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Nam Kim Steel: Strong NPAT growth from rising steel prices, inventory and strong demand

  • We expect NKG to record the highest quarterly NPAT in Q2
  • We forecast the company’s revenue and NPAT will reach VND6,113bn and VND503bn in Q2, respectively
  • We recommend investors to Hold (Neutral) this stock with a target price of VND37,000/share

We expect NKG to record the highest quarterly NPAT ever in Q2 owing to strong demand overseas, increasing hot-rolled coil (HRC) prices, and higher inventory. We forecast that the company’s revenue and NPAT will reach VND6,113bn and VND503bn in Q2, increasing by 164% yoy and 2,806% yoy, respectively. For H2 21, the outlook for HRC prices is better than our expectations as prices for HRC delivered in Q3 will be more than US$1,000/ton. The company’s NPAT in Q3 will be roughly VND230bn, significantly higher compared to previous years. Based on forward EPS of VND5,800, we recommend investors to Hold (Neutral) this stock with a target price of VND37,000/share.

With HRC prices rising strongly, increasing inventory should boost NKG’s gross margin to a higher level compared to Q2. The company’s inventory has grown by roughly 63% qoq in Q1 in terms of value. Meanwhile, the quarterly average HRC price is expected to increase by 30%. Hence, we estimate that the company’s steel inventory has risen by 25% qoq in terms of volume. NKG can earn a large profit from accumulated steel volume because the HRC price was in the range of US$720-800/ton in March and increased to roughly US$1,000/ton in mid-May. Besides, export volume to Europe and the US will still account for roughly 50% in total selling volume and bring higher profitability compared to selling in the domestic market. Hence, we expect NKG's gross margin could reach 13.5% in Q2 compared with 12.5% in Q1.

Regarding sales volume, we expect that the company will sell c240,000 tons of products in Q2, of which 50-55% will be exported. NKG will not face difficulties in selling its products until late-Q3 as it has received sufficient orders from foreign markets. Currently, the company is running its factories at full capacity to meet the large demand. In 4M 21, the company sold 333,610 tons of steel products, of which 55% was exported.


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