NKG_BUY_TP 30,400VND_Upside 27%_Gradually improve its position in the steel industry_BSC Company Update

Valuation

§  BSC maintains its recommendation to BUY NKG shares, but adjusts its 1-year target price to 30,400 VND/share (after dividend) equivalent to 27% upside compared to the price on June 9, 2022.

§  We use the PE method, with the target PE adjusted down from 5.5x to 4.5x compared to the previous report because the overall market has been heavily discounted. We think the above valuation is still attractive due to the expectation that NKG will have a sales volume growth in 2022, as well as the prospect of capacity increase in the future.

Forecasting business results

§  Compared to the previous report, we reduce NKG's net revenue and NPAT in 2022 to VND 31,653 billion (+12.3% YoY) and VND 2,026 billion (-8.9% YoY), EPS FW (diluted) respectively = 7,697 VND/share.

§  We keep our assumptions: (i) Steel price -5% yoy, and adjust our assumptions, (ii) Steel sales volume growth slowed from 23.7% yoy to 17.8% yoy (ii) GPM -1.6% yoy compared to -1% in the previous report.

Investment perspective

§  Consumption volume in 2022 will increase thanks to a capacity increase of +20% and an increase in export quotas in the EU market after the ban on steel imports from Russia.

§  Attractive valuation relative to industry peers and improvements in business performance.

Risk   

§  Supply chain bottlenecks affect export deliveries;

§  Material price fluctuations ;

§  Consumption demand in export markets declines .

Business Update

§  Total consumption of steel products in 1Q2022 is estimated at 257 thousand tons (+6% YoY), in which the output of galvanized steel is 214 thousand tons (+12% yoy), pipe steel production is 43 thousand tons (-17% yoy).

§  Galvanized steel sheet export volume in 1Q2022 accounted for 72.5% of total consumption, reaching 155 thousand tons.