- 2024-07-30T00:00:00
- Company Research
NKG announced its H1 2024 results with net revenue of VND10,952bn (USD429.5mn; +11% YoY; 50% of our 2024F forecast) and NPAT-MI of VND370bn (USD14.5mn; +3.9x YoY; 72% of our 2024F forecast). In Q2 2024, net revenue was VND5,661bn (USD222mn; +7% QoQ, +3% YoY) and NPAT-MI was VND220bn (USD8.6mn; +46% QoQ, +75% YoY).
- H1 2024 revenue rebounded on higher volume, partially offset by lower ASP: According to the Vietnam Steel Association, NKG’s total sales volume of steel pipes and galvanized steel sheets grew 23% YoY to 531,800 tonnes during H1 2024 (56% of our 2024F forecast) from H1 2023’s 430,700 tonnes, which we attribute to recovering domestic and exports demand from last year’s low base. However, ASP declined 10% YoY which we think is due to increasing competition from Chinese low-price steel exports to both the Vietnam and the global markets. In Q2 2024, total sales volume of steel pipes and galvanized steel sheets was 277,200 tonnes (+9% QoQ; +17% YoY), while ASP contracted 2% QoQ and 12% YoY. These developments are largely similar to what we have observed with HSG (Please refer to our latest HSG Earnings Flash for more information).
- H1 GPM expanded YoY: H1 2024 GPM expanded to 9.9% from 6.4% last year despite 10% lower YoY ASP, attributed to low input hot-rolled coil (HRC) prices due to China’s weak demand. Although the trend is in line with our current forecast, the level of GPM expansion is larger-than-expected as we currently project a full-year 2024F GPM of 8.7%. Q2 GPM contracted QoQ which we believe is due to a lower QoQ ASP.
- H1 SG&A expenses surged 64% YoY, attributed to recovering sales volume and high shipping costs. This surge in SG&A expenses is higher than what HSG experienced, due to NKG’s stronger focus on exports as the domestic market has been dominated by HSG, which is in line with our expectation. Over the last five years, shipping costs constituted around 60%-85% of NKG’s total SG&A expenses, vs 15%-45% for HSG (please refer to our Galvanized Steel Sector report dated May 10, 2024, for more information).
- Q2 financial income surprises with a 125% YoY increase: In Q2 2024, NKG recorded a financial income of VND114bn (USD4.5mn; +73% QoQ, +125% YoY), driving H1 2024 financial income to VND179bn (USD7mn; +66% YoY; 149% of our 2024F forecast). We think the abnormally high financial income recorded in Q2 2024 mostly stemmed from FX gains which accounted for ~90% of total financial income during the 2021-2023 period. We note that NKG only provides a breakdown for financial income in semi-annual and annual audited financial statements. H1 financial expenses declined 25% YoY, mostly due to a lower-rate environment.
We expect minimal changes to our 2024F net revenue forecast, with potential upside for sales volume, offset by downside risk for the ASP (as we currently expect the FY2024F ASP to recover 5% YoY). However, we foresee upside potential to our 2024F NPAT-MI forecast, driven by (1) higher GPM forecast and (2) factoring in the abnormally high financial income recorded in Q2, offset by higher SG&A/sales forecast.
NKG’s H1 2024 results
VNDbn | Q2 2023 | Q1 2024 | Q2 2024 | QoQ | YoY | H1 2023 | H1 2024 | YoY | 2024F | H1 as % of 2024F |
Revenue | 5,500 | 5,291 | 5,661 | 7% | 3% | 9,875 | 10,952 | 11% | 21,738 | 50% |
Gross profit | 496 | 567 | 512 | -10% | 3% | 634 | 1,079 | 70% | 1,891 | 57% |
SG&A expenses | -254 | -324 | -284 | -12% | 12% | -371 | -608 | 64% | -1,098 | 55% |
Operating profit | 242 | 243 | 228 | -6% | -6% | 263 | 471 | 79% | 793 | 59% |
Financial income | 51 | 66 | 114 | 73% | 125% | 108 | 179 | 66% | 121 | 149% |
Financial expense | -126 | -121 | -70 | -42% | -44% | -253 | -191 | -25% | -313 | 61% |
- Interest expense | -80 | -49 | -43 | -11% | -46% | -173 | -92 | -47% | -235 | 39% |
Net other income/loss | 0 | 0 | 1 | N.M. | -537% | 0 | 1 | -544% | 0 | N.M. |
PBT | 167 | 188 | 273 | 45% | 64% | 117 | 460 | 293% | 600 | 77% |
NPAT-MI | 125 | 150 | 220 | 46% | 75% | 76 | 370 | 386% | 510 | 72% |
GPM | 9.0% | 10.7% | 9.0% |
|
| 6.4% | 9.9% |
| 8.7% |
|
SG&A/sales | 4.6% | 6.1% | 5.0% |
|
| 3.8% | 5.6% |
| 5.1% |
|
OPM | 4.4% | 4.6% | 4.0% |
|
| 2.7% | 4.3% |
| 3.6% |
|
NPM | 2.3% | 2.8% | 3.9% |
|
| 0.8% | 3.4% |
| 2.3% |
|
Source: NKG, Vietcap
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