COMPANY UPDATE 1

HOA PHAT GROUP JSC

HOLD Target price: 44,800 Date of issue: 13 May 2009

Ticker Exchange Industry

HPG HOSE Construction Materials - Steel

FINANCIAL HIGHLIGHTS
Items Revenue (VND million ) Cost of goods sold Gross Profit Margin (%) Net Profit (VND million) Total Asset (VND million) Shareholders Equity (VND million) Outstanding Shares (000) EPS (VND) BVPS (VND) ROE (%) P/E 2009 Dividend 30% 2008 8,364,805 7,106,496 15.0% 854,191 5,639,375 4,111,067 196,364 4,350 20,936 24% 1Q09 1,586,783 1,139,824 28.2% 300,827 5,990,699 4,380,993 196,364 1,532 22,311 2009F 8,515,974 7,499,003 11.9% 659,874 6,073,765 4,117,545 196,364 3,360 20,969 16% 15.3 20% Source: HBBS data

BASIC INFORMATION Products and Services: + Manufacturing & trading construction steel and steel pipe + Interior + Construction machine + Refrigeration engineering + Real estate building trading + Minerals Ownership structure + BOM: 36.9% + VOF: 6.1% + PENM: 5.2% + Strategic partners: 8,0% + Foreign investors: 11,2% + Domestic investors: 23,2%
24,300 77,500 1,362,953 791,660 10,112,746

Transaction Statistics
Items 52 Week High - Low (VND) 1-month average volume (shares) 3-month average volume (shares) Market Capitalization (VND million)

+ Other: 9,4% Main Market: Vietnam Major Competitors: + Construction Steel: Thainguyen, Vinakyoei Pomina,

Source : HSX, HBBS data dated 13/05/2009

For the year 2009, Hoa Phat aims at revenue of VND 6,318 billion and after tax profit of VND 585 billion, which has been fulfilled 25.1% and 51.4% in 1Q09, respectively. Projection for 2009 steel sales is 240,000 tons. By the end of April, Hoa Phat has sold 107,600 tons, making up 44% of the projection. As Hoa Phat doesnt have to face the same inventories risk in late 2008, we believe that they will fulfill and surpass 2009s projection.

+ Steel Pipe: Asia Huu Lien, C190, Vietnam - Germany

Analyst: Dao Thi Thu Hang Email: [email protected]

COMPANY UPDATE 2

HPG Remains recession strong in 1Q09, HPB achieved a revenue of VND 1,586.78 billion, dropping 12.5% from 4Q08 and 30.6% over the same period last year. Net profit attained at VND 300.83 billion, a surge from last quarters loss of VND -232.65 billion, though falling 33.2% (equivalent to VND 149.67 billion) from the same period last year. Steel sector contributed over 60% to revenue and profit of the group (in which, construction steel made up 40%). 1Q09 revenue and profit both declined against 1Q08. In 1Q08 Hoa Phat was benefiting from a surging construction steel price ranging from VND12 16 million per ton while input cost was kept at low VND10 million per ton. Since 4Q08 steel price sharply dropped to over VND10 million per ton that in turn had a negative effect on the companys performance. However, this quarter outcomes were better than in 4Q08. After selling out the steel manufactured from costly input materials in 4Q08, 1Q09 sales were facilitated from lower input costs (imported steel billet was at around USD 300 USD 400/ton). Besides, Hoa Phat recognized inventories writedown provision reversal of over VND 100 billion out of VND 185 billion as of year-ended 2008, leading to higher gross profit margin. In 1Q09, gross profit margin approached its 7-quarter-high of 28.3%. Main business activities Steel sector: Market share is increasing In 1Q09, Hoa Phat manufactured 80,900 tons of construction steel, which exceeded 8.3% production of the same period last year and sold over 74,000 tons. Hoa Phats market share was improving from 5.6% in 2007 to 8.6% in 2008, and 9.4% in 1Q09. In April, sales reached 32,600 tons, making Hoa Phat the second biggest company in the North & the fourth in Vietnam. From April 1st, import tariffs on finished construction steel increased to 15%, steel billet to 8% (from previously 5%), leading to a better competition of local steel against imported steels. Nevertheless, Hoa Phat is still challenged by the global recession, which slows down local consumption. Besides, cost of goods sold increases as steel billet price has been on the rise since beginning of the year, from USD 370/ton in February to USD 420/ton in April.

Interior sector: Actively launching new products

From beginning of the year, Hoa Phat Furniture has introduced new products to the market, including deluxe leather chair for CEO, steel-pipe chair, economical safe box, etc.

Equipment and Accessory sector: exporting to Philippines Current projects Investment satisfied capital need is

Recently, Hoa Phat exports equipments for the first crushing screening line valuing USD 180,000, to SKAFF Eximport & Service Company (Philippines). In 1Q09, the group exported other products to Ukraine, Laos and Cambodia.

On 09/04/09, Hoa Phat signed a credit contract with BIDV for the 2009 2012 period with credit line of VND 5,500 billion including short term line of VND 4,000 billion and medium long term line of VND 1,500 billion. This contract will cover necessary investment capital need for Hoa Phat. At present, Hoa Phat is an investor of two projects, including Hai Duong Steel Complex (which the group owns 85% of stake), and Hoa Phat Cement Factory in Ha Nam (which the group holds 50% of chartered capital, equivalent to VND 300 billion). The group said nearly VND1,500 billion has been disbursed for the steel project, in which VND 1,200 billion comes from its capital and the remaining VND 300 billion from borrowings. Production lines and machines served for the project was bought and being installed for the pilot operation in June09. On 30/03/09, ore- selecting production line No.1 of ore-selecting factory (in Hoa Phat Steel Complex) manufactured 50 tons of ore. Its daily capacity is 1,000 tons of crude ore, fulfilling 30% of manufacturing demand, in estimation. This was the first operating production line in Hoa Phat Steel Complex. The first product of Hoa Phat Steel is expected to launch in late 3Q09.

Steel products will be introduced by late 3Q09

Analyst: Dao Thi Thu Hang Email: [email protected]

COMPANY UPDATE 3

In August 2009, cement factory will start operation Hoa Phat cement factory project, with total capacity of 3 million tons, is on phase I with yearly capacity of 1 million ton and investment capital of VND 1,200 billion. Till now, total disbursement was VND 1,000 billion, consisting of VND 400 billion from borrowings. The cement factory locates at Thanh Liem District Ha Nam Province, surrounding by many cement factories (But Son, Hoang Long, Thanh Liem, etc.). As a result, it may face difficulties in sales. However, the group is benefit from Hoa Phats reputation and existing networks with construction materials outlets. The first cement product will be introduced to the market in August09. In 2009, steel and cement projects will be put into operation. As of the groups estimation, cement output and sales are not high this year. Consequently, this sector will contribute minor part to Hoa Phats revenue. Financial situation Maintaining huge short-term bank accountst and leveraging to finance projects Hoa Phat is preparing capital for machines and equipments procurement in its new factory. By end of 1Q09, short-term investment as bank account stood at VND 733 billion. It is the working capital for 2 on-going projects. In 1Q09, Hoa Phat was continuing to invest in infrastructure with construction in progress of VND 202 billion, increasing VND 94 billion from last quarter. Meanwhile, the company borrowed BIDV to fund the project, as its quarter-end long term loan stood at VND 268 billion. Hoa Phat is pushing on these projects so long term loans are expected to rise.

Significant News

On 09/04/09: Comprehensive Cooperation Contract for the 2009 2012 period and Credit Contract for the year 2009 were signed with BIDV. On 02/04/09: The first 50 tons of fine steel ore from ore-selecting production line No.1, Ore-selecting Factory, Hoa Phat Steel Complex were manufactured.

Analyst: Dao Thi Thu Hang Email: [email protected]

COMPANY UPDATE 4

KEY STATISTICS 1. Profit and Loss Unit: VND million
2007 Total Revenue Deduction Net Revenue Cost of goods sold Gross Profit Financial Income Financial expense Interest Expense Net Profit from financial activities Selling expense Administrative expense Net operating profit Irregular income Profit and loss from joint-venture Net profit before tax (NPBT) Income tax Net profit after tax (NPAT) Minority shareholders' interest Net Profit 5,733,717 90,783 5,642,934 4,676,412 966,522 25,887 45,264 10,844 -19,377 89,006 106,718 751,421 6,626 1,378 759,426 115,452 643,974 1,880 642,094 2008 8,502,113 137,309 8,364,805 7,106,496 1,258,309 149,815 170,814 74,437 -20,999 106,408 138,460 992,443 16,636 9,550 1,018,629 159,219 859,410 5,219 854,191 1Q09 1,612,249 25,467 1,586,783 1,139,824 446,958 18,066 63,324 6,257 -45,258 21,488 27,603 352,609 4,816 1,347 358,773 57,140 301,633 806 300,827

2. Balance Sheet Unit: VND million

Asset Current assets Cash and cash equivalent Account receivables Inventories Other current assets Non current assets Tangible fixed assets At cost Accumulated depreciation Construction in progress Long term financial investments Other non-current assets TOTAL ASSETS TOTAL RESOURCES Current liabilities Short-term debts Short-term debts Other Short-term debts Long term debts Owner's equity Chartered capital Capital surplus Other funds Undistributed earnings Minority shareholders' interest TOTAL RESOURCES 1,533,364 1,268,387 653,133 615,254 264,977 3,142,551 1,320,000 1,315,000 57,804 449,746 80,880 4,756,795 1,294,098 1,256,331 588,330 668,001 37,768 4,111,067 1,963,640 1,620,900 110,784 415,743 234,209 5,639,375 1,370,504 1,068,476 435,475 633,001 302,028 4,380,993 1,963,640 1,620,900 80,923 715,530 239,202 5,990,699 2007 3,135,513 399,323 784,381 1,580,078 371,731 1,621,282 950,049 1,320,694 (398,855) 28,210 392,259 278,974 4,756,795 2008 3,849,009 510,218 720,175 1,820,240 798,376 1,790,366 1,265,422 1,726,528 (571,555) 110,449 380,606 144,338 5,639,375 1Q09 4,037,687 423,090 874,817 1,879,567 860,214 1,953,012 1,338,777 1,758,602 (621,963) 202,138 403,053 211,182 5,990,699

Analyst: Dao Thi Thu Hang Email: [email protected]

COMPANY UPDATE 5

3. Cash Flow Statement Unit: VND million
CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for Depreciation and amortization fixed assets (+) (Gain) loss from investing activities Interest expense (+) Operating profit before movements in working capital (Increase) decrease in current assets (Increase) decrease in short and long receivables (Increase) decrease in inventories (Increase) decrease in other current assets Increase (decrease) in account payables Interest paid (-) Corporate income tax paid (-) Other cash inflows (+), outflow (-) Net cash from (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in fixed assets investments (Increase) decrease in construction in progress (Increase) decrease in other fixed assets (Increase) decrease in short term financial investments (Increase) decrease in long term financial investments Interest, dividend, profit received Net cash from (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in Owner's equity Increase (decrease) in short, long term loans, debts Increase (decrease) in short term loans/debts Increase (decrease) in long term loans/debts Interest, dividend, profit paid (-) Net cash from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2,415,880 600,321 405,556 194,765 (167,233) 2,848,968 390,105 9,218 399,323 1,102,869 (292,013) (64,803) (227,210) (840,434) (29,577) 110,896 399,323 510,218 4,993 111,406 (152,854) 264,260 (31,707) 84,691 (87,128) 510,218 423,090 (392,259) 20,196 (1,496,257) 11,654 53,438 (288,345) (22,447) (39,001) (252,056) (817,213) (28,185) (278,795) (405,834) (82,238) 134,636 (32,075) (91,690) (66,843) 287,382 (26,822) 39,573 1,059,558 (2,430,004) (668,148) (1,393,449) (368,407) 556,238 (39,573) (115,452) 6,626 (962,607) 172,699 (70,074) 74,437 1,195,692 (602,601) 64,206 (240,162) (426,645) 52,747 (74,437) (159,219) 16,636 428,818 50,409 34,185 6,257 449,624 (275,807) (154,641) (59,327) (61,838) (35,000) (6,257) (57,140) 4,816 80,236 2007 759,425 2008 1,018,629 1Q09 358,773

4. Financial Ratios
Items Liquidity Ratios Current ratio Acid - test ratio Leverage ratios Debt/Total asset Long term debt/LT debts + Owners' equity Efficiency Ratios Receivables turnover Inventory turnover Working capital turnover Profitability ratios Net profit margin Net Profit/total asset (ROA) Net profit /equity (ROE) Income BVPS EPS VND/share VND/share 23,807 4,864 20,936 4,350 22,310 3,553 % % % 11.4% 23.6% 37.1% 10.3% 16.5% 23.7% 9.1% 12.1% 17.5% Times Times 0.32 0.08 0.23 0.01 0.23 0.07 Times Times 2.47 1.23 3.06 1.61 3.78 2.02 Unit 2007 2008 1Q09

Times Times Times

12.53 5.29 6.02

11.12 4.18 3.75

6.68 3.53 2.91

Analyst: Dao Thi Thu Hang Email: [email protected]

COMPANY UPDATE 6

Do Hong Diep Head of Research Email: [email protected]

Dao Thi Thu Hang Analyst Email: [email protected] Research Department Habubank securities 4B floor - 2C Van phuc Kim Ma Ba Dinh Ha Noi Tel: (+84) 04.3.726.2275 Fax: (+84) 04.3.726.2305

Disclaimer
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Analyst: Dao Thi Thu Hang Email: [email protected]