NKG’s challenges persist

Negative Cash Flow Returns

In Q3 2024, NKG's revenue exceeded VND 5,188 billion, up 22%, and its net profit after tax was VND 64.8 billion, up 174.5% over the same period in 2023. However, compared to the previous quarter, NKG's revenue declined 8.3%, with export income (which accounts for 70% of total revenue) falling 10% owing to increased trade protectionism in importing nations. Meanwhile, net profit after tax fell by 70.5%, principally owing to a 47% reduction in financial income, which totaled VND 59.67 billion.

By maintaining low inventory levels, NKG achieved a Q3 2024 gross profit margin of 9%, similar to the previous quarter, despite a significant drop in HRC steel prices during the period.

In the first nine months of 2024, NKG recorded total sales of VND 16,139.9 billion, up 14.2%, and net profit after tax of VND 434 billion, a 296% rise over the same time previous year.

NKG aims to generate VND 21,000 billion in total revenue and VND 420 billion in pre-tax profit by 2024. By the first nine months of 2024, NKG had met 129% of its pre-tax profit objective.

However, in the first nine months of 2024, NKG recorded negative operating cash flow of VND 739.2 billion, compared to a positive VND 483.5 billion in the same period last year. Additionally, NKG’s investment cash flow was also negative, amounting to VND 796.9 billion. It is worth noting that NKG experienced two consecutive years of negative cash flow: VND 308.27 billion in 2021 and VND 827.9 billion in 2022, before returning to a positive VND 268.6 billion in 2023.

Ongoing Export Challenges

Since June 2024, Vietnam's major steel export markets, including the European Union (EU), the United States, and Malaysia, have launched anti-dumping investigations against Vietnamese steel. Exports account for approximately 70% of NKG's income, and the company's key customers are focused in the EU and North America, so trade obstacles in importing nations are expected to continue to pose hurdles to its exports.

While the export market struggles with anti-dumping tariffs imposed by several nations, NKG is banking on the domestic market. Domestic steel demand is expected to recover thanks to the construction market and accelerated implementation of key investment projects in the final months of the year.

However, the firm continues to face competition from low-cost imported Chinese steel. According to the General Department of Customs, steel imports increased by 51% in the first nine months of this year compared to the same period the previous year, exceeding the whole tonnage for 2023. Import prices fell by 7% year on year.

Furthermore, the significant volume of maturing bonds from domestic real estate corporations, anticipated at over VND 200 trillion in the second half of 2024-2025, would put a strain on these companies' financial flows, potentially delaying project progress and limiting local steel demand.

Agriseco Research predicts that NKG’s business results will stagnate in Q4 2024 due to ongoing export difficulties and domestic market pressures from cheap Chinese steel.