HSG reported Q3 FY2021 results with revenue of VND13.0tn (USD564.5mn; +90% YoY) and NPAT-MI of VND1.7tn (USD74.0mn; +435% YoY) amid 1) robust total sales volume (+56% YoY or +13% QoQ) thanks to strong export sales, 2) record high steel prices (hot rolled coil (HRC) prices have skyrocketed ~35% since end-2020), and 3) declining interest expenses as HSG is actively paying down long-term debts. Aside from its strong core business performance, HSG also recorded VND107bn (USD4.6mn — equivalent to 5% of HSG’s Q3 FY2021 PBT) as gains from investment; we are seeking clarification from HSG’s management regarding this gain. 

In 9M FY2021, HSG recorded revenue of VND32.9tn (USD1.4bn; +72% YoY) and NPAT-MI of VND3.4tn (USD146.6mn; +381% YoY). As the 9M FY2021 NPAT-MI result fulfilled 90% of our full-year forecast, we anticipate upside risk to our FY2021 earnings forecast, pending a fuller review.

We again note our view that steelmaker margins will decline in H2 2021 from a very high base in H1 2021. Since April 2021, HSG’s revenue results posted a slower MoM growth rate compared to Q2 FY2021. Moreover, the price spread between HSG’s input (HRC) and output (galvanized steel) is much thinner compared to that between iron ore and finished steel products, which will amplify the risk of margin compression when either lower-cost HRC inventory runs out and input costs catch up relative to product prices or product prices decline. We expect the steel price rally in H1 2021 to lose momentum and stabilize close to current levels, resulting in a reversal of gross margin for steelmakers in H2 2021 (or in Q4 FY2021 and Q1 FY2022 for HSG). More details on our current forecasts for HSG and our steel sector 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.