Nam Kim forecasted to achieve record profit in Q2 2021 thanks to abundant inventory

VDSC Securities released its business outlook report of Nam Kim Steel Joint Stock Company (code: NKG) with the forecast that the steel company can achieve the highest after-tax profit since listing in the second quarter due to strong demand from foreign markets, hot rolled steel coil prices (HRC) and increased inventories.

It is expected that in the second quarter, Nam Kim’s revenue and profit after tax will reach VND 6,113 billion and VND 503 billion, respectively, an increase of 164% and 2,806% over the same period last year. One of Nam Kim’s main growth drivers in the second quarter was a strong increase in inventory, which is expected to drive the improvement of gross profit margin in the period.

The company’s inventory has increased by about 63% year-on-year by the end of the first quarter in value, while the average quarterly HRC price is expected to increase by 30%. As a result, VDSC estimates the steel company’s inventory has increased by 25% in volume.

On the other hand, according to analysts, it is more likely that Nam Kim will benefit from accumulated steel output because HRC prices only ranged between $720-800 per ton in March and rose to about $1,000 per tonne by mid-May.

In addition, exports to Europe and the US will still account for about 53% of total consumption and bring higher profit margins than selling in the domestic market. VDSC expects Nam Kim’s gross profit margin to reach 13.6% in the second quarter, higher than 12.5% ​​in the first quarter.

In terms of consumption volume, Nam Kim is forecasted to sell about 240,000 tons of products in the second quarter, of which 50%-55% of output will be exported. According to VDSC, Nam Kim will not have difficulty in selling all products until the end of the third quarter because it has received enough orders from overseas markets.

Currently, the company is operating factories at full capacity to meet demand. In April 2021, the company consumed 333,610 tons of steel products, of which 55% was exported.

Further, in the third quarter, VDSC forecasts that Nam Kim’s profit after tax will reach about VND 230 billion, significantly higher than the average quarterly profit of previous years. The impetus comes from the HRC price outlook in the second half of 2021, which is better than expected when the price of HRC delivered in the third quarter has surpassed $1,000/ton.