NKG – Tough Time has not Ended but Valuation Turned Attractive

• Declining demand and high input price drove down profits in 9M2022. Revenue posted VND 18,771 billion (USD 782 mn, -3% YoY), whereas PAT tumbled by 84% YoY to VND 290 billion (USD 12.1 mn). 9M2022 gross margin decreased to 9% (9M2021: 16.6%), with a slump to -3.6% in Q3.
• For 4Q22, consumption will be worse than Q3. Sales will rely mainly on domestic market with domestic GPM less negative than export margin. High-priced inventory, selling price drop combined with provisions for inventory devaluation could make Q4 GPM fall to -27.4%. Revenue and loss of Q4 is forecast to come at VND 2,630 bn (-70% YoY) and –VND 865 bn. In sum, 2022 revenue could come at VND 21,398 bn (-24% YoY) while the bottom line could be a net loss of -VND 575 bn.
• Milder inflation from mid-2023 will encourage the global demand for coated steel, supporting export volume. A strong rebound of export is not expected because the trade policies in major markets have been increasingly challenging to Vietnamese producers. Domestic market is expected to be the main driver for growth in 2023. Gross profit margin will reach 5.5%, marginally higher than 4.5% of 2022. 2023 revenue and PAT-MI could reach VND 21,455 bn (+0.3%) and VND 147 bn.
• Applying three valuation methods including discounted FCFF, P/E and P/B, we arrive at a target price for NKG of VND 11,800/share, which is equivalent to a BUY recommendation with an upside of 30%, based on the closing price of November 18^th, 2022. Considering the current P/B of 0.42, which is much lower than the 10-year average of 0.87, the current valuation seems to be attractive for long-term investment in NKG. The forward BVPS for 2022 and 2023 are VND 18,044/share and VND 18,588/share, or P/B at the end of 2022 and 2023 are 0.50 and 0.49, respectively.