Hoa Phat Group, trading under the ticker HPG, a leading steel corporation in Vietnam, was established in 1992. Through significant growth, the company has become the market leader in Vietnam in both construction steel and steel pipes. Currently, Hoa Phat is one of Southeast Asia’s largest steel manufacturers.
Hoa Phat’s strategic decision to enter hot-rolled coil production in 2020 was an important step forward. By capitalizing on Vietnam’s substantial domestic demand for hot-rolled coil, Hoa Phat was a pioneer in the domestic steel industry.
Furthermore, the subsequent commissioning of the Dung Quat 1 factory in early 2021 marked a significant milestone, propelling the company to record-breaking revenue and profit levels. This surge in performance led to a meteoric rise in its stock price, increasing by approximately 3.6 times between June 2020 and December 2021.
Despite its impressive growth trajectory, Hoa Phat encountered headwinds in 2022 and 2023 due to rising costs of goods sold and operational challenges that impacted revenue and profits. Consequently, the stock price experienced a sharp decline from its peak in 2021.
A significant challenge for Hoa Phat is the intensifying competition from China. A surge in Chinese imports has decreased the market share of domestic hot rolled coil producers, including Hoa Phat, from 45 percent in 2021 to 30 percent in 2023. This could be a significant threat to the company’s profitability.
While the challenges are evident, the potential of Hoa Phat’s Dung Quat 2 complex to drive future growth cannot be ignored. This complex is expected to start operating in early 2025, targeting an annual production capacity of 5.6 million tons of steel, including 4.6 million tons of HRC and 1 million tons of specialty steel. This could potentially stimulate revenue, and profits, making Hoa Phat an intriguing investment prospect.
Disclosure: The author owns shares in HPG.
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