COMPANY UPDATE 22-Aug-18 HOA SEN GROUP (HSG) HSG (HOSE) Stock performance (%) Stock Statistics 22/08/2018. Ownership 22/08/2018. Mr. Duong Tran.

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1 COMPANY UPDATE 22Aug18 Rating HSG (HOSE) OVERWEIGHT Steel Industry Market price (VND) 10.3 Target price (VND) 14.5 Annualized price return (%) 40% Expected dividend yield (%) 10% Expected annualized total 50% return (%) VND '000 Stock performance (%) YTD 1M 3M 12M Absolute 51% 6% 7% 58% Relative 52% 11% 7% 90% Source: Bloomberg, compare to VNI Stock Statistics 22/08/ week range (VND) 9.8k25.7k Shares o/s (m) 385 Mkt cap (VND bn.) 3,984 Mkt cap ($m) 171 Foreign % owned 20% Est. free float (ml. shares) 250 3m avg. daily vol. (shares) 3,104,230 VND/USD 23,265 Index: VNIndex/HNX 982/110 Source: Bloomberg, KISVN Ownership 22/08/2018 Chairman & Related parties 56.31% Beira Limited 4.52% Source: StoxPlus, KISVN Mr. Duong Tran (+84 28) Ext: 1462 duong.tn@kisvn.vn Price Volume /17 11/17 02/18 05/18 08/18 '000 shares HOA SEN GROUP (HSG) Pros HSG will record the estimated profit before tax of VND 120bn from the transfer of shares in Hoa Sen Gemadept International Port Company in 4Q2018 (we have added this effect to our model) HSG has signed a contract to buy HRC from Formosa Ha Tinh (FHS), which reduce the exchange rate risk from importing material. 3Q2018 show a dramatically drop in profit with net revenue and NPAT at VND 10,325bn (+43% n/n) and VND 83bn (69% n/n) In 2018 forecast: reestimated net revenue HSG at VND 34,227bn (+30.9% YoY) and reestimate net profit of HSG at VND 745bn (44% YoY) instead of VND 30,717bn and VND 952bn which we forecasted in our previous update. Cons: The cost of hot rolling coil (HRC) keep increasing (+16% YoY) Borrowings rose sharply to VND 15,879bn (+34% YoY) at the end of 3Q2018. Nine months through Jun 2018, accumulated interest expenses reached VND 577bn (+75% YoY) Inventories doubled to nearly VND 9,000bn at the end of and inventory turnover days increased to 110 days. At the end of 3Q2018, inventories were still very high at VND 8,337bn. Recommendation: We forecast net sales and net profit of HSG in 2019 at VND 38,950bn (+14% YoY) and 906bn (+22% YoY). We value HSG share at VND14.5k per share at the end of Total return is 50% (including cash dividend of VND 1k in 2019) at the current price of VND10.3k. OVERWEIGHT. VND bn E 2019F Net revenue (VND bn.) 17,894 26,149 34,227 38,950 Growth (%) 3.0% 46% 31% 14% Operating profit (VND bn.) 2,136 2,104 1,630 1,997 Operating Margin (%) 11.9% 8.0% 4.8% 5.1% Net profit (VND bn.) 1,504 1, Margin (%) 8.41% 5.09% 2.18% 2.33% Outstanding shares (million) EPS (bonusadjusted, VND) 3,801 3,365 1,802 2,227 Growth (%) 121% 11% 46% 24% ROE (%) (excl. minority) 43% 29% 14% 16% Net debt/equity (%) 126% 224% 290% 323% PER (x) PBR (x) EV/EBITDA (x) DPS (VND, as reported) 2,500 2,000 1,000 1,000 Dividend yield (%) 8.3% 5.0% 10% 10% Page 1

2 1. Disappointed performance in 3Q2018 VND bn. 3Q2018 3Q2017 Change (+/%) From 01/10/17 30/06/18 From 1/10/16 30/06/17 Change (+/%) Net Sales 10,325 7, % 25,876 19, % Gross Profit 1,031 1, % 3,231 3, % SG & A expenses % 2,045 1, % Net interest expenses % % Profit before tax % 640 1,386 54% Profit after tax % 512 1,127 55% Source: HSG, KISVN Revenue in 3Q.2018 reached VND 10,325bn (+43% YoY) thanks to the opening of 410 new branches throughout Vietnam of HSG. In 9 months of 2018, HSG sold 976,000 tons of galvanized steel and 315,400 tons of pipe steel, keeping the market shares at 34% and 18% respectively. However, net profit of HSG in 3Q2018 significantly dropped to VND 83bn (69% YoY). The accumulated net profit in nine months of financial year also dramatically declined to VND 512bn (55% YoY) and just reached 38% of HSG s plan. Gross profit margin in 3Q2018 was only 10% (in 3Q2017, HSG reached 15%). Gross profit margin quarterly 15% 19% 15% 14% 15% 10% Quarter 1 Quarter 2 Quarter Sources: HSG, KISVN The reason for this decline is mainly due to the increasing capacities of Nam Kim, Dong A as well as the market newcomer Hoa Phat since April 2018, which led to a fiercer competition in this industry. Competitors' capacity Unit: tons 1,200, , , , , , ,000 Dong A Nam Kim Hoa Phat Sources: KISVN 22Aug18 Page 2 Equity Research KIS VN

3 Furthermore, despite of slightly decreasing in 3Q2018, the average price of Hot Rolling Coin (HRC) in 3Q2018 was still very high at USD 641 per ton (in 2017, the average price of HRC was around USD 570 per ton). Moreover, depreciation in 9 months of 2018 reached VND 748bn (+50% YoY) HRC Prices Unit: USD/ton Sources: Bloomberg, KISVN At the end of 3Q2018, HSG s inventories slightly decreased to VND 8,337bn ( 6.3%YoY). However, the borrowings increased to VND 15,879bn, leading interest expenses in 3Q2018 to reach VND 190bn (+40% YoY). This reflect the high inventory policy of HSG is not effective as HRC s price did not drop as HSG s expectation. The high value of inventory will prevent the ability to increase gross profit margin of HSG in coming quarters. HSG shows the positive trend in reducing its bank borrowing and interest expenses from the balance of VND 17,053bn in 1Q2018 to VND 15,879bn in 3Q2018. The interest expenses also declined from VND 216bn in 2Q2018 to VND 190bn in 3Q ,000 15,000 10,000 5,000 Bank borrowing vs Interest Expense Unit: VND bn 11,850 17,053 15,795 15,879 4Q2017 1Q2018 2Q2018 3Q Bank borrowing Interest exp Sources: HSG, KISVN Selling expenses in 3Q2018 reached VND 505bn (+19%yoy) is in line with the strategy of expanding the domestic market. Total branches HSG has opened at end of 3Q2018 is 410 (HSG s plan: 500 branches). 22Aug18 Page 3 Equity Research KIS VN

4 s profit plan is not achievable Based on the result of 9 months of financial year , we believe HSG is able to sell around 1.9mn of steel sheets, pipe steel, PVC pipes and reach around VND34,227bn revenue. However, with the very lowprofit margin of 3Q2018 led the net profit of 9 months of financial year to reach only VND 512bn or equivalent to 38% of the year target. As a result, with the high value of inventory as well as the not foreseeable decline in HRC s price in 4Q2018 HSG hardly improve its profit margin thus we downgrade our projection on the net profit of HSG in 2018 from VND952bn to VND745bn. 3. Valuation For 2019, we estimate Net Sales and NPAT at VND 38,950bn (+14%YoY) and VND 906bn (+22%YoY). Thus, based on 1year average PER of 6.5x, we evaluate HSG share at VND 14.5k per share at the end of The total expected return is 50% (including cash dividend of VND 1k in 2019) at the current price of VND 10.35k as of 22Aug18 for 1year investment horizon. OVERWEIGHT. 22Aug18 Page 4 Equity Research KIS VN

5 FINANCIALS MODEL Mkt cap: VND3,984bn Unit: VND bn E 2019E Net Revenue 17,894 26,149 34,227 38,950 Sales growth (%) 2.6% 46% 31% 14% COGS 13,717 21,731 29,834 33,809 Gross margin (%) 23% 17% 13% 13% SG&A 2,040 2,314 2,763 3,145 EBITDA 2,686 2,888 2,566 3,085 EBITDA margin (%) 15% 11% 7.5% 7.9% Depr n & Amort n ,089 Operating profit 2,136 2,104 1,630 1,997 Operating margin (%) 12% 8.0% 4.8% 5.1% Net interest expense As % of avg. net debt 3.9% 5.7% 6.0% 4.9% Interest cover (x) Other profit/loss Tax Effective tax rate (%) 21% 19% 20% 20% Net profit 1,504 1, Net margin (%) 8.4% 5.1% 2.2% 2.3% Minorities Net attributable profit 1,504 1, Number of shares (m) EPS (VND, bonusadjusted) 3,801 3,365 1,802 2,227 EPS growth (%) 121% 11% 46% 24% DPS (VND) 2,500 2,000 1,000 1,000 Payout ratio (%) 34% 55% 55% 45% EBITDA = Net revenue (COGs Depr n&amort n) SG&A expenses EBIT = EBITDA Depr n&amort n Net interest expenses = interest expenses interest income Other profit/loss consists of other financial income/expenses, profit share from JVs/associates and other income/loss Payout ratio = Dividend paid / Net attributable profit CASH FLOWS AND BS ITEMS (VND bn.) E 2019E Increase in WC 210 3,941 2,480 1,450 Capex 1,307 4,017 2,778 3,161 Other cash flow items Free cash flow 334 6,189 3,924 2,963 Share issues 34.6 Dividends paid Increase in net debt 6.5 6,350 4,304 3,343 Net debt, end of year 5,208 11,558 15,862 19,205 Enterprise value 9,145 15,529 19,816 23,163 Total equity 4,130 5,170 5,475 5,941 Minority interests Shareholder s equity 4,127 5,133 5,454 5,916 BVPS (VND) 10,859 13,507 14,352 15,567 Net debt / equity (%) 126% 224% 290% 323% Net debt / EBITDA (x) Total assets 12,310 21,438 25,978 29,883 Net debt = debts cash & equivalent KEY RETURN AND VALUATION RATIOS E 2019E ROE (%) (excl. minority interest) 43% 29% 14% 16% ROA (%) 12% 6% 3% 3% ROIC (%) 19% 13% 7% 7% WACC (%) 8% 8% 7% 7% PER (x) PBR (x) PSR (x) EV/EBITDA (x) EV/Sales (x) Dividend yield (%) (bonusadjusted) 8% 5% 10% 10% 22Aug18 Page 5 Equity Research KIS VN

6 Contacts: HCM City Head Office Level 3, Maritime Bank Tower Nguyen Cong Tru St., District 1, HCM City Tel: (+84 28) Fax: (+84 28) Hanoi Branch Level 6, CTM Tower 299 Cau Giay, Cau Giay District, Hanoi Tel: (+84 24) Fax: (+84 24) Institutional Sales Ms. Uyen Lam Head of Institutional Sales (+84 28) (x1444)

7 Our Recommendation System OVERWEIGHT: where we believe prospective 12 months VND total return (including dividends) will be 15% or more. NEUTRAL: where we believe it will be 5% to 15%. UNDERWEIGHT: where we believe it will be 5% or less. Disclaimer This report has been issued by the KIS VN Securities Corporation ( KIS ) with the instructional contributions of KIS VN Securities Corporation whose employees are specified in the publication. This report is for information of its institutional and professional customers. This report is and should not be construed as an offer to sell or a solicitation of an offer to purchase or subscribe for any investment. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Investors are advised make their own financial decisions based on their independent financial advisors as they believe necessary and based on their particular circumstances such as their financial situation, investment objectives and other considerations. In preparing this report, we have relied upon and assumed the accuracy and completeness of all information available from public and other sources which we believe to be reliable, but which we have not independently verified. KIS makes no express or implied guarantee, representation or warranty and accepts no responsibility or liability as to the accuracy or completeness of such information. Opinions, estimates, and projections expressed are current opinions of the authors as of the original publication date appearing on this report only and the information, including the opinions contained herein, and are subject to change without notice. KIS and its affiliates may from time to time perform investment banking or other services for, or solicit investment banking or other business from, companies mentioned herein. Further, KIS and its affiliates, and/or their officers, directors and employees involved in the preparation or issuance of this report may, from time to time, have long or short positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein, or related securities or derivatives in a manner that may be consistent or inconsistent with this report and opinions expressed therein. As a result, investors should be aware that KIS and its affiliates and/or their officers, directors and employees may have a conflict of interest that could affect this report. This report shall not be copied, reproduced, distributed (in whole or in part) or disclosed by recipients to any other person without the express permission of KIS in writing.