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NKG – The recovery potential has already priced-in

• In 4Q2023, NKG recorded revenue of VND 4,459bn (USD 184mn, +4%YoY, +5%QoQ), with sales volume of 220 thousand tons (+20%YoY, +6%QoQ). In general, the sales output has improved compared to the 3Q2023, largely coming from: 1/ Peak construction period, 2/ Restocking activities of commercial companies before the price increased in January 2024. The 4Q gross profit margin (GPM) was increased to 6.1% (from the level of 4.8% in 3Q23), and gross profit reached VND 273bn (USD 11.2mn, +33%QoQ). However, due to higher-than-expected SG&A costs and lower-than-expected financial income, NKG recorded 4Q NPAT-MI of VND 22bn (USD 0.9mn, -5%QoQ). For the whole year of 2023, the NPAT-MI reached VND 117bn (USD 4.8mn), with corresponding EPS to reach VND 446.
• In terms of output for 2024, we expect the sales volume can reach 941 thousand tons (increased by 9.5% compared to 2023), with 10% output growth in terms of domestic market, supported by: 1/ The real estate market is showing signs of recovery in Q4/2023 (in major cities) and real estate projects are accelerating to pre-sale in 2024, with the construction process and rising demand for materials; 2/ Foreign Direct Investment (FDI) enterprises are boosting capital disbursement, constructing factories/warehouses in industrial zones.
• With the expectation that HRC prices will trade in a narrower range and around the average price of USD 614/ton (+ 4%YoY), NKG can maintain the GPM of 6.1% in 2024 (the same level as in 2023). In terms of the bottom-line, NKG's 2024 NPAT-MI could reach VND 261 bn, an increase of 123% compared to 2023. The corresponding EPS will be VND 913.
• We use two methods (FCFE and PB) to evaluate the stock; our fair value comes at VND 23,000 value per share, implying a total return of -5%as of the closing price on February 20th, 2024, equivalent to a NEUTRAL recommendation for Nam Kim Group Jsc. At the 2024 PE/PB forward of 26.3x/1.1x respectively, it shows that the company's prospect of recovering in 2024 has begun to priced-in. However, in 2024, the steel industry is expected to be one of the industries that will benefit from public investment, the partial recovery of the real estate sector and the positive trend of industrial park sector. We believe that the short-term trading opportunities will always exist in this industry group. Therefore, investors can consider NKG shares for short-term investment when the market price adjusts relative to our TP.