steel production in Vietnam (2Q16) (thousand tonnes) (% YoY) 7,000 70% 60% 6,000 50% 5,000 40% 4,000 30% 3,000 20% 10% 2,000 0% 1,000 -10% - -20% 2006 2007 VSA's selling volume 2008 VSA's selling volume growth 2009 2010 2011 HPG's selling volume 2012 2013 2014 2015 HPG's market share HPG's selling volume growth Source: Vietnam Steel Association (VSA), Mirae Asset Research As a developing country, Vietnam’s steel industry is in the early stages of development, with most steel companies being small-scale mills that manufacture low-value rebar steel (concrete-reinforcing bars) Vietnam’s steel industry still uses small smelting chambers and heavy input of scrap metal (83%), which results in high costs and inefficient use of energy As a result, Vietnam’s steelmakers are faced with difficulties, especially in terms of production costs, compared with developed nations, which have large-scale production from integrated mills Currently, there are only three steel producers in Vietnam that operate integrated mills with blast furnaces: Hoa Phat Group (HPG VN), Thai Nguyen Iron and Steel JSC (TIS VN), and Viet–Trung Metallurgy and Mineral Co Ltd (Viet–Trung) Of the three, Hoa Phat has the largest total capacity for construction steel, at over 2m tonnes per year, versus 1m tonnes for Thai Nguyen Iron and Steel JSC and 500,000 tonnes for Viet–Trung Hoa Phat is the largest producer of construction steel in Vietnam, in terms of both capacity and market share (22%, as of June 2016) Unlike other steel producers in Vietnam, Hoa Phat operates an integrated mill (capacity of 1.7m tonnes) that produces steel bar from the first stage of the value chain, iron ore Thanks to low costs, the company enjoys the highest profitability in Vietnam’s steel sector We estimate the average cost of steel production of Hoa Phat’s complex at approximately VND7.9m/tonne in 2016, based on: 1) operation of the integrated mill at 90- 100% of capacity; and 2) the currently low global prices of raw materials (coal, iron ore, scrap, billet) The average cost of steel from the company’s complex is equivalent to 85% of the cost of steel produced from scrap (VND9.0m/tonne) and 81% of the cost of steel produced from purchased billets (VND9.2m/tonne) Mirae Asset Securities Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN As a result, at the current selling price of around VND10m/tonne, Hoa Phat’s gross margin1 for steel made from iron ore, steel scrap, and purchased billet is 22%, 10%, and 8%, respectively This shows that steel made from iron ore provides a higher margin than steel made from other materials The current selling price provides the company with a significant competitive advantage, based on our estimation Figure 13 Cost of steel production in Vietnam at 2Q16 VNDmn/tonne 9.40 9.20 9.00 8.80 8.60 8.40 8.20 8.00 7.80 7.60 7.40 Cost of steel from iron ore using Blast Furnace Cost of steel produced from scrap Cost of steel produced from purchased billets Source: Hoa Phat, Mirae Asset Research Figure 14 Construction steelmaker comparison Company Name Ticker Market cap (VND bn) Share price (VND) Change (%) P/E (x) P/B (x) OPM (%) ROE (%) YoY YTD FY15 FY15 FY15 2Q16 FY15 29.8 25.2 Steel from iron ore Hoa Phat Group HPG VN Thai Nguyen Iron And Steel TIS VN 38,303 45,450 71 77 5.8 1.5 16.1 1,562 6,000 15 15.6 0.6 4.1 4.1 Steel produced from scrap Thu Duc Steel JSC TDS VN 178 14,600 103 40 3.4 0.6 4.1 20 Nha Be Steel JSC TNB VN 204 9,300 18 16 3.6 0.9 28.3 Pomina Steel Corp POM VN 1,639 8,500 31 23 46.6 0.5 4.6 6.6 1.2 Vietnam-Italy Steel JSC VIS VN 733 15,100 125 96 0.6 0.9 -8.2 DANA-Y Steel JSC DNY VN 132 6,800 15 39 0.4 3.7 5.7 2.3 16 Source: Bloomberg, Mirae Asset Research Hoa Phat began construction of an integrated steel mill in 2007, with the mill becoming operational in 2010 From 2010 until the beginning of 2016, excluding soft coal (imports) and hard coal for coke (which account for an estimated 40% of the production costs for finished steel), raw materials, such as iron ore, were provided by Hoa Phat’s subsidiaries Although the company currently outsources its iron ore, the cost is below what it would be for Hoa Phat to produce its own, thanks to low global iron ore prices In addition, iron ore and coke prices costs show less volatility than that of scrap iron As scrap iron account for 90% of production costs, the input costs of steel produced from iron ore and coke are below that made from scrap iron This key competitive advantage Mirae Asset Securities Our estimates are based on the average market prices of global coke, pig iron, and steel billet (the price of hard coking coal price is around USD90/tonne; anthracite coal at USD80/tonne; steel scrap ~USD210/tonne; and steel billet ~USD330/tonne) Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN has helped Hoa Phat to achieve growth above the industry average, even amid the steel sector’s stagnant growth period of 2011–2013 Strong cost control has enabled Hoa Phat to increase its market share gradually and become the largest construction steelmaker in Vietnam Moreover, it enables Hoa Phat to offer high commissions for sales agencies, to compete with domestic and Chinese competitors Figure 15 Hoa Phat’s spread between COGS of construction steel and ASP (VND/tonne) 3,500,000 Very high ASP, thanks to safeguard tariff 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2013 2014 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16F 4Q16F Source: Hoa Phat, Mirae Asset Research Financial strength Figure 16 Construction steel market size in Vietnam (thousand tonnes) 8,000 Production Selling Production growth Selling growth (% YoY) 35 30 7,000 25 6,000 20 5,000 15 4,000 10 3,000 2,000 1,000 (5) (10) 2011 2012 2013 2014 2015 Source: VSA, Mirae Asset Research In 2011 and 2012, both the production and consumption of construction steel among members of the Vietnam Steel Association, or VSA (which represents 90% of total steel production in Vietnam) saw negative growth, due to weak demand Construction steel makes up the largest portion (40%) of total steel demand in Vietnam From 2011 to 2013, sales of construction steel remained at around 4.6 to 4.7m tonnes (CAGR of -1.5%), with Hoa Phat the only steel producer to see consistent earnings results during this period (see Figure 17) We compared cash flow from operating activities (CFO) between Hoa Phat and other steel producers in Vietnam Fluctuations in the input prices of materials for steel production, such as iron ore, coking coal, and scrap, have a significant impact on the selling price of the finished product Investors tend to view steelmakers as unattractive investments, due to their earnings fluctuations However, even during the Vietnamese Mirae Asset Securities 10 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN steel industry’s crisis of 2011-2013, amid a stagnant real estate market, Hoa Phat enjoyed stable net profits, while many of Vietnam’s steel producers went bankrupt We expect the company to continue to enjoy high net profit growth and stable operational cash flow going forward Unlike other steelmakers, which have suffered from unstable, or even negative, cash flow over the past five years, Hoa Phat has enjoyed steady growth in operational cash flow during the same period Figure 17 Hoa Phat’s CFO (VND bn) 7,000 6,222 6,205 6,000 5,396 4,543 5,000 5,674 4,111 4,000 2,959 3,000 2,682 2,144 2,000 1,000 304 2011 2012 2013 2014F 2015 2016F 2017F 2018F 2019F 2020F Source: Bloomberg, Mirae Asset Research Figure 18 Comparison of steelmakers’ CFO 2011 (VND bn) 2012 2013 2014 2015 5,000 4,000 3,000 2,000 1,000 (1,000) (2,000) HPG HSG DNY TIS POM NKG Source: Bloomberg, Mirae Asset Research Figure 19 CFO comparison: Hoa Phat Group (HPG) vs Hoa Sen Group (HSG) (VND bn) HPG 5,000 HSG 4,000 3,000 2,000 1,000 (1,000) 2011 2012 2013 2014 2015 Source: Bloomberg, Mirae Asset Research Mirae Asset Securities 11 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN III DuPont analysis In order to carry out a DuPont analysis for Hoa Phat, we broke down its ROE into three parts: 1) net profit margin (net profit/sales); 2) asset turnover (sales/total assets); and 3) financial leverage (total assets/shareholders' equity) By employing a DuPont analysis, we can assess how well the company is leveraging its assets, compared with global peers In 2015, the company indeed outperformed global peers, in terms of net margin, asset turnover (0.15x vs 0.92x global average), and even financial leverage (1.81x versus a 4.04x global average) In terms of net margin, we believe the high levels of 2016 and 2017 will be difficult to maintain, as we not expect the favorable trend of raw material prices to continue long term Figure 20 Hoa Phat’s DuPont analysis 2012 2013 2,14 2015E 2016E 2017E 2018E 2019E 12.0 21.5 29.2 26.4 32.3 28.9 22.5 18.8 Net margin (%) 5.9 10.3 12.3 12.7 18.0 18.7 16.1 14.8 Asset turnover (x) 0.9 0.8 1.2 1.1 1.0 1.0 1.0 1.0 Financial leverage (x) 2.2 2.4 1.8 1.8 1.5 1.4 1.3 1.3 ROE (%) Source: Hoa Phat, Mirae Asset Research Figure 21 Hoa Phat vs global peers: DuPont analysis (2015) HPG VN HSG VN TATA IN 323 HK JSTL IN ROE (%) 26.4 24.7 -10.2 -23.0 -3.7 Net margin (%) 12.7 3.7 -2.6 -10.7 -1.8 Asset turnover (x) 1.2 1.8 0.7 0.7 0.5 Financial leverage (x) 1.8 3.7 5.4 3.1 3.9 Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 12 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN IV Financial analysis Short receivable period Steel is a key input material of capital goods industries; these industries not consume input material within a single year, so steel manufacturers often have to provide credit in the form of receivables for their customers, in order to retain client's loyalty However, Hoa Phat has a low receivable period figure, reflecting the high quality of the company’s sales, as well as its customers Moreover, the company’s receivable period decreased to 22 days in FY15 from 32 days in FY13, and continues on a downtrend It should be noted that the inventory turnover of Hoa Phat is quite low We believe that this is the result of the company’s raw material stocking policy, which aims to optimize profitability This policy has enjoyed positive results, thanks to the company’s solid brand name, high market share, and good bargain-sales policy However, unexpected changes in raw material price trends could have a negative effect on Hoa Phat’s earnings results Figure 22 Hoa Phat’s operating ratio 2013 2014 2015P 2016E 2017E 2018E 2019E Receivables turnover (x) 12 15 16 16 17 17 17 Average receivable period (days) 32 24 22 22 21 21 21 3 3 3 173 138 120 146 146 146 146 10 10 11 12 12 12 45 38 38 35 32 32 32 Inventory turnover (x) Average inventory period (days) Payable turnover (x) Number of payable (days) Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 13 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN V Earnings outlook For FY16, we forecast revenue at VND30.2tn (+10% YoY) and operating profit at VND7.2tn (+64% YoY), with growth coming mostly from the steel division We expect sales volume of construction steel and steel billet of 1.64m tonnes (+19% YoY) and 280,000 tonnes, respectively, but we believe that ASP will fall to VND9.5m/tonne (-12.8% YoY), due to stiff competition from Chinese steelmakers However, thanks to the low cost of raw materials, Hoa Phat’s operating margin should increase to 23.9%, compared with 16% in FY15, leading to a 64% increase in operating profit in FY16 We forecast 3Q16 revenue of VND7.5tn (+8.9% YoY) for Hoa Phat, with the rise in revenue the result of an increase in the sales volume of construction steel (+23% YoY), due to the completion of Phase of Hoa Phat’s integrated mill operation However, we expect a continued decline in ASP (-15% YoY), as the third quarter usually sees low sales volume, due to Vietnam’s rainy season Gross margin and operating margin will come at 25.8% and 22%, respectively (versus 23% and 19%, respectively, in 3Q15) Thanks to favorable trends in global commodities prices and a high export tax on iron ore in Vietnam (40%), the company should be able to maintain low steel production costs Figure 23 Hoa Phat’s revenue breakdown Figure 24 Hoa Phat’s operating profit breakdown (VND bn) (VND bn) Steel 40,000 Others Steel 5,000 Others 4,500 35,000 4,000 30,000 3,500 25,000 3,000 20,000 2,500 2,000 15,000 1,500 10,000 1,000 500 5,000 2011 2012 2013 2014 2015 2016E Source: Hoa Phat, Mirae Asset Research 2017E (500) 2011 2012 2013 2014 2015 1H16 Source Hoa Phat, Mirae Asset Research Figure 25 Hoa Phat’s 3Q16 earnings preview (VND bn, %, ppt) 3Q15 4Q15 1Q16 2Q16 3Q16P (YoY) (QoQ) Sales 6,845 7,122 7,142 8,048 7,456 8.9 (7.4) Operating profit 1,319 772 1,244 2,402 1,663 26.1 (30.8) Pre-tax profit 1,161 683 1,211 2,382 1,555 34.0 (34.7) NP (controlling interests) 1,032 565 1,022 2,026 1,325 28.4 (34.6) OPM 19.3 10.8 17.4 29.9 22.3 3.0 (7.8) Pre-tax margin 17.0 9.6 17.0 29.6 20.9 3.9 (5.7) Net margin 15.1 7.9 14.3 25.2 17.8 2.7 (5.2) Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 14 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Figure 26 Hoa Phat’s quarterly earnings forecast (VND bn) 1Q15 2Q15 3Q15 4Q15 2015 1Q16 2Q16 3Q16P 4Q16E 2016E 1Q17E 2Q17E 3Q17E 4Q17E 2017E Sales 5,838 7,648 6,845 7,122 27,453 7,142 8,048 7,456 7,621 30,267 7,863 8,921 8,454 8,650 33,888 4,879 6,177 5,326 5,511 21,892 5,988 7,045 6,553 6,811 26,397 7,158 8,129 7,462 7,759 30,508 959 1,471 1,519 1,611 5,561 1,154 1,003 902 809 3,869 705 792 993 890 3,380 COGS 4,822 5,948 5,285 5,817 21,859 5,712 5,477 5,530 5,659 21,859 5,829 6,359 6,247 6,446 24,881 Gross profit 1,016 1,699 1,560 1,305 5,594 1,431 2,572 1,926 1,962 8,408 2,035 2,562 2,207 2,204 9,007 SG&A 211 197 241 533 1,185 187 169 263 570 1,189 227 213 288 647 1,377 Operating profit 805 1,502 1,319 772 4,409 1,244 2,402 1,663 1,391 7,219 1,807 2,349 1,918 1,556 7,630 NP (controlling interests) 649 1,238 1,032 565 3,485 1,022 2,026 1,325 1,125 5,461 1,499 1,961 1,594 1,285 6,339 Steel Others Growth (YoY, %) Sales 48.4 76.0 63.2 10.2 75.4 22.3 5.2 8.9 7.0 10.2 10.1 10.8 13.4 13.5 12.0 Operating profit 50.5 112.6 96.4 11.1 4.6 54.6 59.9 26.1 80.3 63.7 45.3 (2.2) 15.3 11.9 5.7 Net profit 21.3 75.2 53.7 (18.6) 10.85 57.5 63.7 28.4 99.0 56.7 46.7 (3.2) 20.3 14.2 16.1 GM (%) 17.4 22.2 22.8 18.3 20.4 20.0 32.0 25.8 25.7 27.8 25.9 28.7 26.1 25.5 26.6 OPM (%) 13.8 19.6 19.3 10.8 16.1 17.4 29.9 22.3 18.3 23.9 23.0 26.3 22.7 18.0 22.5 Net profit margin (%) 11.1 16.2 15.1 7.9 12.7 14.3 25.2 17.8 14.8 18.0 19.1 22.0 18.9 14.9 18.7 Margin (%) Source: Hoa Phat, Mirae Asset Research 15 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN VI Risk factors Hoa Phat has begun to invest in a new animal feed business Animal feed is a highly competitive sector in Vietnam, with foreign producers, such as Charoen Pokphand Foods PLC (C.P.), Cargill, ANT, and De Heus, dominating the market Thus, we are concerned that business diversification may exert a negative impact on the company Moreover, the solid supply risk from China-made steel and Formosa Ha Tinh Steel, a subsidiary of Formosa Plastics Corp, could drag down Hoa Phat’s ASP, as well as its earnings Mirae Asset Securities 16 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN VII Company background Established in 1992, Hoa Phat Group (HPG VN) is one of Vietnam’s leading private industrial manufacturing groups The group is involved in steel production, refrigeration, furniture, machinery, and property development The company has been investing in the agricultural segment, which comprises husbandry and feed production, since 2015 At present, construction steel is the group’s core business, accounting for 79.4% of total revenue and 82.3% of total profit (at the end of 2015) Hoa Phat is recognized as one of the three largest manufacturers of construction steel in Vietnam, with a market share of over 22%, as of June 2016 Hoa Phat entered the agricultural sector in 2015 by establishing the Hoa Phat Feeds Production & Trading One Member Limited Liability Company, with charter capital of VND300bn and maximum capacity of 300,000 tonnes per year Figure 27 Hoa Phat Group history Date Event 2007 Restructuring as a group and listing on the Vietnam stock market 2009 Completion of the first stage of the Hoa Phat integrated steel complex 2011 Structuring the operating model of the parent company by separating the steel production and trading segments 2013 Completion of the second stage of the steel complex, raising total capacity to 1.15m tonnes/year 2014 Initiation of the third stage of the steel complex 2015 Launch of Hoa Phat Feeds Production & Trading One Member Ltd 2015 Hoa Phat Mining JSC officially renamed Hoa Phat Livestock Development JSC 2016 Establishment of Hoa Phat Agriculture Development JSC 2016 Completion of the third stage of the steel complex operation Source: Hoa Phat, Mirae Asset Research Management description Mr Long Tran founded the Hoa Phat Group in 1992 Currently, Long is chair of the group and orients business strategy for each subsidiary Long plays an important role in Hoa Phat, as he makes all the major decisions of the company Shareholding structure The largest shareholders are Mr Long Tran and his wife, with a combined 32.44% stake Foreign ownership stands at 37%, as of 20 September 2016 Figure 28 Hoa Phat Group’s shareholder structure Tran Dinh Long, 25.15 Others, 56.83 Vu Thi Hien, 7.28 Deutsche Bank AG & Deutsche Aset Management, 4.86 Dragon Capital, 5.88 Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 17 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Company structure As of end-2015, Hoa Phat owns 16 subsidiaries, which operate in four divisions: Real Estate, Agriculture, Other Industrial Production, and Steel, in which seven subsidiaries operate Figure 29 Hoa Phat’s company structure Hoa Phat Steel JSC Hoa Phat Steel One Member Co., Ltd Hoa Phat Steel Pipe Co., Ltd Steel Hoa Phat Energy JSC An Thong Mining Investment JSC Hoa Phat Mitraco Mineral JSC Nam Giang Mining One-Member Co., Ltd Hoa Phat Equipment Accessories Co., Ltd Hoa Phat Group Other Industrial Production Hoa Phat Furniture JSC Hoa Phat Refrigeration Engineering Co., Ltd Hoa Phat Trading Co., Ltd Hoa Phat Urban Development and Construction JSC Real Estate Golden Gain Vietnam JSC Hoa Phat Agriculture Development JSC Hoa Phat Live-Stock Development JSC Agriculture Hoa Phat Feeds Trading and Production One Member Co., Ltd Hoa Phat Dong Nai Feeds One Member Co., Ltd Hoa Phat Quang Binh Live-Stock Co., Ltd Source: Hoa Phat, Mirae Asset Research Mirae Asset Securities 18 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Summary financial statements Profit & loss Year end Dec 31 (VND bn) Balance sheet 2015 2016E 2017E 2018E Revenue 27,453 30,267 33,888 37,277 Current assets Cost of goods sold 21,859 22,377 24,881 28,703 Cash & equivalents 5,594 7,890 9,007 8,574 Short-term financial asset Gross profit Year end Dec 31 (VND bn) 2015 2016E 2017E 2018E 11,915 15,355 19,236 22,990 2,373 4,027 6,800 8,776 758 758 758 758 SG&A 1,185 1,189 1,377 1,514 Accounts receivable 1,608 1,356 1,436 1,657 EBIT (Adj.) 4,409 6,701 7,630 7,059 Inventory 6,937 8,951 9,952 11,481 EBIT 4,409 6,701 7,630 7,059 Other current assets 239 263 289 318 Net interest income (loss) (131) (292) (193) (26) Non-current assets 13,592 13,690 14,501 14,781 - - - Net fixed assets 8,211 10,326 11,137 11,417 Others (101) 23 - - Investments 295 295 295 295 Recurring profit 3,990 6,431 7,437 7,034 Other long-term assets 517 967 1,098 1,039 Total assets 3,504 5,464 6,339 5,995 Income (loss) from associates Income tax Net profit Net profit (Controlling Interests) 3,485 5,461 6,339 5,995 EPS (Controlling Interests, VND) 4,755 6,479 7,520 7,113 Growth & margins (%) Revenue growth Gross profit growth EBIT growth 2015 2016E 2017E 2018E 13.5 14.8 27.1 28.9 9.5 16.8 26.7 26.1 1.1 28.4 26.0 34.9 Net profit growth 31.3 211.8 10.0 38.6 EPS growth 29.5 211.8 10.0 38.6 Gross margin 49.3 50.2 50.0 48.9 EBIT margin 5.0 5.6 5.6 5.8 Net profit margin 1.6 4.4 3.8 4.0 726 726 726 726 25,507 29,044 33,737 37,771 Current liabilities 9,993 8,720 8,343 8,273 Accounts payable 2,639 2,125 2,148 2,478 Short-term debt 6,117 5,717 5,317 4,917 Other current liabilities 1,237 878 878 878 Non-current liabilities 1,047 947 947 747 Long-term debt 739 639 639 439 Other long-term liabilities 308 308 308 308 Total liabilities 11,040 9,667 9,290 9,020 Controlling Interests 14,467 19,378 24,446 28,750 23 - - - Shareholder's equity 25,507 29,045 33,737 37,771 BVPS(VND) 19,738 22,989 29,003 34,109 Non-Controlling Interests Source: Hoa Phat Group, Mirae Asset Research estimates Source: Hoa Phat Group, Mirae Asset Research estimates Cash flow Ratio analysis Year end Dec 31 (KRW bn) 2015 2016E 2017E 2018E Year end Dec 31 Cash flow from operations 4,543 4,111 6,205 5,396 Net profit 3,473 5,464 6,339 5,995 Depr & amortization 1,282 1,099 1,189 1,220 540 292 193 26 Change in working capital (1,268) (3,712) (2,614) Cash flow from investing (3,764) (857) Capital expenditures (3,764) (1,027) - Cash flow from financing Dividends Others Others Increase in equity Increase in debt 2016E 2017E 2018E ROE (%) 26.4 32.3 28.9 22.5 ROA (%) 14.6 20.0 20.2 16.8 Inventory days 120 146 146 146 Receivables days 22 22 21 21 (2,883) Payable days 38 35 32 32 (1,768) (1,135) Net debt/equity (%) (2,005) (1,505) Interest cover (x) - - - (433) (1,599) (1,664) (2,286) (541) (1,099) (1,264) (1,686) - - - - 108 (500) (400) (600) Beginning cash 2,026 2,373 4,027 6,800 Ending cash 2,373 4,027 6,800 8,776 Source: Hoa Phat Group, Mirae Asset Research estimates Mirae Asset Securities 2015 12 (5) (13) (20) 17.5 14.5 17.7 17.8 Source: Hoa Phat Group, Mirae Asset Research estimates 19 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Recommendations Distribution of Ratings By stock (12 months) BUY: 83.2% BUY: A target price + 10% or more above the current price, HOLD: 15.5% HOLD: Target price within - 10% to +10% of the current price REDUCE: 1.3% REDUCE: A target price of –10% or less below the current price TOTAL: 100% By industry (All data are current as of 29 Apr 2016) OVERWEIGHT: over +10% of the current industry index NEUTRAL: -10% to +10% of the current industry index UNDERWEIGHT: -10% or less than the current industry index Important Compliance Disclaimer and Disclosures · Neither the author(s) of this report nor their spouses have any financial interest in the company(ies) covered herein · Mirae Asset Securities is neither an issuer nor a distributor of ELWs that have been issued based on shares of the companies discussed in this report This research report is distributed to our clients only, and none of the research report material may be copied or distributed to any other party While Mirae Asset Securities Co., Ltd has taken all reasonable care to ensure its reliability, we not guarantee that it is accurate or complete Therefore, Mirae Asset Securities Co., Ltd shall not be liable for any results from the use of this research report This research report has never been provided to any institutional investor or third party This research report has been prepared without any undue external influence or interference, and accurately reflects the personal views of the analyst on the company herein No part of the compensation of the research analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the research report or in public appearances The views expressed by the analyst in all public appearances during the calendar quarter accurately reflected the analyst’s personal views at that time about any and all of the subject securities or issuers [Analyst: Duong Nguyen Securities Held by the Analyst Stock Analyst Type Number of Shares Purchase Price Purchase Date Holdings of share of over 1% Participation in Issuance of Securities Involvement with Affiliates Treasury Stock Held Note: The Korea securities in this research report are only covered by the analysts of Mirae Asset Securities Co., Ltd Target Price and Recommendation Chart Hoa Phat Group (HPG VN) (VND) HPG VN (LHS) 55,000 Date Recommendation 12M target price (VND) 2016-09-20 BUY (Initiate) 50,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Source: Bloomberg, Mirae Asset Research Mirae Asset Securities 20 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN Mirae Asset Wealth Management (HK) Limited Analyst Certification The analysts of this research report hereby declare that: (i) all of the views expressed in this research report accurately reflect their personal views about any and all of the subject issuer(s) or new listing applicant(s); and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report or in their public appearances; (iii) no insider information/ non-public price-sensitive information in relation to the subject issuer(s) or new listing applicant(s) which may influence the recommendations were being received by the analysts; and (iv) the views expressed by the analysts in all public appearances during the calendar quarter accurately reflected the analysts’ personal views at that time about any and all of the subject issuers or new listing applicant(s) The analysts of this research report further confirm that (i) neither they nor their respective associates have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of the research report; (ii) neither they nor their respective associates serve as an officer of any of the Hong Kong subject issuer(s) or new listing applicant(s) covered in this research report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in this research report Mirae Asset Wealth Management (HK) Limited Compliance Disclosure MAWMHK and its affiliates and/or its employees may participate or invest in financing transactions with the covered issuer(s) and/or new listing applicant(s), and/or have proprietary trading positions or effect transactions in the securities or other financial instruments and related derivatives of covered issuer(s) or new listing applicants thereon MAWMHK confirms that it (i) does not own 1% or more aggregate financial interests of market capitalization in any of the issuer(s) or new listing applicant(s) reviewed; (ii) has no investment banking relationship with the issuer(s) or new listing applicant(s) covered within the preceding 12 months; (iii) is not involved in market-making activities in the securities of the covered issuer(s) or new listing applicant(s); or (iv) does not have any Individual employed by or associated with MAWMHK serving as an officer of any issuer(s) or new listing applicant(s) reviewed The aforesaid “Individual” means any individual (i) employed by MAWMHK in accordance with whose directions or instructions the analyst is accustomed or obliged to act; (ii) employed by MAWMHK who has influence on the subject matter or content, or the timing of distribution, of research report; or (iii) who is responsible for determining the remuneration of the analyst The above terms of Hong Kong Analyst Certification and Compliance Disclosure are defined pursuant to the “Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission” (hereinafter the “Code of Conduct”) issued by the Securities and Futures Commission in Hong Kong MAS Group Compliance Disclaimer The research report is originally prepared and issued by Mirae Asset Securities Co, Ltd and its subsidiaries (“MAS Group”) for distribution to its professional, accredited and institutional clients It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to such law or regulation or which would restrict MAS Group to any registration or licensing requirement within such jurisdictions It is not permitted to alter, transmit, copy or distribute any materials, contents and copies of the research report to any other persons or entities without the prior express written permission of MAS Group MAS Group owns all property rights of trademarks, service marks and logos used in the research report The research report for Korea securities has been prepared and issued by the analyst(s) who is/are licensed and regulated by the Korea Financial Investment Association in Korea only MAWMHK has not reviewed or changed the contents of Korean research reports before distribution and is not obligated to check any Korean research report which has complied with the Code of Conduct The information, opinion and material presented in the research report are provided for general information purposes only The document is not and should not be construed as an offer or the solicitation of an offer to sell or to buy or subscribe for any investments of securities, financial instruments or related derivatives MAS Group may not have taken any steps to ensure that the securities referred to in the research report are suitable for any particular investor Mirae Asset Securities 21 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN The contents of the research report not constitute investment advice to any person and such person shall not be treated as a client of MAS Group by virtue of receiving the research report Information and opinions presented in the research report have been obtained or derived from sources believed by MAS Group to be reliable, but MAS Group makes no representation or warranty, express or implied as to their accuracy, fairness or completeness and MAS Group accepts no liability for any direct or consequential loss arising from the use of the material presented in the research report unless such liability arises under specific statutes or regulations The research report is not to be relied upon in substitution for the exercise of independent judgment MAS Group may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this research report The research report reflects the different assumptions, views and analytical methods of the analysts who prepared them For the avoidance of doubt, views expressed in the research report not necessarily represent those of MAS Group and may not imply comparable future performance The research report may provide the addresses of, or contain hyperlinks to, various websites To the extent that the research report refers to material outside MAS Group’s own websites, MAS Group has not reviewed the linked sites and takes no responsibility for the content contained herein Such an address or hyperlink (including addresses or hyperlinks to MAS Group’s own website materials) is provided solely for the user’s convenience and the information and content of the linked sites does not in any way form part of the research report Accessing such websites shall be at the user’s own risk MAS Group may, to the extent permitted by law, participate or invest in financing transactions with the covered issuer(s) and/or the new listing applicant(s) referred to in the research report, perform services for or solicit business from such covered issuer(s) or new listing applicant(s), have proprietary positions or effect transactions in the securities or other financial instruments and derivatives of the covered issuer(s) and new listing applicant(s) thereon MAS Group may have investments of less than 1% in securities, financial instruments or derivatives of reviewed issuer(s) and new listing applicant(s) that may be traded in different ways from those discussed/recommended in the research reports Employees of MAS Group who were not involved in the preparation of the research report may have investments in securities, financial instruments or derivatives of reviewed issuer(s) or the new listing applicant(s) and may also trade in different ways from those discussed/ recommended in the research reports MAS Group may, to the extent permitted by law, act upon or use the information or opinions presented herein, or the research or analysis on which they are based, before the material is published MAS Group, its officers or directors and the analysts preparing the research report may have relationships with, financial interests in or business relationships with any or all of the covered issuer(s) and new applicant(s) mentioned in the research report As a result of abovementioned matters, the users should be aware that MAS Group may have conflicts of interest that could affect the objectivity of MAS Group’s research reports The users should consider the research reports produced by MAS Group as only a single factor in making investment decisions Information, opinions and estimates are provided on an “as if” basis without warranty of any kind and may be changed at any time without prior notice There is no assurance that future events or results will be consistent with any such opinions Nothing in the research report constitutes investment, legal, accounting or tax advice nor representation that any investment or strategy is suitable or appropriate for the individual circumstances Nothing in the research report constitutes a personal recommendation to the user The research report has been prepared by the analyst(s) who is/are licensed and regulated by the Securities and Futures Commission in Hong Kong or Korea Financial Investment Association in Korea who is/are not associated person(s) of any issuers or new listing applicants mentioned in the research report The research report is distributed in Hong Kong by MAWMHK; in Korea by its holding company named Mirae Asset Securities Co., Ltd.; in Vietnam by its subsidiary named Mirae Asset Wealth Management Securities (Vietnam) Limited Liability Company (hereinafter “MAWMSVN”); and in the United States by the subsidiary named MAWMUS The information may only be issued or passed on to any person in the United Kingdom if that is the kind of authorized persons or otherwise pursuant to the exemptions or circumstances where the restriction in section 21 does not apply, described in the Perimeter Guidance of the Financial Conduct Authority Handbook In addition, no person who is an authorized person may issue or pass on this information, or otherwise promote MAS Group, to any person in the United Kingdom other than under the rules of the Financial Conduct Authority applicable to such authorized persons The research report and any information, material and contents herein are intended for general circulation only and not take into account the specific investment objectives, financial situation or particular needs or any particular person Any United States user of the research report that would like further information regarding herein should contact MAWMUS Furthermore, any user of the research report that would like to effect any transaction in any security discussed herein should contact and place the orders with MAWMUS, which, without in any way limiting the foregoing, accepts Mirae Asset Securities 22 Duong Nguyen, Analyst, 84 3911 0636, duong.nguyen@miraeasset.com Hoa Phat Group HPG VN responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the SEC Act of 1934) for the research report and its dissemination in the United States If the research report is being distributed by a financial institution other than the MAS Group, MAWMUS or MAWMSVN, that financial institution should take sole responsibility for its distribution The research report does not constitute any investment advice by MAS Group, MAWMUS or MAWMSVN to users who receive this research report from the other financial institutions (hereinafter the “non-intended users”) If any non-intended users wish to effect transactions in any securities referred to within this research report, they should contact directly the financial institution(s) that distributed this research report to them The MAS Group, MAWMUS and MAWMSVN, and their officers, directors and employees not accept any liability whatsoever for any direct or consequential loss arising from the use of the contents of the research report Investments in general and, derivatives, in particular, involve numerous risks, including, inter alia, market risk, counterparty default risk and liquidity risk The price of securities may go up, as well as down Investors may incur the loss of invested capital The past performance presented is not indicative of future performance In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the value or risks related to the security or financial instrument may be absent The investment(s) mentioned in the research report may not be suitable for all investors and a person receiving or reading the research report should seek advice from an independent financial adviser regarding the suitability of such investment(s), taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to purchase any of such investment(s) The suitability of any particular investment or strategy, whether opined on, or referred to in the research report or otherwise, will depend on a person’s individual circumstances and objectives and should be confirmed by such person with the advisers independently before adoption or implementation thereof Mirae Asset Wealth Management (USA) Inc Compliance Disclaimer and Disclosure The research report is originally prepared and issued by Mirae Asset Wealth Management (HK) Limited (hereinafter “MAWMHK”) and/or Mirae Asset Securities Co., Ltd (hereinafter collectively known as “MAS Group”) for distribution to their professional, accredited and institutional clients MAS Group is not registered as a broker/dealer with FINRA or the NYSE The research report is distributed in the United States by Mirae Asset Wealth Management (USA) Inc (hereinafter “MAWMUS”) The views expressed in the research reflect the personal views of the analysts about the subject company The research analysts are not registered as research analysts with FINRA or the NYSE, but instead have satisfied the registration requirements of Hong Kong or Korean standards These research analysts are not be associated persons of MAWMUS and are not be subject to FINRA Rule 2711 or NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account MAWMUS confirms that it (i) does not own 1% or more of any class of common equity securities of the subject company; (ii) has no material conflict of interest at the time of publication of the research report; (iii) did not manage or co-manage a public offering of securities for the subject company in the past 12 months; or receive compensation for investment banking services from the subject company in the past 12 months; (iv) does not expect to receive or intend to seek compensation for investment banking services from the subject company in the next months; (v) is not involved in market-making activities in the securities of the subject company Copyright January 2016 MAS Group All rights reserved Mirae Asset Securities 23 ... 35,000 VinaCapital announces sale of 4.2m HPG shares 30,000 25,000 HPG surpasses 34% of full-year plan in months 20,000 VinaCapital announces purchase of 4m HPG shares VN Index declining amid stagnant... VSA's selling volume 2008 VSA's selling volume growth 2009 2010 2011 HPG' s selling volume 2012 2013 2014 2015 HPG' s market share HPG' s selling volume growth Source: Vietnam Steel Association (VSA),... 2,000 1,000 (1,000) (2,000) HPG HSG DNY TIS POM NKG Source: Bloomberg, Mirae Asset Research Figure 19 CFO comparison: Hoa Phat Group (HPG) vs Hoa Sen Group (HSG) (VND bn) HPG 5,000 HSG 4,000 3,000