HSG - Top line result meets expectations but bottom line trails

HSG announced its Q1 FY2025 results with details as follows:

Net revenue: VND10.2tn (USD401.7mn; +1% QoQ; +13% YoY; 23% of our FY2025F forecast).
NPAT-MI: VND166bn (USD6.5mn; vs a VND186bn/USD7.3mn loss in the previous quarter; +60% YoY; 14% of our FY2025F forecast).
Total sales volume of galvanized steel sheets and steel pipes: 499,500 tonnes (flat QoQ; +11% YoY; 25% of our FY2025F forecast).

Flat QoQ top-line result as sales volume and blended ASP remained stable QoQ: In Q4, net revenue grew 1% QoQ, with flat total sales volume of galvanized steel sheets and steel pipes, implying stable ASP QoQ. This performance was stronger vs NKG over the same period (please refer to our latest NKG Earnings Flash for more details) during which NKG’s net revenue dropped 14% QoQ. We attribute this to HSG’s stronger focus on the domestic market, as the main driver for NKG’s weak results was the 31% QoQ decline in the exports market while its domestic sales still grew 22% QoQ. YoY-wise, HSG’s net revenue grew 13% YoY, driven by a YoY recovery in construction demand from last year’s low base.

GPM surged QoQ from a low base. Q1 FY2025 GPM rose to 11.8% from 8.5% in Q4 FY2024 as HSG booked inventory provision expenses of VND122bn (USD4.8mn; 14% of Q4 FY2024’s gross profit) in the last quarter but booked inventory reversions of VND18bn (USD0.7mn; 1.5% of Q1 FY2025’s gross profit). This improvement contrasts with NKG’s QoQ GPM compression during the same period, which we attribute to (1) HSG’s stronger sales performance which led to comparably lower COGS per unit, (2) NKG’s larger ASP decline of 7% QoQ vs flat QoQ for HSG, and (3) the rebound from Q4 FY2024’s low base driven by inventory provision adjustments of HSG. To compare, NKG did not record any inventory provision expenses during the Q3 calendar year 2024.

SG&A eased QoQ as freight rates cooled. In Q1 FY2025, SG&A expenses dropped 6% QoQ as exports expenses (~40% of SG&A expenses during the latest two quarters) dropped 23% QoQ. We attribute this to QoQ lower average freight rates in Q1 FY2025 (i.e., Q4 of calendar year 2024).

Overall, we foresee insignificant changes to our FY2025F net revenue and total sales volume forecast but downside risk to our NPAT-MI forecast, as the Q1 FY2025 net revenue result was in line with our expectation (fulfilling 23% of our FY2025F forecast) whereas the NPAT-MI result trailed our expectation (achieving 14% of our 2025F forecast only), pending a fuller review.

HSG’s Q1 FY2025 results

VND bn	Q1 FY2024	Q4 FY2024	Q1 FY2025	QoQ	YoY	FY 2025F	Q1 FY2025/ FY2025F
Net revenue	9,073	10,110	10,222	1%	13%	43,751	23%
Gross profit	950	860	1,205	40%	27%	5,206	23%
SG&A expenses	-839	-1,058	-991	-6%	18%	-3,876	26%
Operating profit	110	-198	214	N.M.	94%	1,330	16%
Net interest income/(expense)	-25	-39	-49	23%	96%	-72	68%
Net FX gain/loss	19	72	17	-76%	-12%	71	24%
Other gain/loss	10	1	7	437%	-35%	40	16%
PBT	115	-164	189	N.M.	64%	1,369	14%
Tax expenses	-12	-17	-23	42%	98%	-205	11%
NPAT-MI	103	-181	166	N.M.	60%	1,164	14%
GPM	10.5%	8.5%	11.8%			11.9%
SG&A exp./Sales	9.2%	10.5%	9.7%			8.9%
OPM	1.2%	-2.0%	2.1%			3.0%
Effective tax rate	10.3%	-10.0%	12.4%			15.0%
NPM	1.1%	-1.8%	1.6%			2.7%

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