- 2024-10-30T00:00:00
- Company Research
NKG announced weak 9M 2024 results with net revenue of VND16.1tn (USD645.6mn; +14% YoY; 81% of our 2024F forecast) and NPAT-MI of VND435bn (USD17.4mn; +3x YoY; 65% of our 2024F forecast). In Q3 2024, NKG reported net revenue of VND5.2tn (USD207.5mn; -8% QoQ; +22% YoY) and NPAT-MI of VND65bn (USD2.6mn; -70% QoQ, +1.7x YoY).
- Q3 2024 revenue dropped 8% QoQ but increased 22% YoY, mostly driven by sales volume: According to the Vietnam Steel Association, NKG’s total Q3 sales volume of steel pipes and galvanized steel sheets was 250,600 tonnes (-10% QoQ; +21% YoY). We attribute QoQ lower sales volume to increased competition from Chinese low-priced steel in both the domestic and international markets. YoY-wise, sale volume was higher due to demand recovery from last year’s low base. Q3 ASP was relatively flat, inching up 1.3% QoQ and 0.9% YoY. During 9M 2024, total sales volume of steel pipes and galvanized steel sheets grew 23% YoY to 782,300 tonnes (77% of our 2024F forecast), while ASP declined 7% YoY - which we attribute to pressure from Chinese low-priced steel.
- Q3 GPM dropped QoQ as projected: Q3 2024 GPM dropped QoQ to 8.7% from 9.0% in Q2 2024 and 10.7% in Q1 2024. We attribute this lower GPM performance to QoQ weaker HRC prices due to pressure from China. We note that, in an HRC price downtrend, margins of downstream steel producers typically compress due to lower spreads, driven by lower output ASPs (as they are often adjusted based on spot prices) and higher input materials costs (due to inventory previously procured at higher costs). For 9M 2024, GPM was 9.5% - broadly aligning with our full-year forecast of 9.5%.
- Q3 SG&A expenses/revenue surged 83% YoY: Although NKG does not provide a breakdown of SG&A expenses in its unaudited financial statements, we attribute higher SG&A expenses to YoY higher demand and YoY higher average shipping costs. We note that shipping costs made up 60%-85% of NKG’s total SG&A expenses over 2019-2023, per its audited financial statements. We note that in Q3 2024, freight rates normalized from July’s peak as the Red Sea crisis and the drought at the Panama Canal eased, but the average level still remained elevated YoY.
- Q3 financial expenses surged 69% QoQ and 40% YoY, which we think could be linked to FX losses, as interest expense only grew 13% QoQ and dropped 19% YoY.
Overall, as 9M 2024 NPAT-MI only fulfills 65% of our 2024F forecast, we foresee downside risk to our current projections, pending a fuller review.
NKG’s 9M 2024 results
VNDbn | Q3 2023 | Q2 2024 | Q3 2024 | QoQ | YoY | 9M 2023 | 9M 2024 | YoY | 2024F | 9M as % of 2024F |
Revenue | 4,262 | 5,661 | 5,188 | -8% | 22% | 14,137 | 16,140 | 14% | 19,905 | 81% |
Gross profit | 205 | 512 | 452 | -12% | 120% | 839 | 1,531 | 82% | 1,891 | 81% |
SG&A expenses | -170 | -284 | -311 | 9% | 83% | -541 | -919 | 70% | -1,075 | 86% |
Operating profit | 35 | 228 | 141 | -38% | 300% | 298 | 612 | 105% | 816 | 75% |
Financial income | 79 | 114 | 60 | -47% | -24% | 187 | 239 | 28% | 256 | 93% |
Financial expenses | -84 | -70 | -118 | 69% | 40% | -338 | -309 | -8% | -289 | 107% |
- Interest expense | -60 | -43 | -49 | 13% | -19% | -233 | -140 | -40% | -189 | 74% |
Net other income/loss | 0 | 1 | 0 | -142% | -810% | 0 | 1 | N.M. | 0 | N.M. |
PBT | 30 | 273 | 82 | -70% | 176% | 147 | 543 | 269% | 783 | 69% |
NPAT-MI | 24 | 220 | 65 | -70% | 174% | 100 | 435 | 336% | 666 | 65% |
GPM | 4.8% | 9.0% | 8.7% |
|
| 5.9% | 9.5% |
| 9.5% |
|
SG&A/sales | 4.0% | 5.0% | 6.0% |
|
| 3.8% | 5.7% |
| 5.4% |
|
OPM | 0.8% | 4.0% | 2.7% |
|
| 2.1% | 3.8% |
| 4.1% |
|
NPM | 0.6% | 3.9% | 1.2% |
|
| 0.7% | 2.7% |
| 3.3% |
|
Source: NKG, Vietcap
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