HOA SEN GROUP JOINT STOCK COMPANY (HSG)

HOA SEN GROUP JOINT STOCK COMPANY (HSG) OVERVIEW Hoa Sen Group JSC (HSG) was established in August 2001 with initial charter capital of VND 30 bn, mainly operating in the fields of import, production and distribution of metal sheet products, purlin and other types of construction materials. Even though having only existed less than 10 years in operation, HSG has rapidly evolved. into one of the strongest private corporations, leading the galvanized steel sheet market in the entire country with 26% market share in the first 11 months of 2009. HSG official listed on the Hose in December 2008 with a notable charter capital of VND 570.4 bn. Hoa Sen Group currently has plans to separately issue additional shares to strategic shareholders and staffs along with paying stock dividends, expecting to raise charter capital to VND 1,008 bn in 2010. HSG is one of few companies currently listed that has opted to use an accounting year from October 1 to September 30. GENERAL INFORMATION Industry Basic material - steel Listed HOSE Ticker HSG Charter capital (VND bn) 570.4 52-week highest price (VND) 66,000 52-week lowest price (VND) 8,700 Avg trading vol in 10 days 881,468 Price @ 07/01/2010 (VND) 55,000 Market Capital (VND bn) 3,137 VALUATION MEASURE ROA 2010 (%) 12.2 ROE 2010 (%) 26.8 ROIC 2010 (%) 13.3 P/E 2010 (x) 8.0 P/B 2010 (x) 2.1 Vietnam galvanized steel sheet market: large companies battle for market share Galvanized steel sheet is a segment within the flat steel line, manufactured from cold rolled coil (CRC) as the main raw material. The galvanized steel sheet segment accounts for only 8% of domestic steel consumption in general but 14.5% of the flat steel segment in particular. Overall there is a variety of galvanized steel sheet products with different coatings, color and size, and is used mainly in civil and industrial construction. Vietnam s galvanized steel sheets consumption in 2009 is expected to be around 850,000 tons, an increase of 15.5% over the previous year. The growth rate for this market is forecasted to be stable at 10-12%/year, which is equivalent to the whole steel sectors average annual growth. Mainly, when consumers lean towards the benefits and aesthetics of using galvanized steel then higher quality products such as aluminum zinc alloy coated steel sheets and pre-painted coated steel sheets will begin to have significant growth compared to less expensive conventional zinc coated steel products. Although there is no fierce competition as in the construction steel segment, the galvanized steel sheet market is a battle for market share among large companies. Currently HSG leads the domestic galvanized steel sheet segment with 26% market share, followed by Sun Steel (14.7%) and Phuong Nam Steel (12.4%). Other joint ventures and foreign corporations also account for dominant domestic market share such as Perstima VN (Malaysia 9.3%), Blue Scope Steel (Australia 8.1%) and LD Posvina (JV Vietnam and Posco Korea 6.2%). Hoa Sen Group leader in the galvanized steel sheet market in the entire country With just nearly 10 years of existence, HSG has quickly evolved into one of the strongest private corporations in the steel industry. HSG is currently the leader in the galvanized steel sheet market in the entire country with 26% market share in the first 11 months of 2009. Galvanized steel sheet is the key product accounting for 70-80% of the company s revenue and gross profit structure. HSG supplies a variety of galvanized steel sheet products including the four main groups: zinc galvanized steel sheet, pre-painted galvanized steel sheet, alum-zinc alloy coated steel sheet and pre-painted alum-zinc alloy coated steel sheet that meet the diverse needs of consumers. In addition, the company sells other construction material products such as steel pipes, purlin, plafond, and plastic pipes. An almost self-contained production line helps HSG raise profit margins and competiveness higher HSG owns an almost self-contained production line from the cold rolling stage to the final finished product. Hot rolled coil (HRC) is considered as the first raw material input used to produce CRC to later produce the galvanized steel sheet products. Being one of the limited companies that own a cold rolling production line with capacity of 180,000 ton/year, HSG imports mainly HRC with low purchase and tax expenses. Currently, HRC enjoys 0% import tax while tax levied on CRC imported from ASEAN countries is 8% and 12% if imported from other countries. With lower initial input costs, HSG has the ability to achieve better profit margins and greater competiveness compared to other companies in the same industry. The rapid and strong development of the retail network is a competitive advantage HSG possess 82 retail branches in the entire country specializing in distributing products carrying the Hoa Sen brand. The retail network has been deeply invested, supporting wide coverage and bringing high effectiveness to help the

FINANCIAL RATIOS 2009 Net revenue (VND bn) 2,831.4 Gross profit (VND bn) 555.3 Net profit (VND bn) 189.5 Gross margin (%) 19.6 Net margin (%) 6.7 EBITDA margin (%) 13.8 Debt/Equity (%) 115.7 ROA (%) 7.8 ROE (%) 20.0 EPS (VND) 3,321 BPS (VND) 16,594 NET REVENUE STRUCTURE 2009 Source: HSG & VCSC GROSS PROFIT STRUCTURE 2009 3.3% 2.4% 13.1% 2.4% 8.1% 70.9% Galvanized steel sheet CRC & HRC Steel pipe Purlin Plastic pipe Others Source: HSG & VCSC company realize good revenue and profits, while providing HSG s new products with a good distribution network and accessibility to consumers. In 2010, the company will develop around 20-23 more branches with a total investment value of VND 190 bn. Fiscal year 2008-2009 financials: recovery of the industry and lower raw material inventory bring business results that exceed expectations HSG accounting year is from October 1 to September 30, effective since 2008-2009. Ending fiscal year 2008-2009, HSG achieved VND 2,831 bn in net revenue, equivalent to 105.5% of implemented revenue plan. In particular, the galvanized steel sheet segment is still the main product accounting for up to 84.1% of the company s total revenue. It is then followed by other products such as steel pipes (6.9%), purlin (3.2%), plastic pipes (1.8%) and other products including plafond and scrap. HSG s gross margin in Q3 and Q4 increased significantly, respectively reaching 24.2% and 34.8% compared to 18.3% in Q2 and -3% of Q1, mainly thanks to better negotiations on the steel market when HSG was able to import enough raw materials during a low cost period to supply manufacturing needs for over half a year. As a result, the company ended the year 2008-2009 with 19.6% gross margin or VND 555.3 bn in term of gross profit value. Net income reached VND 189.5 bn, over-passing 163.1% whole year target, and the respective net margin was 6.7%. Q1 fiscal year 2009-2010 (October 1, 2009 to December 31, 2009): satisfactory business results as consumption volume and selling price continue to improve HSG just briefly announced estimated business results in Q1 fiscal year 2009-2010 as satisfactory with VND 1,043 bn revenue and VND 154 bn net profits. The recovery of the domestic steel market with selling prices increasing over 12% in the final two months of 2009 and consumption remaining at high levels are factors benefiting HSG. The total consumption volume of HSG products in Q1 reached over 63,800 tons, increasing 19.4% compared to the previous quarter Q4 fiscal year 2008-2009 along with the recovery of prices helped revenue for this quarter increase 24.8% compared to the previous quarter. Raw material sources under purchase agreements are enough to supplyfor manufacturing until April2010 at a low average cost. This is the main factor that enables HSG to maintain a high gross profit margin around 30% and net profit margin reach 14.8% in Q1. With the results above, HSG has completed 21% of revenue plan and 29.6% of profit plan for fiscal year 2009-2010. 2010 prospects Strong revenue increase realized from the contributions of galvanized steel sheets products from the new Hoa Sen Phu My steel sheet factory and steel pipe line. Total consumption of HSG in 2010 is estimated to strongly increase 60.6% compared to last year to reach more than 267,400 tons, mainly from contributions of galvanized steel sheet and steel pipe products. In 2009, HSG s production capacity of the galvanized steel sheet was still limited, but new galvanized steel production lines at the new Hoa Sen Phu My steel sheet factory coming into operation in April 2010 will help HSG meet the larger demand and more diverse needs of the market. Hoa Sen Phu My steel sheet factory developing galvanized steel sheet product line and cold rolled coil products. According HSG s plan, the Hoa Sen Phu My steel sheet factory will be completed in the 2009-2013 period with a total investment of VND 2,321 bn. The main products of the new factory including a diverse line of galvanized steel sheet products will be available from April 2010 and the CRC production line will be put into operation since Jan 2011. The domestic galvanized steel market is relatively stable with an average growth per year of 10-12% and even higher for galvanized steel sheets with better quality and aesthetics. With brand-name and a leading position in the

MARKET SHARE OF STEEL SHEET COMPANIES IN 11M2009 Source: VSA MARKET SHARE OF STEEL PIPE COMPANIES IN 11M2009 Source: VSA current galvanized steel sheet market along with the advantage from its distribution network, finding a consumption market for products of the new factory will not be too difficult for HSG. In addition, the new factory will supply two new steel sheet product lines including hot dip galvanized steel sheet and standardized steel sheet. These products have higher expected annual growth of 15-20% than conventional galvanized steel sheets and higher gross margin of over 20%, promising to contribute significantly to HSG s revenue growth and profitability every year. With regards to the CRC products, HSG has plans to develop 5 production lines with total capacity of 1 million ton/year (capacity of each production line is 200,000 ton/year) according to the following schedule from the beginning of 2011 to 2013: CRC production line Capacity Operation Current line 180,000 New line 1 200,000 Jan 2011 New line 2 200,000 May 2011 New line 3 200,000 Oct 2011 New line 4 200,000 Jan 2012 New line 5 200,000 Oct 2013 At first, HSG will invest to raise the production capacity of CRC to meet internal consumption demands to produce galvanized steel sheet and steel pipe products. Thereafter, HSG will target direct consumption in the domestic and export market. However, because these are separate production lines HSG will use flexible consideration relying on market conditions to put into operation each production line accordingly to bring the company the best results. The consumption of CRC of the domestic market is currently about more than 1 million tons/year. By the end of 2010, expected domestic supply will be relatively abundant in the presence of names such as Hoa Sen (180,000 tons/year), Posco (1.2 million tons/year), Phu My Flat Steel (400,000 tons/year), Thong Nhat flat steel (300,000 tons/year) With this fierce competition among companies in the industry as a cautious point, we assume only two new CRC production lines will be developed instead of five according to the company s plan. With the operation of the two new CRC production lines, HSG may have up to 150,000 180,000 tons of CRC steel for retail sales each year excluding internal consumption. With this assumption, the investment cost for the Hoa Sen Phu My steel sheet factory will be reduced to VND 1,670 bn and estimated completion time is 2011. Steel pipes gradually gaining brand awareness and preparing for future growth In addition, HSG s steel pipe product line after a short period of market exploration has gradually gained encouraging market share. As of the first 11 months of 2009, HSG steel pipes accounted for 4.2% market share of the whole domestic steel pipe market. The company s current average consumption volume of steel pipes reaches 4,000 5,000 tons/month. Besides the existing steel pipe production lines with capacity of 114,000 tons/year, HSG is expanding this segment by investing in a new production line with capacity of 108,00 tons/year, with a total investment value of approximately VND 60 bn. Recently, three new production lines with capacity of 36,000 tons/year have been installed and are being tested; the six remaining production lines with capacity of 72,000 tons/year will continue to be developed in 2010. In the short time ahead, when HSG s steel pipe production lines are stable and have reached a high capacity level, we believe the company will gain a

FINANCIAL RATIOS Q1-2010 Net revenue (VND bn) 1,043 Net profit (VND bn) 154 Net margin (%) 14.8 EPS (VND) 2,700 OWNERSHIP STRUCTURE Source: Hose & HSG significant market share and become one of leading businesses in the Vietnam steel pipe segment. Therefore, we estimate consumption for HSG s steel pipes this year to reach about 60,000 tons/year, marking an outstanding 190% growth compared to the previous year and an initial step for development in upcoming years. Besides the main estimates regarding volume growth as above, we are also optimistic regarding the direction of steel prices in 2010. On that basis, we estimate HSG s revenue for the fiscal year 2009-2010 to reach nearly VND 4,640 billion, soaring 63.3% compared to the previous year. However, investment into the Hoa Sen Phu My steel sheet factory requires a relatively large capital source, along with increased working capital needs when the steel factory is in operation will increase the company s debt and borrowing cost. The current upward adjustment of interest rates and the end of the interest-rate subsidies are disadvantageous for HSG. In addition to higher borrowing costs, the costs associated with floating foreign exchange rates also in part directly impacts the company s net profit. Based on the above important point, we anticipate HSG s profit after tax in 2009-2010 will reach over VND 480 bn, indicating an increase of 150.7% from the previous year. Moreover, HSG has plans to issue separately an additional 11.96 mil shares to strategic shareholders and 1 million shares to employees, raising the company charter capital from VND 570.4 bn to VND 700 bn. The expected price ratio of the new stocks is 5x with the main purpose to mobilize capital for the new Hoa Sen Phu My steel sheet factory project. After the additional issuance, the company will proceed to grant bonus shares to further raise the charter capital to VND 1,008 bn in 2010. Comparison of a number listed peer companies in the industry Items HPG HMC HLA SMC VIS HSG Charter Cap (VND bn) 1,964 210 190 147 150 570.4 SHARE PRICE MOVEMENT Price @ 7/1/2010 (VND) 68,000 22,600 33,300 34,600 99,000 55,000 Market Cap (VND bn) 13,353 475 633 507 1,485 3,137 GM 9T2009 (%) 25.2 2.7 11.1 2.6 18.2 26.7 ROA trailing (%) 9.7 (0.4) 5.7 5.6 9.8 8.4 ROE trailing (%) 16.7 (1.2) 23.5 22.6 55.1 20.2 P/E 2009 (x) 9.7 21.1 7.6 7.0 8.3 16.4 Source: Reuters Recommendation With satisfactory Q1-2010 business results, we are relatively confident in HSG s ability to achieve the year plan, but also note the following points: (1) systematic industry fluctuations may affect the company s business results (2) when the inventory of low cost raw materials is depleted, HSG s gross margin in the second half of 2010 will be difficult to maintain at the high level of around 30% as in Q1 (3) HSG s revenue and profit growth in 2010 and the years following will be very much dependent on the operations of the new Hoa Sen steel sheet factory (4) if HSG is unsuccessful in offering the additional shares to strategic shareholders at the expected price ratio of 5x to mobilize capital for the new factory, it may hinder the progress of the project, while increasing the company s debt and borrowing costs, therefore negatively impacting HSG s revenue and net profit. Based on the important points above and realizing the contributions from the new factory, we estimate HSG s P/E 2010 to be 8.0x at the current price of VND 55,000/shares (taking into consideration dilution after the additional issuance to raise charter capital to VND 700 bn). Considering this is a reasonable price level we thereforerecommend a HOLD to HSG share.

SUMMARY OF HISTORICAL AND PROJECTED FINANCIAL STATEMENTS INCOME STATEMENT (VND bn) 2007A 2008A 2009A 2010F Net revenue 2,015.7 2,055.0 2,831.4 4,639.2 COGS 1,664.9 1,553.5 2,276.1 3,644.5 Gross profit 350.8 501.5 555.3 994.7 Operating profit 135.3 176.6 340.8 739.5 Profit before tax 167.5 212.4 200.3 519.2 Corporation tax 16.4 14.1 10.9 38.9 Minority interest - - - - Profit after tax 151.1 198.4 189.5 480.2 BALANCE SHEET (VND bn) 2007A 2008A 2009A 2010F Current assets 844.5 1,120.0 1,208.5 1,526.2 Cash and cash equivalent 23.5 16.1 47.7 69.6 Short term financial investments - - - - Provision for short term investments - - - - Receivables 224.9 174.2 299.0 418.8 Inventory 527.9 883.6 747.1 898.6 Provision for inventory devaluation - (50.8) (1.8) - Other current assets 68.2 46.1 114.7 139.2 Non-current assets 853.9 1,040.0 1,230.3 2,424.1 Fixed assets 815.0 981.9 1,158.2 2,344.8 Long term financial investments 25.9 42.7 58.4 58.4 Provision for long term financial investments - - - - Other long term assets 12.9 15.5 13.7 17.9 TOTAL ASSETS 1,698.4 2,160.1 2,438.8 3,947.3 Current liabilities 639.2 1,037.3 1,155.1 1,453.4 Short term debt 472.3 805.3 760.0 1,126.2 Payables 166.9 232.0 395.1 327.3 Non-current liabilities 335.8 306.4 337.2 701.5 Long term debt 335.5 305.1 335.4 699.5 Other long term debt 0.3 1.3 1.8 1.9 LIABILITIES 975.0 1,343.7 1,492.3 2,154.9 OWNERS EQUITY 723.4 816.4 946.5 1,792.4 Charter capital 570.4 570.4 570.4 1,008.0 Treasury stocks - (0.6) (0.6) (0.6) Capital surplus 88.2 88.2 88.2 536.7 Retained earnings 43.3 133.2 259.8 199.7 Other sources and funds 21.4 24.5 28.0 47.4 Minority interest - - - - TOTAL CAPITAL 1,698.4 2,160.1 2,438.8 3,947.3 CASH FLOW STATEMENT (VND bn) 2007A 2008A 2009A Profit before tax 167.5 212.4 200.4 Operating profit before change in WC 267.2 410.3 342.5 Cash flow from operating activities (63.1) (16.8) 428.2 Cash flow from investing activities (297.2) (231.2) (314.1) Cash flow from financing activities 342.3 240.6 (82.5) Cash flow movement within the period (18.0) (7.4) 31.6 Beginning cash flow 41.5 23.5 16.1 Ending cash flow 23.5 16.1 47.7 KEY FINANCIAL RATIOS 2007A 2008A 2009A 2010F Revenue growth rate y-o-y % 81.4 2.0 37.8 63.8 Net income growth rate y-o-y % 44.5 31.3 (4.5) 153.5 Gross margin % 17.4 24.4 19.6 21.4 Net margin % 7.5 9.7 6.7 10.4 ROA (%) 8.9 9.2 7.8 12.2 ROE (%) 20.9 24.3 20.0 26.8 EPS (VND) 2,649 3,478 3,321 4,764 EPS growth rate y-o-y % (35.8) 31.3 (4.5) 43.4 Note: - Financial year 2007 is from 1/1 to 12/31 - Financial year 2008 includes only 3Q from 1/1 to 9/30 - Financial year 2009 is from 10/1/2008 to 9/30/2009. Financial year 2010 is from 10/1/2009 to 9/30/2010

Disclaimer Copyright 2009 Viet Capital Securities Company. All rights reserved. This report has been prepared on the basis of information believed to be reliable at the time of publication. VCSC makes no representation or warranty regarding the completeness and accuracy of such information. Opinions, estimates and projection expressed in this report represent the current views of the author at the date of publication only. They do not necessarily reflect the opinions of VCSC and are subject to change without notice. This report is provided, for information purposes only, to institutional investor and retail clients of VCSC, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction. Investors must make their investment decisions based upon independent advice subject to their particular financial situation and investment objectives. This report may not be copied, reproduced, published or redistributed by any person for any purpose without the written permission of an authorized representative of VCSC. Please cite sources when quoting. Trịnh Thanh Cần Hoàng Thị Hoa Ông Thị Thanh Thảo Đinh Thị Như Hoa Trương Vĩnh An Nguyễn Ngọc Ý Nhi Võ Phúc Nguyên Võ Xuân Quỳnh Vũ Thanh Tú can.trinh@vcsc.com.vn hoa.hoang@vcsc.com.vn thao.ong@vcsc.com.vn hoa.dinh@vcsc.com.vn an.truong@vcsc.com.vn nhi.nguyen@vcsc.com.vn nguyen.vo@vcsc.com.vn quynh.vo@vcsc.com.vn tu.vu@vcsc.com.vn RESEARCH AND ANALYSIS DEPARTMENT VIET CAPITAL SECURITIES 67 Ham Nghi, District 1, Ho Chi Minh City, Viet Nam Tel: (84 8) 3914 3588 Fax: (84 8) 3914 3209 http://www.vcsc.com.vn