NKG [OUTPERFORM +16.5%] - HRC price correction to weigh on Q3 2022

- We cut our target price by 14% for NKG to VND24,400/share while maintaining our OUTPERFORM rating.

- Our DCF-derived fair price is 16% lower compared to our previous Update Report due to 1) our 2% decrease in aggregate 2022-2026F NPAT-MI as we expect a lower spread between HRC prices and finished steel prices to weigh on margins, 2) increasing our WACC assumption to 11.7% from 11.4% because we raise our risk-free rate assumption to 6.0% from 5.5%, and 3) a higher working capital requirement.

- NKG reported Q2 2022 NPAT-MI of VND201bn (USD8.6mn; -76% YoY from a historic high in Q2 2021). However, NKG’s gross margin (after adjusting for provision in Q1 2022) improved QoQ. For H1 2022, NKG’s NPAT-MI was VND708bn (USD30.4mn; -39% YoY).