HPG released Q2 2021 results with revenue of VND35.1tn (USD1.5bn; +72% YoY) and NPAT-MI of VND9.7tn (USD422.7mn; +254% YoY). We attribute these strong Q2 2021 earnings to 1) healthy sales volume growth (details in Figure 1) and 2) both construction steel and HRC prices remaining high in Q2 2021 amid strong demand from China.

For H1 2021, HPG recorded revenue of VND66.3tn (USD2.9bn; +67% YoY) while NPAT-MI reached VND16.7tn (USD726.0mn; +232% YoY). Aside from the strong performance of the steel business, we note that HPG recorded VND503bn (USD21.9mn) from a one-off gain from the divestment of its furniture business in Q1 2021.

HPG’s H1 2021 NPAT-MI was broadly in line with our expectation as it fulfilled 57% of our full-year forecast. Given the current disruption in construction activities in major cities/provinces throughout Vietnam amid the ongoing COVID-19 situation, we foresee limited upside to our 2021F forecast for HPG, pending a fuller review. More details on our current forecasts for HPG and our discussion about the steel sector’s outlook can be found in our latest Sector Report, Steel Sector Update - Steel price rally mostly priced in; profit growth to decelerate in H2 2021, dated July 2, 2021.

H1 2021 steel sales volume posted strong growth — generally in line with our forecast. We attribute this strong YoY sales volume growth to 1) increasing demand for building materials for infrastructure projects as the Vietnamese Government is pushing for public spending post COVID-19, 2) additional capacity from the Dung Quat Steel Complex 1 and 3) robust export sales.

Figure 1: HPG’s H1 2021 sales volume breakdown

Source: HPG, VCSC forecast (dated July 2, 2021)

Strong gross margin expansion in H1 2021 amid high steel prices. The rally of construction steel prices in China that began in H2 2020 and extended through H1 2021 has been led by strong demand that has spilled over to boost Vietnamese steel exports. HRC prices have skyrocketed ~35% since end-2020. HPG’s construction steel selling price average in Q2 2021 (VND16.9mn/ton) increased ~20% vs Q1 2021 (VND14.3mn/ton) and ~40% vs Q4 2020 (VND12.2mn/ton). This price situation resulted in HPG’s gross margin expanding to 29.7% in H1 2021 vs 18.8% in H1 2020.