HSG - FY2024 revenue on track, NPAT-MI below expectations; Q4 GPM narrows QoQ as anticipated

HSG announced weak FY2024 results with net revenue of VND39.3tn (USD1.6bn; +2% YoY; 104% of our FY2024F forecast) and NPAT-MI of VND510bn (USD20.4mn; +17x YoY; 65% of our FY2024F forecast). In Q4 FY2024, HSG reported net revenue of VND10.1tn (USD404.4mn; -7% QoQ, +25% YoY) and an NPAT-MI loss of VND186bn (a USD7.4mn loss; vs Q3 FY2024’s profit of VND273bn and Q4 FY2023’s profit of VND438bn). We note that HSG’s financial year ends on September 30.

YoY higher Q4 FY2024 revenue due to higher volume, partially offset by lower ASP: According to the Vietnam Steel Association, HSG’s Q4 FY 2024 total sales volume of steel pipes and galvanized steel sheets was 499,200 tonnes (-3% QoQ; +28% YoY). We attribute the QoQ lower sales volume to increased competition from Chinese low-priced steel in both the domestic and international markets. YoY-wise, sales volume was higher due to demand recovery from last year’s low base. Q4 sales volume increased at roughly the same pace vs net revenue (+28% YoY vs +25% YoY, respectively), implying relatively flat YoY ASP for the quarter. For full-year FY2024, total sales volume of steel pipes and galvanized steel sheets was 1.9mn tonnes (104% of our FY2024F forecast), marking a 37% YoY growth, exceeding net revenue’s growth of 24% YoY. This implies a full-year ASP decline, which we attribute to pressure from Chinese low-priced steel.
Q4 GPM dropped QoQ as projected, but the magnitude was larger than expected: Q4 FY2024 GPM was 8.4%, weaker vs Q3 GPM of 12.3% and our Q4 FY2024F GPM projection of 11.4%. We attribute the weak Q4 GPM performance to QoQ weaker hot-rolled-coil (HRC) prices due to pressure from China. We note that, in an HRC price downtrend, margins of downstream steel producers typically compress due to lower spreads, driven by lower output ASPs (as they are often adjusted based on spot prices) and higher input materials costs (due to inventory previously procured at higher costs). For FY2024, GPM of 10.8% trailed behind our forecast of 11.6%.
Q4 SG&A expenses/revenue surged 69% YoY, which we attribute to (1) salary expenses (22%/26% of Q4 FY2023/24 total SG&A expenses) doubling YoY, and (2) exports expenses (30%/37% of Q4 FY2023/24 total SG&A expenses) doubling YoY due to YoY higher average shipping costs as a result of the Red Sea crisis. FY2024 SG&A expenses increased 34% YoY. We note that in Q3 2024 (i.e., HSG’s Q4 FY2024), freight rates normalized from July’s peak as the Red Sea crisis and the drought at the Panama Canal eased, but the average level still remained elevated YoY.
Q4 FY2024 saw a net FX gain of VND72bn (USD2.9mn). Including the abnormally high net FX gain of VND124bn (USD5mn) in Q2 FY2024, FY2024’s total net FX gain was VND219bn (USD8.8mn), 94% higher vs VND113bn (USD4.5mn) recorded in FY2023.

Overall, as FY2024 NPAT-MI only fulfills 65% of our FY2024F forecast, we foresee downside risk to our current projections, pending a fuller review.

HSG’s FY2024 results

VNDbn	Q4 FY2023	Q3 FY2024	Q4 FY2024	QoQ	YoY	FY2023	FY2024	YoY	FY 2024F	FY24 as % of FY24F
Revenue	8,107	10,840	10,109	-7%	25%	31,651	39,270	24%	37,846	104%
Gross profit	1,072	1,337	849	-37%	-21%	3,058	4,252	39%	4,390	97%
SG&A expenses	-627	-1,030	-1,058	3%	69%	-2,875	-3,840	34%	-3,588	107%
Operating profit	445	307	-209	N.M.	N.M.	183	412	126%	802	51%
Net interest income/(expense)	-35	-38	-39	3%	13%	-192	-91	-53%	-113	81%
Net FX gain/loss	89	4	72	1,615%	-20%	113	148	31%	146	101%
Other gain/loss	5	14	1	-91%	-75%	65	39	-39%	42	94%
PBT	504	287	-176	N.M.	N.M.	152	540	255%	877	62%
Tax expenses	-65	-14	-10	-28%	-85%	-124	-30	-76%	-88	34%
NPAT-MI	438	273	-186	N.M.	N.M.	28	510	1,699%	789	65%
GPM	13.2%	12.3%	8.4%			9.7%	10.8%		11.6%
SG&A exp./Sales	7.7%	9.5%	10.5%			9.1%	9.8%		9.5%
OPM	5.5%	2.8%	-2.1%			0.6%	1.0%		2.1%
Effective tax rate	13.0%	4.8%	-5.7%			81.3%	5.6%		10.0%
NPM	5.4%	2.5%	-1.8%			0.1%	1.3%		2.1%

Source: HSG, Vietcap. Note: HSG’s financial year (FY) ends on September 30.