Pomina Steel Valuation

I. OVERVIEW OF VIETNAM STEEL MARKET

With the high demand in construction, thanks to recovery of property and boom of infrastructure  (airport, expressway, sea ports, railways, metro…) that worth of many billion $ , steel markers likely enjoy the fast growth in next 1o years.

In 2016, the growth of steel consumption is roughly 23% to reach 22.7 million ton, twofold average rate of ASEAN (12%). Growth rate is 5,4%, according to research of Posco, but many analysts said it can keep 10% – 12% in coming 5 years thanks to high demand.

Steel consumption per capita in Vietnam reach 243.9 kg in 2016 and may reach to 301.8 kg in 2021.  That level is similar to average figure of ASEAN and left behind China (489), or Korea (1.136 kg).

About 37% of market belong to construction with growth of 20.6%. Most of steel factories in Vietnam are still outdated, less effective. Some big players such as Pomina, Hoa Phat steel recently updates and use more modern technology to keep competitive, control expense and lift up quality.

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In tole and coated cover sector, total consumption in 2016 is 2.8 million ton.Tole is expected to grow strongly in coming years, thanks to higher GDP growth.

In Vietnam, especially in Southern, citizens is familiar to build roof with tole. That material is cheap and rather sustainable. The export to other countries in ASEAN, such as Lao, Cambodia also the choices for investors because in this market, Vietnam makers have not faced the serious competition with Chinese one.

Easy to explain that. Chinese focus more on the upstream phases in value chains (such as billet, iron ore, HRC, CRC) with higher margin. They left downstream phases, including tole and coated covers for other to exploit.

II. POMINA

Pomina is one of the most well-known brands in Vietnam steel industry, owed nearly 20 years of experience.  Pomina is positioned in high-quality products. Partners of Pomina are famous contractors and developers, such as:  CotecCons, Hoa Binh, Truong Hai, Vingroup,…It has a broad distribution across the country to help supplement additional SKUs in the future.

Pomina dominated the southern area, including Ho Chi Minh and Mekong delta. Meanwhile, the competitor Hoa Phat enjoyed strong position in northern area, where a lot of infrastructure projects are built in past years.

Capacity of Pomina is now 1.1 million ton per year for long steel, 1.5 million ton per year for billet. Market share is reducing gradually from 11% in 2015 to 10% in 2016, due to higher competition and increasing import from China and Korea.

To reverse the trend, leaders of Pomina plan to upgrade capacity by significant new investments, including 500.000 ton long steel and 600.000 ton tole plants in Vung Tau. Both of these plants expected to go commission in 2019 and help lift market share of Pomina back to 11% since 2020 for construction steel sector, and occupy about 5% in tole sector. Although these new investment is value at 255 million USD, bring in challenge to firm to keep debt to equity ratio at appropriate level in coming years.

Good news is long-term debt to build old plant remains small, and Leaders believe to settle this debt completely at the end of this year. That will support finance for new investment in 2 years.

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Key index of performance:

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III. VALUATION

Using FCFF and FCEE with 2 phases to value share. WACC is used at 10.66%, EV/EBITDA is  8x at exit year (2026), we forecast price per share of Pomina (in Oct, 2017) is about 38,000 dong. The enterprise firm has value of 10,949 billion dong.

Run 10.000 cases for sensitive analysis, we can see share price likely ranged from 34,500 to 64,000 dong. Mean is 49,000 dong

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Revenue and profit forecast:

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Contact for more details: son.nn.85@gmail.com

News Reporter

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