Sector: Materials – Industry: Industrial Metals

Ho Chi Minh Stock Exchange (HOSE)

NAM KIM GROUP (Ticker: NKG)

Closing price: 18,100 VND Target price: 20,373 VND

USD/VND: 23,530 Recommedation: NEUTRAL

EXECUTIVE SUMMARY
Date: 26th June 2023
KEY FINANCIALS

Historical Forecast
Fiscal Year
FY18a FY19a FY20a FY21a FY22a FY23f FY24f FY25f FY26f FY27f
ending 31 Dec
Revenue 14,812 12,177 11,560 28,173 23,071 20763.9 22217.37 23994.76 26874.13 30905.25
% Growth -17.79% -5.07% 143.71% -18.11% -10% 7% 8% 12% 15%
Net profit (bil
VND) 57 47 295 2,225 -125 300 675 691 1204 1417
EPS (VND) 361.22 260.08 1,668.56 8,450.44 -474.74 1140 2566 2627 4577 5387
DPS (VND) 0 0 208.33 833.33 0 0 300 500 0 500
ROEA (%) 1.94 1.58 9.53 49.98 -2.26

COMPANY OVERVIEW
Figure . Ownership structure Overview
8.57% Established on December 23, 2002, Nam Kim Steel Joint Stock Company
is a leading manufacturer of galvanized steel sheets in Vietnam, trusted
7.20%
nationwide and exported to more than 50 countries around the globe.
Geographic and business segments
Nam Kim’s sectors of business include (1) Producing iron, steel, cast iron;
22.32 (2) Manufacture of other metal products; (3) Mechanical; metal treatment
61.91 %
% and coating (except metal processing and coating and not processing at
the head office location); (4) Wholesale of metals and metal ores; (5) Other
specialized wholesale.
Foreign shareholders In recent years, NKG has shifted its sales focus towards the global market.
Domestic institutions In both 2021 and 2022, exports accounted for 68% and 57% of NKG's total
BOD, BOM, BOS consumption respectively (Figure ). Currently, the majority of NKG's orders
Other individuals are concentrated in Europe and Australia, with the US and Asia also
contributing significant demand.
Strategy: "Embrace the Journey of Endless Improvement"
Figure . Consumption output The organization demonstrates its commitment to fostering innovation and
structure of NKG (tons)
expansion. In the first quarter of 2023, NKG announced an Investment and
100%
90%
Development fund amounting to VND 185.8B, which corresponds to
80% 47% 42% around 4% of sales and represents a notable 40% growth compared to the
70% 57% previous year's equivalent timeframe. At the 2022 General Meeting of
68%
60%
50% Shareholders, Nam Kim Steel's management shared their investment plan
40% for the Nam Kim Phu My Ton Factory project. The project aimed to have a
30% 58%
20%
53%
43% production capacity of 1.2 million tons/year with a total investment of 4,500
32% billion VND. However, due to difficult circumstances, the plan was
10%
0% suspended. From 2018 to present, Nam Kim’s galvanizing capacity
2019 2020 2021 2022
reaches 1,000,000 tons/year, rolling removal capacity reaches 800,000
Domestic Export tons/year, zinc pipe capacity reaches 120,000 tons/year. (Appendix )
Shareholder structure
Foreign shareholders take a quite small percentage in the ownership
structure, only 8.57%, indicating that NKG is not really attractive to
international investors. (Figure 1) The biggest shareholder of NKG in 2022
is still Mr. Ho Minhtheres Quang - the Chairman, his holding rate has
 increased year by year but not dominant, currently at 14.2%.

INDUSTRY OVERVIEW & COMPETITIVE POSITIONING

Industry overview
Demand outlook
Policies to warm up frozen real estate market and control interest
rates to help increase construction steel demand: The volatile real
estate market in 2022 (Figure 7) , coupled with high interest rates, led to a
decline in construction steel consumption and prices, resulting in reduced
revenue and demand. However, the real estate market is receiving robust
support from favorable policies, including the SBV's reduction of the ceiling
interest rate and the government's removal of corporate bonds for real
estate businesses. Thanks to the Government's resolute efforts, the real
estate market has been steadily warming up since May. The new recovery
Source: VSA
cycle of real estate is expected to accelerate the consumption of inventory
steel and increase steel selling price in the next quarters of 2023.
Expected disbursement rate of public investment capital to bolster
steel demand: The primary consumers of domestic steel are real estate
projects and public investments. According to the report from the Ministry
of Finance,the estimated payment from the beginning of the year until
January 31, 2023, is VND539,276.51 billion, achieving 80.63% of the plan
and 92.97% of the plan assigned by the Prime Minister (compared to the
same period in 2021, which achieved 78.08% of the plan and 95.11% of
the plan assigned by the Prime Minister). In 2023, we asses that public
investment creates demand for steel thanks to the disbursement of
backlog projects from 2022 and the Government's additional economic
stimulus package. The National Assembly has approved an economic
Source: VNDIRECT, WSA recovery support package worth VND350 trillion for 2022-23, of which
Source: VSA
about VND114 trillion is for infrastructure development, focusing on key
projects such as the North-South expressway, Long Thanh airport and
large logistics ports.
Vietnam’s humble per capita steel consumption and strong long-term
demand: According to World Steel Association (WSA) data, Vietnam’s per
capita steel consumption is 283 kg, higher than the world average of 245
kg, but lower than the Asian average of 316 kg. In the long term, according
to VSA, Vietmam's steel demand will continue to grow from 240 kg per
capita to 290 kg per capita in 2030. Steel demand will be concentrated on
alloys or high-quality steel. (Figure 9)
Challenges for steel exports as trade barriers intensifies: Global
Source: WSA inflation and a significant tightening wave in monetary policy have resulted
in reduced investment and consumption demand, leading to weaker steel
Source: NKG consumption starting from the third quarter of 2022. According to the World
Steel Association (WSA), steel demand is projected to decrease by 2.3%
Figure
Source: . Porter's
Vars 20225 forces in 2022 but rebound with a 1% increase in 2023. Within ASEAN, strong
investment in infrastructure will drive steel consumption, making it a key
export market for Vietnamese steel. On the other hand, the United States
Interest coverage ratio
Suppliers' barganing power
is anticipated to witness steel consumption growth in 2022 and 2023,
5 driven by increased demand for automobiles after the pandemic, reduced
Figure . ESG rating supply chain congestion, and higher investments in energy exploration.
Threat of substitutes Buyers' barganing power

0 However, steel exports in the second half of 2023 are still difficult to
Environment
4 rebound strongly in the context of increasing competition challenges and
3 trade barriers. For example, US has lowered import quotas for Japanese,
Rivalry among existing competitors
2 Threat of new entrants EU, and UK steel since 2022, and EU increased protection measures for
Source: Investing, team 1 calculation coated steel sheets of Vietnam from July 1, 2022. (Figure 11, 12)
0
Source: WSA Pressure from China's export wave: In the initial months of 2023, China
has shown a tendency to increase steel exports despite the reopening of
Governance Social its economy following the COVID19 pandemic, as domestic demand
Source: remains low. This export promotion by China has raised concerns about
Source:Vars
WSA 2022
the downward pressure on global steel prices, which in turn affects
 Vietnam's export activities. Vietnam is the fourth-largest market for steel
consumption in China, accounting for 6.5% of the market share, a decline
of nearly 1% compared to the same period last year. Conversely, China's
steel imports in February decreased by nearly 34% to 0.6 million tons
(Figure 14).

Figure . ROE of NKG and peers

Supply outlook
Raw material’s prices: signs of recovery from their lowest points:
Coal prices experienced a significant surge due to geopolitical conflicts
and the combination of sluggish consumption and low selling prices
caused by weak demand, which put pressure on the cost of goods sold.
HPG 17.03 25.14 45.97 9.08 The HRC price has exhibited higher volatility in the past two years
HSG 6.81 19.13 49.52 2.31 compared to the 2018-2020 period, with significant fluctuations (Appendix
NKG 1.58 9.53 49.98 -2.26 20). However, Iron ore prices are forecasted to reach $90/ton in 2023 and
TLH -9.31 5.16 26.02 0..28 $70/ton in 2024, while coke prices are projected to decrease to
TVN 3.96 4.88 6.78 -7.43 USD200/ton by 2023 and USD140/ton by 2024. This has led to challenges
ROE Industry -7.66 for processing businesses in procuring and storing production materials.
Source: Investing, team calculation The fluctuating prices of raw materials have posed challenges to the
inventory and material price hedging policies of steel producers, especially
Figure . Growth of revenue
143.71% during periods of industry recession.
Implementation of extended tariff barriers: According to Decision No.
918/QD-BCT on extending safeguard measures with billet products, from
March 22, 2023 if there is no extension. Import tax on billet and long steel
products will be reduced to 0%. The impact of this will be (1) Increased
11.00% 7.00% 15.00%
12.00%
8 .00% competition with imports, especially China; (2) The selling price will drop
-5.07% -10.00% sharply when the tax barrier is removed.
-17.79% Competitive positioning
a a a a 3f 4f 5f 6f 7f Thanks to the competitive pricing, relatively good quality enhanced by
19 20 21 22 2 2 2 2 2 deployment of world-leading technologies, big economies of scale, NKG
FY FY FY FY FY FY FY FY FY
Source: Investing, team calculation
manages to have (1) low threat of new entrants, (2) low threat of
substitutes and (3) moderate bargaining power with buyers. Yet due to the
highly competitive market and huge dependence on overseas suppliers,
Figure . Activity ratios
NKG has (4) relatively low bargaining power with suppliers and (5)
moderate rivalry (Figure 17).
2018

2019

2020

2021

2022

Days
Doubling Capacity and Expanding with Acquisition, Investments, and
DR 8 20 30 18 20
New Alloy Product Research
DI 85 77 85 81 129
Nam Kim Steel utilizes state-of-the-art technology and equipment provided
DP 20 36 50 36 67
by renowned steel industry corporations such as SMS from Germany and
COCC 73 61 64 62 83
Source: Investing, team calculation
Drever from Belgium. To ensure high-quality products, raw materials are
carefully selected from reputable and large-scale suppliers like Nippon
Steel from Japan, Hyundai Steel from Korea, CSC from Taiwan, and
Figure . EBITDA & CFO Formosa from Vietnam. Nam Kim currently operates four factories
3500 (Appendix 6), with a total capacity of 1.2 million tons, producing galvanized
3000
steel products and steel pipes. In 2022, the acquisition of Dae Myung
2500
2000
Company is expected to be approved, allowing for factory restructuring
1500 and expansion of rolling capacity. By 2027, Nam Kim aims to double its
1000 total capacity to 2.4 million tons. (Figure 15). This project is driven by the
500 objective of researching new products using high-quality alloys.
0
-500 Partnership with SMC for Strategic Expansion and Stable Domestic
-1000 Sales Amid Export Pressure
-1500
Nam Kim is engaging in a substantial strategic collaboration with SMC
2018 2019 2020 2021 2022
EBITDA CFO Investment and Trading (HOSE: SMC), another iron and steel distributor.
As part of this partnership, SMC has been progressively increasing its
share ownership in Nam Kim and appointing senior personnel to the
company's Board of Directors. Currently, Nam Kim and SMC primarily
operate in the Southern region of Vietnam. Therefore, establishing a
factory in Quang Nam represents a specific move towards expanding their
presence in the Central region. With the support of SMC in terms of
distribution, we believes that Nam Kim's domestic sales volume will remain
relatively stable when sales NKG's exports will be under a lot of pressure
in 2023. However, this stability may come at the expense of profit margins.

ENVIRONMENTAL, SOCIAL & GOVERNANCE

Iron and steel production and steel rolling must use a large amount of
mineral resources, iron and steel scrap, chemicals, etc., thus generating
wastes that pollute the environment. ESG ratings is to evaluate whether
the company strictly complies with regulations on environmental protection
in production and business activities or not. The assessment used the
ESG evaluation model of MSCI and it is based on the information
disclosed in the NKG’s annual reports and other official sources.
Environment | Green production with advanced technology lines
Ton Nam Kim is subject to environmental repercussions as operating in the
field of industrial production. However, the company uses advanced and
environmentally friendly technology lines in order to limit the toxic
emissions as much as possible. The company applies NOF technology
that does not use oxygen in the metal plating process, which helps to
avoid fire and explosion and protect the environment. Ton Nam Kim also
invests in modern acid regeneration line of SMS-Germany, which is
equipped with an acid recycle system, the product of the system is 18%
HCL acid which is supplied in reverse as raw materials for the production
process. However, solutions for other environmental issue such as carbon
emission, electrical and water waste, … are not given enough commitment
by the company. Based on MSCI’s ESG Framework, the Environmental
pillar of NKG is rated at 2.3/4.0.
Social | Always going with the happiness of the community
Besides the goal of profit optimization, the company always attaches great
importance to the responsibility to the community. Ton Nam Kim has
organized volunteer activities and social security programs to develop the
living environment as well as create opportunities for families and
individuals in need. The company also cares about human capital
development by focusing on training, improving policies that benefit the
employees, and paying attention to the health care aspect, … However,
the company still lacks solutions related to product liability issues. Based
on MSCI’s ESG Framework, the Social pillar of NKG is rated at 2.1/4.0.
Governance | Consolidating internal power though management
The Board still ensures regular meetings in 2022 so that each member has
a good grasp of the Company's business activities to jointly make timely
decisions. Because of the extremely volatile business scenario in the
second half of 2022, the Board has made unwavering choices to eliminate
obstacles in the spirit of ensuring financial stability and output. The
company has reasonable policies on ownership and control aspects and
also complies with both Vietnam and international accounting standards.
However, during the evaluation process, we find that Ton Nam Kim still has
problems with information disclosure so the evaluation may not indicate
exactly the company situation in reality. Based on MSCI’s ESG
Framework, the Governance pillar of NKG is rated at 3.0/4.0.

INVESTMENT SUMMARY
Recommendation: NEUTRAL
Steel prices remain at low prices, reducing profit potential of NKG
Steel prices have dropped continuously in recent times due to two basic
reasons: firstly, the same downward trend in the world. Currently, the price
of Chinese steel has fallen very deeply, so domestic steel enterprises also
have to reduce prices to be able to compete, especially with Chinese steel
exports. Second, the prices of input materials for steel production are also
in a downtrend. Thus, from the beginning of 2023 until now, the price of
construction steel has had 12 downward adjustments, depending on the
brand, the frequency of price adjustment will vary. Particularly in May, the
units adjusted the selling price of construction steel 5 times with the
frequency of reduction once a week, with the reductions of 100,000 -
200,000 VND/ton/time depending on the type of product, but the
consumption of the market is still very weak.
Steel demand and Chinese steel prices may rebound in August-
September, given the fiscal boost to the infrastructure sector and its
spillover effects on the manufacturing sector. But the upside could be
modest, unless government-mandated steel production cuts can be
triggered.
Stopping construction of Nam Kim Phu My project - Forecast of
consumption demand for construction steel and galvanized steel in
2023 is negative
Nam Kim Steel has suspended construction of Nam Kim Phu My factory
project in the context of rapidly declining demand for galvanized steel. Civil
real estate is the field that has the greatest influence on the demand for
Vietnam's steel industry when it accounts for about 60-65% of the
industry's demand and affects most of the finished steel products. Since
the second quarter of 2022, the domestic real estate market has slowed
down after a series of violations by a number of large real estate
enterprises related to the issuance of corporate bonds, rising home
interest rates and limited credit room. Although a series of policies have
been issued to remove difficulties, it takes more time to really have an
impact.
According to VNDirect forecast, Vietnam's total consumption of
construction steel and galvanized steel sheet in 2023 will decrease by 9%
and 7% respectively compared to 2022, to 9.5 million tons and 3.9 million
tons, respectively.
The pause in this expansion plan is also because steel enterprises have
just experienced a period of consecutive losses due to a sudden drop in
selling prices.
Therefore, according to the assessment, the fact that both the domestic
and export markets are facing the problem of demand reduction, the pause
of Nam Kim Steel's expansion plan can be considered an appropriate step
at the moment.
Expected export revenue to continue to decrease
Nam Kim focuses on exporting to the US market and especially to Europe,
where the economic outlook is not very positive. With a high proportion of
sales to Europe (up to 50%), we believe that NKG's export sales will be
under pressure in 2023 due to decreased demand.
In Europe: A sharp drop in demand due to galloping inflation and high
energy costs forced manufacturers to close factories locally; EU extends
steel safeguard measures to 2024; Deeply falling selling price narrows
profit margins of exporters into this market.

FINANCIAL ANALYSIS
Business Performance Is Poor, Cannot Maintain Positive ROE
In 2021, after-tax profit is 2225 billion VND, in 2022, businesses will lose
125 billion VND. (Figure 18)
There are two main reasons for Nam Kim's loss in the second half of the
year:
The first reason is due to the decrease in the price of steel products
in the country and in the world.
The deep drop in steel prices has caused businesses in the industry,
especially Nam Kim, to face many challenges: Firstly, the enterprise must
reduce the selling price, causing the gross profit margin to decrease. The
inventories of both finished products and raw materials were very high in
the previous high price period, the market price plummeted, causing
enterprises to make provision for devaluation of inventories to push into
cost prices. (Figure 20, 22)
As a result, gross profit margin in 2022 is only 6.7%, a very sharp
decrease compared to 15.2% in 2021.
The second factor is the decrease in export market revenue.
In 2022, Nam Kim Steel recorded a revenue of VND 23071 billion, down
18.1% compared to 2021, of which domestic market revenue still
increased by 5.2%, equivalent to an increase of VND 520 billion in the past
year. However, export market revenue decreased by 29.2%, equivalent to
a decrease of VND 5600 billion. The share of domestic sales is lower than
the share of export revenue. Therefore, the sharp drop in export revenue
has dragged down Nam Kim's consolidated full-year revenue. Although
domestic revenue has grown, it is not enough to compensate for the export
market (Figure). The decline in export market revenue occurred in the
context of major economies such as the US, Europe is affected by inflation
and a very high interest rate environment, causing construction activity in
these countries to decline, while China persists in implementing social
distancing measures that negatively affect the construction market in this
country. Other countries are in a similar situation, including the domestic
market.
Through the end of 2023, we expect revenue to remain dismal, down 10%
from 2022 revenue, mainly reason is:
(1) the demand for galvanized sheet for export is still weak, while the
domestic demand for galvanized steel sheet and steel pipe can only
absorb a stable amount, accounting for a small part of the total sales
volume of NKG
(2) the inventory is quite large and the price of HRC fluctuation is
complicated
(3) The domestic real estate supply may only start to recover from 2024
when the revised Land Law is passed and financial pressures, interest
rates are reduced as banks facilitate further access to capital is more
favorable as well as stimulating demand for home buyers.
During 2024F-2027F, we expect revenue growth is about 7-8% in 2024-
2025 and increase to 12-15% in 2026-2027, due to
(1) the government increases disbursement of public investment, creating
opportunities for the building materials industry
(2) Credit packages for social housing or the removal of legal difficulties in
the real estate market by the Government will open up unfinished real
estate projects in the previous stage, which can be including Decision
388/QD-TTg approving the investment project to build at least 01 million
social housing apartments for low-income people and industrial park
workers in the 2021-2030 period;Decree 08/2023/ND-CP on corporate
bonds; Resolution 33/NQ-CP on a number of solutions to remove and
promote the real estate market
(3) The Russian-Ukraine war ended, helping to reduce the price of input
materials.
Struggling To Liquidate Inventory, Tight Liquidity And Efficiency
In 2021, NKG recorded a sudden increase in inventory value, this is a
reasonable strategy to store raw materials, in case the price is pushed up
too high, especially in the context of HRC's price related to continued to
increase in 2021 and market demand also increased dramatically.
However, the high value of inventories while the selling price of galvanized
steel and steel pipes tends to plunge in the second half of 2022, leading to
the inventory value continuing to remain high, pushing the days of
inventory turnover to 130 days (the period 2018-2021 maintains ~ 80
days), much higher than other companies in the same industry.
Cash and cash equivalents increased by VND250 billion, making the
proportion of total assets also increase to 7.47% that keep liquidity
indicators at safe levels. However, the above amount of money is due to
the company’s borrowing, not the profit of the company's business
activities, the increase. Objectively assessed, the company still has
difficulty in the ability to pay off short-term liabilities.
High Leverage And Weak Cash Flow Generation Lead To Low
Financing Scalability
The Debt/Equity ratio has been kept relatively stable over the past 5 years,
 approximately at 1.5. However, this figure when compared to the two
leading companies in the industry, HPG and HSG, with figures of 0.77 and
0.56 respectively and the industry average of 0.62 (tên fig), shows that the
company's level of leverage is quite high. This is a potential sign of
instability, risk, and a lack of financial independence for the firm. Moreover,
in 2021, although Nam Kim earned substantial profits, the CFO was
negative. In 2022 the company mainly increased debt to cover the deficit
from CFO (Figure )). In addition, during the last 4 years from 2019-2022,
the money spent on purchasing and constructing fixed assets and other
long-term assets is at a relatively low figure, not too significant compared
to the depreciation expense( tên fig). Therefore, in general, businesses
that have not invested in development for a long time , are unlikely to grow
strongly in the future. In line with forecast, NKG should decrease D/E ratio
to 1.3.
2018 2019 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
Source: Company data
NKG 1.73 1.67 1.44 1.69 1.53 1.5 1.45 1.45 1.3 1.3
Figure . Dividend yield HPG 0.93 1.13 1.22 0.96 0.77
8.50%
High Leverage And Weak Cash Flow Generation Lead To Low
Financing Scalability
5.50% The Debt/Equity ratio has been kept relatively stable over the past 5 years,
4.60%
approximately at 1.5. However, this figure when compared to the two
3.20%
leading companies in the industry, HPG and HSG, with figures of 0.77 and
1.80% 0.56 respectively and the industry average of 0.62 (tên fig), shows that the
company's level of leverage is quite high. This is a potential sign of
instability, risk, and a lack of financial independence for the firm. Moreover,
ny % e s
25 25
% ag ar in 2021, although Nam Kim earned substantial profits, the CFO was
pa er ye
om om op av 3
negative. In 2022 the company mainly increased debt to cover the deficit
C ott tt ry in
ke st st
tb ar d u c a from CFO (tên fig). In addition, during the last 4 years from 2019-2022, the
ke M In re
ar Fo money spent on purchasing and constructing fixed assets and other long-
M
Source: simplywall.st term assets is at a relatively low figure, not too significant compared to the
depreciation expense( tên fig). Therefore, in general, businesses that have
not invested in development for a long time , are unlikely to grow strongly
Figure . Cost of equity
VN’s 10Y Gov bond yield 3.21%
in the future. In line with forecast, NKG should decrease D/E ratio to 1.3.
Equity market risk VND 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
11.13%
premium F F F F F
Beta 1.435 DPS 0 0 208.3 833.3 0 0 300 500 0 833.3
Cost of equity 19.18%
Source: Team calculation
VALUATION
Figure . Cost of debt We value the NKG by the Discounted Free Cash Flow to Firm (FCFF). To
VN’s 10Y Gov bond yield 3.21% arrive at WACC, we compute beta based on historical data, then applied it
Company interest
0.59 to calculate cost of equity (tên). For the cost of debt, we use the synthetic
coverage ratio (2022)
Credit rating C
rating approach (tên). The current value of FCFF is then determined by
Company default spread 11.34% estimating income and expense, capital expenditure, non-cash charges,
Pre-tax cost of debt 14.55% and working capital expenditure( tên). Ultimately, we arrive at the target
price of 20373 VND per share, presenting 12.56% upside from NKG's
VN average GDP
1.53% 40%
closing price of 18100 VND on 26th June 2023 and recommend holding
growth NKG stock.
EU steel
consumption 1.90% 60% Revenue Projection
growth Nam Kim has planned to expand into the higher-end galvanized steel
Terminal growth segment through the new project Nam Kim Phu My factory. Construction
1.75%
rate will begin in the fourth quarter of 2022 and last in three phases until the
Source: Team calculation end of the year. 2026. The new product will be galvanized steel used in
household electrical appliances, requiring higher production techniques
Figure . WACC than Nam Kim's current galvanized steel products mainly used in
Cost of equity 19.18% construction. This project will contribute to improving the competitiveness
After-tax cost of debt 11.64% and profitability of NKG from 2026. In the period of 2023-2025, due to the
NKG’s target market influence of the context of the real estate market is still less positive. At the
1.3
value D/E
same time, at this stage, the company needs to focus on liquidating
WACC 14.92%
inventory. Therefore, we predict that the revenue growth rate in 2023 will
Source: Team calculation decrease by 10% compared to 2022, the period 2024-2025 will grow 7-8%
per year, and the period 2026-2027 will be 12-15% increase per year.
Figure . Risk matrix Capital Expenditure and Depreciation
Profitaility In the period of 2023-2025, the company will be focusing on building new
OR factories, capital expenditure will be high, expected to account for 1% of
SR1 revenue, from 2026 onwards, it will decrease at 0.6% of revenue.
1,2
High

Depreciation expense is always kept stable in the period of 2020-2022 (~

SR2 VND378 billion), we expect that the company will continue to maintain this
level in the period of 2023-2025, from 2026 when the new factory comes
Medium

FR1 into operation will cause depreciation to increase.

Working Capital Expenditure
RR1 The company aims to reduce the price of inventory, so we predict that
inventory will gradually decrease and increase again from 2026 when the
Nam Phu My project comes into operation.
Low

FR2
Trade receivable and days of receivable not changes significantly in the
Low Medium High last 3 years so we expect trade receivables in 2023-2017 period still within
Impact 1000-1400.
Trade account payable in 2022 is 2335 billion VND , down ~50%
compared to 2021. However, days of payable increased sharply to 67
days, the highest in the last 5 years, and much higher than other
companies in the same sector. Thus, we expect that, in the coming years,
company will aim to lower trade payable and increase again from 2026,
corresponding to the scenario of increasing inventory.
Terminal Growth Rate
Domestic sales account for about 40% of total sales, and in the part of
revenue that comes from exports, Europe accounts for the largest
proportion (86%). Thus, the growth of consumption in Europe represents
the entire world. part of Nam Kim's export-led consumption growth.
Therefore, the team decided to consider the long-term consumption in
Vietnam and Europe with the weights of 40-60 respectively to calculate the
company's terminal growth rate of 1.75%

INVESTMENT RISKS
Strategic Risk | Macro environment volatility (SR1)
The confrontation between Russia and Ukraine drives up the cost of raw
resources steadily. Additionally, real estate and construction account for
65% of Vietnam's steel consumption, demonstrating how dependent these
sectors are on steel. The real estate market is weak
caused a sharp decrease in market consumption, while the source of
goods at the production plants is still piling up causing many steel
enterprises to face difficulties during the year 2022.
Mitigant: (1) Proactively regulating production according to market supply
and demand. (2) Developing a contingency plan to avoid the situation
worst case if real estate businesses chain default
Strategic Risk | Strategic Orientation Risk (SR2)
Since the top-selling items lack a competitive advantage and are not in line
with global trends, the market's impact always has a significant effect on
the selling price. Additionally, China's economy was opened up, which
increased competition for both product prices and quantity
Mitigant: (1) Setting long-term strategies and contingency financial plans
for all risks. (2) Actively conducting surveys and researching supply and
demand of the market. (3) Enhancing brand awareness, retaining and
growing market share, along with improving product quality.
Financial risk | Interest rates risk (FR1).
Interest rate fluctuations will affect financial costs of NKG. However, the
SBV has just decided to reduce the operating interest rate for the 4th time
from the beginning of 2023. The move to reduce the operating interest
rate, including lowering the deposit rate ceiling, will positively affect
industries with high total short-term and long-term debt, which includes the
steel industry.
Mitigant: (1) Always monitoring interest rate fluctuations. (2) Making cash
flow planning. (3) Negotiating to keep and reduce loan interest rates with
credit providers.
Financial risk | Trade credit (FR2)
NKG might face the problem of being unable to obtain credit from the trade
partners of the company. However, NKG has been proactive to mitigate
the risk by: (1) Closely monitoring trade credits; (2) Actively urging the
collection of due debts; (3) Carefully considering the capacity of the
partner before making a decision; (4) Using payment method of letter of
credit; (5) Reducing the debt period, strengthening the preparation of
financial contingency plans.
Regulatory risk | Anti-sumping tax (RR1)
NKG often faces the risk that the authorities in the export markets impose
tariff barriers. The concern occurred as a result of numerous nations
across the world initiating dumping probes against Chinese steel products
in recent years, resulting in a surge of protectionism, particularly anti-
dumping tariffs. Additionally, in December 2022, the European Union (EU)
announced that it would implement a "carbon border adjustment
mechanism (CBAM)", which will initially apply to types of imported goods
with high risk of contamination (iron and steel).
Mitigant: (1) Constantly staying updated on the tariff situation. (2)
Developing the domestic market to limit risks in the export market. (3)
Negotiating with relevant parties to limit and deal with the application of
regulations on tariffs that are not really appropriate.
Operational risk | Supply of raw materials (OR1)
NKG's business operations may face disruptions due to the potential risks
in both global and local macroeconomic environments, including the
confrontation between Russia and Ukraine, the 2023 banking crisis,
increased interest rate, Vietnamese stagnant real estate market, and other
factors. These risks contribute to the shortage of input materials necessary
for steel production. Moreover, the transportation costs associated with
steel production would be significantly more expensive, primarily due to
the characteristics of raw materials like iron ore and coal, which are both
bulk minerals.
Mitigant: (1) Effective inventory management. (2) Negotiating specific
plans with suppliers regarding demand and stable pricing. (3) Leveraging
the advantage of the agricultural trading sector to minimize costs. (4)
Developing short-term and medium-term inventory management strategies
to cope with price fluctuations.
Operational risk | Elevated inputs’ cost (OR2)
As per the VSA (Vietnam Steel Association), currently, Vietnamese
manufacturers can fulfill the entire domestic demand. However, in 2022,
the country's capability to provide raw materials is limited to only 20-30%,
resulting in Vietnamese steel prices being heavily influenced by the global
market. This applies to NKG's selling price as well. If the input’s prices
continue to rise when demand is still frozen, NKG’s revenue for this year
may be negatively impacted.
Mitigant: (1) Good control of input costs, lower production costs. (2)
Utilizing futures contracts to offset impacts of price movement. (3) May
decrease the production to maintain the margin at a healthy level.
 APPENDIX

APPENDIX 1: BALANCE SHEET

(VND in billions) 2018 2019 2020 2021 2022
ASSET
Cash and cash equivalents 461.00 76.04 219.16 751.45 1005.40
Trade accounts receivable 614.36 690.52 1215.33 1486.92 1051.93
Short-term investments 197.64 702.16 369.53 447.71 251.57
Inventories 2420.51 2589.37 2371.08 8281.32 7000.42
Prepaid expenses 153.59 197.28 214.01 365.24 454.81
Other current assets 254.91 180.10 103.16 882.96 650.79
Current assets 4102.01 4435.47 4492.26 12215.60 10414.91
Property Plant And Equipment 3715.84 3259.95 2936.12 2705.82 2525.07
Long-term investments 9.19 48.37 23.18 8.18 8.18
Goodwill - - - - -
Other intangible assets 259.98 246.64 248.99 240.89 282.93
Other long-term assets 35.01 73.93 62.54 227.43 229.67
Non-current assets 4020.01 3628.89 3270.83 3182.32 3045.85
Total assets 8122.02 8064.36 7763.09 15397.92 13460.76
LIABILITY AND EQUITY
Trade accounts payable 548.31 1818.62 1070.44 4879.07 2544.34
Short-term loans & liabilities 3179.51 2367.30 2498.49 3773.16 5111.30
Accrued expenses 91.88 76.92 109.19 160.86 173.72
Current Portion of LT Debt 21.46 21.56 21.56 - -
Other current liabilities 83.25 58.10 398.29 785.11 279.51
Current liabilities 3924.41 4342.50 4097.98 9598.19 8108.87
Long-term debts 1225.11 656.63 457.25 46.50 3.07
Other liabilities 1.32 48.42 26.84 30.02 29.17
Total liabilities 5150.84 5047.54 4582.07 9674.71 8141.11
Charter capital 1820.00 1820.00 1820.00 2183.99 2632.78
Additional paid in capital 766.26 766.26 766.26 785.91 785.91
Retained earnings 312.98 356.32 576.32 2636.16 1628.04
Treasury stock - - -78.04 - -
Other equity adjustment 71.95 74.24 96.49 117.16 272.92
Common equity 2971.18 3016.81 3181.02 5723.20 5319.65
Total liabilities and equity 8122.02 8064.36 7763.09 15397.92 13460.76
Source: Company data

APPENDIX 2: INCOME STATEMENT

VND bn 2018 2019 2020 2021 2022
Sales and service provision 14,861 12,224 11,614 28,206 23,128
Revenue deductions (49) (47) (54) (33) (57)
Net revenue from selling goods and providing 14,812 12,177 11,560 28,173 23,071
services
Cost of goods sold (14,019) (11,835) (10,690) (23,904) (21,590)
Gross profit on sales and service provision 793 342 869 4270 1481
Revenue from financial activities 98 107 89 199 303
Financial expenses (430) (275) (281) (397) (503)
Interest expenses (339) (237) (222) (244) (262)
Cost of sales (325) (210) (268) (1398) (1202)
Business administration expenses (78) (69) (92) (123) (186)
Net profit from business activities 57 (105) 317 2551 (107)
Other income 7 198 4 11 1
Other expenses (2) (2) - - (1)
Other profits 5 195 4 11 -
Total accounting profit before tax 62 90 321 2562 (107)
Current CIT expenses (4) (42) (26) (357) -
Deferred income tax expense 1 - - 20 (18)
Profit after corporate income tax 57 47 295 2225 (125)
Profit after tax of shareholders of the parent company 57 47 295 2225 (125)
Basic earnings per share (*) 363 260 1,672 10,419 (474)
Diluted earnings per share (*) 363 260 1,672 10,419 (474)

APPENDIX 3: CASH FLOW STATEMENT

VND bn 2018 2019 2020 2021 2022
I. Cash flow from operating activities
1. Profit before tax 62 90 321 2,562 (107)
2. Adjustments for
Depreciation of fixed assets and investment 421 442 376 379 378
property
Provisions 424 (81)
Gains and losses on exchange rate differences 19 6 1 20 (2)
Profit and loss from investment activities (27) (259) (27) (15) (28)
Interest expenses 339 237 222 244 262
3. Profit from business before change in 814 517 906 3,614 422
working capital
Increase or decrease in accounts receivable 501 (63) (498) (1,225) 563
Increase or decrease inventory 1,670 (169) 218 (6,331) 1.364
Increase or decrease in payables (excluding (269) 1.221 (395) 4.112 (2,757)
interest payable, income tax payable)
Increase or decrease the upfront cost 4 (39) 29 18 (22)
Interest paid (328) (243) (228) (231) (276)
Corporate income tax paid (50) (42) (7) (256) (118)
Other expenses for business activities (5) (1) (10) (10) (4)
Net cash flow from operating activities 2,336 1,181 16 (308) (828)
II. Cash flow from investing activities
1. Money spent on purchase and construction (428) (96) (54) (145) (211)
of fixed assets and other long-term assets
2. Proceeds from liquidation and sale of fixed 1 252 13
assets and other long-term assets
3. Money spent on lending, buying debt (85) (1,021) (158) (136) (87)
instruments of other entities
4. Loan recovery, resale of debt instruments of 300 510 529 87 295
other entities
5. Money spent on capital contribution to other (138)
units
6. Money recovered from capital contribution 105
to other entities
7. Loan interest, dividends and profit 18 20 29 23 23
distribution
Net cash flow from investing activities (195) (230) 346 (309) 33
III. Cash flow from financing activities
1. Proceeds from issuing shares, receiving 334 10
contributed capital from owners
2. Payment for capital contribution to owners, (78)
repurchase of shares of an issued enterprise
3. Borrowing money 10,823 8,962 11,098 21,071 20,747
4. Loan principal repayment (12,571) (10,276) (11,165) (20,208) (19,479)
5. Payment of principal of finance lease (24) (22) (22) (47) (9)

6. Dividends and profits paid to owners (1) (52) (219)

Net cash flow from financing activities (1,773) (1,336) (218) 1,150 1,049
Net cash flow for the period 369 (385) 143 533 254
Cash and cash equivalents at the beginning of 93 461 76 219 751
the period
Effects of exchange rate changes on foreign (1) (1)
 currency conversion
Cash and cash equivalents at the end of the 461 76 219 751 1,005
period
Source: Company data

APPENDIX 4: HPG’s SHARE PRICE HISTORY

50,000 1,800
1,600
40,000 1,400
1,200
30,000
1,000
800
20,000
600

10,000 400
200
0 0
1/1/2022 4/1/2022 7/1/2022 10/1/2022 1/1/2023 4/1/2023

NKG's closing price Vn-index

APPENDIX 5: SEGMENT DESCRIPTION

Iron and Steel: Ton Nam Kim manufactures and distributes various types of aluminium-zinc steel, galvanized steel, color coated steel
and other industrial steel products. Its applications include serving as details in household electrical products, interior decoration
products and other construction products.

CATEGORY PRODUCTS PERCENTAGE

19
.3
Hot-dip zinc galvanized steel (GI Z80 – Z600); %
Aluminium-zinc alloy coated steel sheet in coil (GL
Galvanized
AZ70 – AZ200); Pre-painted aluminium-zinc alloy 80.7%
products
coated steel sheet in coil (PPGL AZ100, AZ150,
AZ200) 80.7%

Steel pipe Steel pipe JIS G3466 & G3444, coating Z80 – Z275 19.3%
Galvanized products Steel pipe

Source: Company data

APPENDIX 6: SUBSIDIARIES BREAKDOWN

SUBSIDIARIES SECTOR DESCRIPTION
Nam Kim Steel Pipe One Member Co., Production of steel tole: Galvanized, aluminium-zinc
Iron and Steel
Ltd alloy coated; Trading of steel
Nam Kim Chu Lai Steel Pipe One Production of steel tole: Galvanized, aluminium-zinc
Iron and Steel
Member Co., Ltd alloy coated; Trading of steel
Production of steel tole: Galvanized, aluminium-zinc
Dae Myung Paper Vietnam Co., Ltd Iron and Steel
alloy coated, pre-painted aluminium-zinc alloy coated
Ton Nam Kim Phu My One Member Co., Production of steel tole: Galvanized, aluminium-zinc
Iron and Steel
Ltd alloy coated; Trading of steel
Source: Company data
APPENDIX 7: PLANTS AND CAPACITY
PRODUCTION LINE CAPACITY (Tons/year)
Continuous Picking Line 900,000
Ton Nam Kim has 4 factories
Cold Rolling Mill 900,000
producing galvanized sheet and steel
Continuous Galvanizing/ Galvalume Line 1,200,000 pipe products, with a total production
Color Coating Line 180,000 capacity of up to 1.2 million
Source: Company data tons/year.

APPENDIX 8: EXPORT
DISTRIBUTION NETWORK
Ton Nam Kim's products are currently trusted and
used in the domestic market, as well as exported
to over 65 countries and territories worldwide.
Total export volume in November 2022 reached
474,484 tons (accounting for 58.6% of total sales).

APPENDIX 9: VIETNAM’S
MACROECONOMICS INDICATORS
ASSUMPTIONS
Thanks to its solid foundations, the Vietnamese
economy has proven resilient through different
crises. GDP growth is projected to ease to 6.3
percent in 2023, down from 8% in 2022, due to the moderation of domestic demand and exports. Vietnam's economic growth is
expected to rebound to 6.5 percent in 2024 as domestic inflation could subside from 2024 onward. This will be further supported by
the accelerating recovery of its main export markets (U.S., Eurozone, and China).
Macroeconomic indicator forecast
2021 2022 2023F 2024F 2025F 2026F
GDP growth rate (%) 2.6 8 5.8 6.9 6.8 6.7
GDP per capita(USD) 3,750 4,090 4,480 4,920 5,400 5,890
Inflation (%) 1.8 3.2 5.0 4.3 4.1 4.0
Unemployment (%) 3.2 2.3 2.4 2.4 2.3 2.3
Current account balance (% of GDP) -2.1 -0.9 0.2 0.6 1.5 1.6
General government balance (% of GDP) -3.4 -2.5 -3.3 -3.1 -2.9 -2.5
Exchange rate USD/VND
Source: IMF

APPENDIX 10: PRODUCTION AND CONSUMPTION OF NKG

In the past year, Nam Kim produced 730,100 tons and sold 706,700 tons of galvanized steel, accounting for 16.9% of the industry's
market share and behind Hoa Sen and Ton Dong A.
Compared to the previous year, Nam Kim's consumption volume in 2022 decreased by 24.2%, comparable to the decrease of 23.4%
of Hoa Phat and better than the 37.6% decrease of Hoa Sen.
In the steel pipe market, Nam Kim produced 162,300 tons and consumed nearly 168,600 tons, accounting for 6.42% of the market
share. Compared to 2021, Nam Kim's sales volume increased by 14.4% while Hoa Phat's only increased by 10.9%, Hoa Sen decreased
by 22%, Minh Ngoc decreased by 1.6%.
Rong Viet Securities (VDSC) believes that Nam Kim's galvanized steel sales volume in 2023 will decrease by 2.4%. In which, exports
are forecasted to decrease by 7.6% because of fierce competition and poor consumption in the first half of the year due to high
inflation; domestic sales may increase by 10.7% thanks to the Government's push to disburse public investment.
VDSC estimates that Nam Kim will lose 744 billion VND in 2022, then reduce its loss to 359 billion VND in 2023. Net revenue is
forecasted to decrease from 28,173 billion VND in 2021 to 21,541 billion VND and 17,730 billion VND, respectively. 2022 - 2023.
APPENDIX 11: MARKET SHARE IN VIETNAM
2021 2022
Steel pipe
Steel Pipe Coated Steel Sheet
Hoa Phat 24.7% 28.5%
Hoa Sen 15.5% 12.6%
Minh Ngoc 6.7% 6.8%
TVP 6.1% 6.8%
Nam Kim 5.4% 6.4%
Others 41.6% 38.9%
Coated steel sheet
Hoa Phat 8.0% 7.8%
Hoa Sen 35.9% 28.7%
Ton Dong A 14.3% 17.6%
TVP 6.7% 8.9%
Nam Kim 17.4% 16.9% Hoa Phat Hoa Sen Minh Ngoc TVP Nam Kim Others
Others 17.6% 20.1%

Source: Team evaluation

APPENDIX 12: PEERS RATIO

ROE Debt to Equity
2018 2019 2020 2021 2018 2019 2020 2021 2022
NKG 2% 2% 9% 39% NKG 1.73 1.67 1.44 1.69 1.53
HSG 8% 7% 17% 40% HSG 3.13 2.15 1.69 1.46 0.56
HPG 21% 16% 23% 38% HPG 0.93 1.13 1.22 0.96 0.77
POM 11% -9% 0% 5% POM 1.89 2.38 2.18 3.06 3.22
TVN 6% 4% 5% 7% TVN 0.72 1.35 1.21 1.52 1.35
Industry Average 0.62

Debt to EBITDA Days of Receivable

2018 2019 2020 2021 2018 2019 2020 2021 2022
NKG 5.03 12.94 72.73 19.01 NKG 8 20 30 18 20
HSG 7.65 9.29 11.41 8.11 HSG 9 18 19 23 20
HPG 3.91 5.12 7.42 5.11 HPG 32 19 20 17 23
POM 11.17 140.75 21.59 19.44 POM 83 99 114 73 63
TVN 10.49 29.63 20.61 23.68 TVN 21 20 24 21 25
Industry Average 13.74

Days of Inventory Days of Payable

2018 2019 2020 2021 2018 2019 2020 2021
NKG 85 77 85 81 NKG 20 36 50 36
HSG 93 82 80 82 HSG 28 18 23 26
HPG 107 117 117 115 HPG 53 56 47 58
POM 67 90 104 97 POM 11 22 28 29
TVN 48 43 50 51 TVN 16 12 13 10
Asset Turnover Current Ratio
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
NKG 1.62 1.5 1.46 2.43 1.6 NKG 1.05 1.02 1.09 1.27 1.28
HSG 1.61 1.46 1.57 2.2 2.28 HSG 0.73 0.71 0.90 1.21 1.53
HPG 0.85 0.71 0.77 0.96 0.81 HPG 1.12 1.13 1.04 1.23 1.27
POM 1.44 1.05 0.85 1.07 1.00 POM 0.98 0.94 0.87 0.82 0.42
TVN 1.67 1.81 1.39 1.63 1.52 TVN 1.09 0.78 0.84 0.93 0.94
Industry Average 0.91 Industry Average 1.26
Quick Ratio Net Profit Margin(%)
 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
NKG 0.428 0.425 0.518 0.410 0.421 NKG 0.38 0.39 2.55 7.90 -0.54
HSG 0.207 0.194 0.289 0.352 0.298 HSG 1.2 1.3 4.2 8.95 0.5
HPG 0.418 0.351 0.538 0.658 0.713 HPG 15.35 11.82 14.92 23.03 6.00
POM 0.551 0.487 0.506 0.321 0.271 POM 3.22 -2.58 0.16 1.31 -8.30
TVN 0.466 0.351 0.437 0.423 0.488 TVN 2.29 1.23 1.74 2.12 -1.97
Industry Average 0.51
Gross Profit Margin(%)
2018 2019 2020 2021 2022
NKG 5.35 2.81 7.53 15.15 6.42
HSG 11.5 11.4 16.8 18.2 9.9
HPG 20.9 17.57 20.98 27.46 11.85
POM 5.74 1.74 5.17 5.17 -3.26
TVN 4.67 4.41 5.55 5.36 1.89
Source: Investing.com Company data

APPENDIX 13: COST OF DEBT

Synthetic ranking 2020—interest coverage ratios and default Vietnam's 10-year Government
spreads for non-financial firms Yield 3.21%
Default Spread Company interest coverage ratio
Lower Bound Upper Bound (2022) 0.59
Rating over 10Y
ICR ICR Credit rating C
Treasury
8.5 100 AAA 0.63 Company Default Spread 11.34%
6.5 8.499 AA 0.78 Pre-tax Cost of Debt 14.55%
5.5 6.499 A+ 0.98 As NKG's bond sale had already settled all principal
4.25 5.499 A 1.08 payback in 2018, our team decide to use the
3 4.249 A- 1.22 synthetic rating approach to estimate the
2.5 2.999 BBB 1.56 company's default spread and use this spread to
2.25 2.499 BB+ 2 account for the risk-free rate to determine the pre-
tax cost of debt.
2 2.249 BB 2.4
Source: HNX, team calculation
1.75 1.999 B+ 3.51
1.5 1.749 B 4.21
1.25 1.499 B- 5.15
0.8 1.249 CCC 8.2
0.65 0.799 CC 8.64
0.2 0.649 C 11.34
-100 0.199 D 15.12
Source: http://pages.stern.nyu.edu/~adamodar/New_Home_
Page/datafile/ratings.htm

APPENDIX 14: COST OF EQUITY

Beta calculation
Formula Beta = Covar(Ri,Rm)/Var(Rm)
Ri: the rate of return of NKG stock
Rm: the rate of return of VNIndex
Covariance=Measure of a stock’s return relativeto that of the market
Variance=Measure of how the market moves relativeto its mean
Formula rate of return R = (p1-p0)/p0
Historical data collected over the period from 1 Jan 2020 to 1 June 2023
Covar(Ri, Rm) 0.000281
Var(Rm) 0.000196
Beta 1.435
Adjusted beta 1.290
 Country Default Spreads and Risk Premiums
Equity Risk Country Risk Corporate Tax
Country Moody's rating Adj. Default Spread
Premium Premium Rate
Vietnam Ba2 3.68% 11.13% 5.19% 20.00%
Source: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html .Last updated : January
5,2023

Vietnam's 10Y government bond yield (3Y average) 3.21%

Equity market risk premium 11.13%
Adjusted beta 1.213
Cost of equity 16.71%
Source: HNX, team calculation

Cost of equity 17.57%

After-tax cost of debt 11.64%
NKG's market value D/E 1.23
WACC 14.30%

APPENDIX 15: FCFF MODEL

REVENUE AND EXPENSE
Dec-22 Historical Projection
2021 2022 2023 2024 2025 2026 2027
Revenue 28,173 23,071 20,764 22,633 24,670 29,604 35,525
% Growth -18% -10% 9% 9% 20% 20%

Cost of goods sold 23,904 21,590 19,103 20,370 21,709 25,459 30,551
% of Revenue 85% 94% 92% 90% 88% 86% 86%

Selling, G&A expenses

1521 1,388.0 1,245.8 1,358.0 1,480.2 1,776.2 2,131.5

% of Revenue 5.40% 6.02% 6% 6% 6% 6% 6%

Revenue from financial 199 303 207.64 226.33 197.36 236.83 284.20
activities
% of Revenue 0.71% 1.3% 1% 1% 0.8% 0.8% 0.8%

Financial expense 397.5 503 249 272 296 355 275

% of Revenue 1.41% 1.0% 1.2% 1.2% 1.2% 1.2% 1.2%

Tax expense 326 18 75 172 276 450 570

Tax rate 17% 20% 20% 20% 20% 20%

Net profit 2,224 -124 299 688 1,105 1,800 2,281

Historical Projection
2021 2022 2023 2024 2025 2026 2027
Capital Expenditure Forecast
Capex 145.1 211 207.64 226.33 246.70 177.62 213.15
% of Revenue 0.52% 0.91% 1.00% 1.00% 1.00% 0.60% 0.60%
Depreciation and Amortization Forecast
D&A 379 378 378 378 378 450 450
Change in Working Capital Forecast
Inventory 8281 7000 5200 3500 2200 6500 7500
Trade Receivables 1487 1051 1100 1100 1300 1400 1400
Trade Payable 4879 2544 2300 1800 900 3500 4000
Net working capital 4889 5507 4000 2800 2600 4400 4900
Change in NWC 618 -1507 -1200 -200 1800 500

FCFF forecast
unit: billion VND 2023 2024 2025 2026 2027
EBIT 374 860 1,382 2,250 2,851
Tax rate 20% 20% 20% 20% 20%
D&A 378 378 378 450 450
CAPEX 207.64 226.33 246.70 177.62 213.15
WCInv -1507 -1200 -200 1800 500
FCFF 1976.36 2039.71 1436.51 272.29 2017.39
WACC 14.30% 14.30% 14.30% 14.30% 14.30%
Present value of FCFF 1828.13 1650.68 1017.08 168.67 1093.31

Enterprise Value(bil VND) 5757.867832

Number of share (bil shares) 0.2633
Target Price (VND) 21869.93245
Price at 9th June 2023 16700
Upside/(Downside) 30.96%

APPENDIX 16: NKG’S BOARD OF DIRECTORS

Total outstanding shares 263277806
Owner
Starting Positions in other
Name Position Education Experience NKG
year organization
ratio
Business
Mr. Ho Minh Quang Chairman N/A 14.20% 2009
Administration
Chairman and Director
Nearly 20 years of
of Nam Kim Chu Lai
experience in the steel
Steel Pipe One
industry through many
General Foreign Trade Member Co., Ltd;
positions of
Mr. Vo Hoang Vu Director cum Business 3.560% 2019 General Director of
management,
BOD Member Administration Dae Myung Paper
administration and
Vietnam Co., Ltd.
leadership of public
- Director of Ton Nam
companies.
Kim Phu My Co., Ltd.
Nearly 20 years of
experience in the steel
Deputy General Chairman of Nam Kim
Industrial industry in charge of
Mr. Nguyen VInh An Director cum 0.12% 2011 Steel Pipe One
Engineer project management,
BOD Member Member Co., Ltd.
technical operation –
maintenance – R&D.
Vice Chairman of the
15 years of experience in Board of Directors
consulting, investment cum Deputy General
and financial Director of Finance
Mrs. Nguyen Ngoc Y Master of Finance
BOD Member management for 0.020% 2019 and Accounting
Nhi – Banking
investment fund Division of Joint Stock
organizations and steel Company
companies. SMC Trade
Investment.
Mr. Vo Thoi BOD Member N/A Many years of experience 0% N/A Deputy General
in managing, operating Director of Nam Han
 and leading the Company Co., Ltd.
More than 20 years of
experience in the steel
Deputy General Mechainical industry through many
Mr. Quang Trong Lang 0.040% 2011
Director Engineer managerial, executive,
and production
leadership positions.
More than 20 years of
executive experience,
Deputy General
Business leader in the steel
Mrs. Tran Ngoc Dieu Director of 0.540% 2011
Administration. industry in charge of
Finance
control and finance of the
Company.
Nearly 20 years of
experience in managing
Deputy General and operating export
Mrs. Nguyen Thi Ngoc Foreign
Director of business, understanding 0.100% 2011
Lien Languages
Export Business the market and
international practices in
the steel industry.
More than 20 years of
Deputy General
Foreign Trade management and
Mr. Nguyen Minh Director of
Business operating experience 0.02% N/A
Hung Domestic
Administration business in the steel
Business
industry.
15 years of management
Chief
Mrs. Vu Thi Huyen Accounting experience in the field of 0.02% 2013
accountant
accounting and auditing.
Chairman of
Mrs. Nguyen Thi Bich Accounting and
the Supervisory N/A 0.004% 2020
Nhi Auditing
Board
Member of the
Finance and
Mrs. Vo Thi Vui Supervisory N/A 0.02% 2010
Accounting
Board
Member of the
Mr. Le Nhat Tan Supervisory Accounting N/A 0.002% 2019
Board
Source: Company's website, cafef, vietstock

APPENDIX 17: EVALUATION ON ENVIRONMENTAL, SOCIAL AND CORPORATE

GOVERNANCE
To assess the company's corporate governance quality, the company is evaluated on a scale of 1 to 4 based on the tasks that they
must complete and the criteria correlating to these roles as outlined in the MSCI’s ESG evaluation.
Marking Rubric:
1- The company did not follow the criteria at all
2- The company did not fully follow the criteria
3- The company followed the criteria
4- The company has excellent policies on the criteria
PILLARS THEMES ISSUES RATING POLICIES
Control emissions below the threshold of
Carbon Emissions 2
discharge standards as prescribed by the state
Invest in modern acid regeneration line of SMS-
Climate Change Germany, which is equipped with an acid recycle
4
Vulnerability system, effectively contributing to environmental
Climate Change
Environmental protection
Financing Invest appropriate amount of capital in
3
Environmental Impact sustainable development
Product Carbon Apply advanced NOF technology, which emits
3
Footprint less carbon than other technologies.
Natural Capital Biodiversity & Land 1 Do not have any specific innovations or solutions
 Use dealing with this issue
Source raw material from global and reputable
corporations such as Nippon Steel (Japan),
Raw Material Sourcing 4 Huyndai Steel (Korea), CSC (Taiwan), …

Reuse water after the wastewater treatment

Water Stress 3
system for the process of washing raw materials
Do not have any specific innovations or solutions
Electronic Waste 1
dealing with this issue
Do not have any specific innovations or solutions
Packaging Material & dealing with this issue
1
Waste
Pollution &
Waste Install the waste acid regeneration system, the
product of the system is 18% HCL acid which is
Toxic Emissions & supplied in reverse as raw materials for the
2
Waste production process. However, there are no
specific policies for other toxic gases and
chemicals
Use modern, environmentally friendly
technology and lines (NOF, SMS) as well as
Opportunities in Clean constantly research, improve and periodically
4
Tech maintain the system
Environmental
Opportunities
Opportunities in Green Do not have any specific innovations or solutions
1
Building dealing with this issue
Opportunities in Do not have any specific innovations or solutions
1
Renewable Energy dealing with this issue
Average score 2.3
Create favorable working conditions, ensure
Health & Safety 3
occupational safety and health for workers
Focus on training in order to improve the
qualifications, knowledge and experience for the
Human Capital
4 employees; On-the-job training is continuously
Development
organized; Apply reward and remuneration
policy
Human Capital Analyze the requirements of the necessary labor
force; Focus on improving policies to strengthen
human resources, retain talented people
Labor Management 3

Social Supply Chain Labor Do not have any specific innovations or solutions
1
Standards dealing with this issue
Do not have any specific innovations or solutions
Chemical Safety 1
dealing with this issue
Consumer Financial Do not have any specific innovations or solutions
1
Protection dealing with this issue
Privacy & Data Do not have any specific innovations or solutions
1
Security dealing with this issue
Product
Pay attention strictly to its quality control, the
Liability
products have been certified by the strictest
quality starndard in the world (JIS, ASTM, EN, AS,
Product Safety &
4 ISO 9001, ISO 14001)
Quality
 Contribute a part of profits to development of
Responsible society by practical actions
3
Investment

Support and help people in needs; Volunteer

Community Relations 3
Stakeholder activities and social security programs
Opposition Do not have any specific innovations or solutions
Controversial Sourcing 1
dealing with this issue
Make an effort to expand financial services to
historically underserved markets, including small-
Access to Finance 3
business lending and the development of
Social innovative distribution channels
Opportunities Organize periodical health checks for employees,
Access to Health Care 4
buy 24/24 accident insurances for all employees
Opportunities in Do not have any specific innovations or solutions
1
Nutrition & Health dealing with this issue
Average score 2.1
The Board consists of 6 members (No
independent member); Chairman and CEO
Board 2
position are separated; 100% Board members
attend all the meetings
Pay 2 Do not disclose specific pay for its top executives
Apply one share - one vote policy; Shareholders
can access company documents without
Corporate Ownership & Control 4
restrictions; All shareholders have the rights to
Governance vote or state opinion
The consolidated financial statements present
fairly in all material respects, in accordance with
Governance Vietnamese Accounting Standards, the
Accounting 4 Vietnamese Corporate Accounting System and
applicable regulations; The auditor is
independent (PwC); Statements are public and
fully disclosed
The company's governance body responsible for
oversight of business ethics and corruption
Corporate Business Ethics 2 issues; No policy on bribery, whistleblower, anti-
Behavior corruption, anti-money laundering and ethics
code
Tax Transparency 4 No ongoing tax-related controversies
Average score 3
Source: MSCI, Team evaluation
APPENDIX 18: HRC PRICE FLUCTUATION
HRC Spot China HRC Spot Vietnam
Jan-20 579 470
Feb-20 593 459 HRC Price (USD/ton)
Mar-20 527 400 2500
Apr-20 470 402
May-20 515 404 2000
Jun-20 488 406
Jul-20 489 483 1500
Aug-20 520 527
1000
Sep-20 616 505
Oct-20 693 526
500
Nov-20 805 592
Dec-20 1009 654
0
Jan-21 1153 663

Jul-20

Jul-21

Jul-22
Jan-20
Mar-20
May-20

Sep-20
Nov-20
Jan-21
Mar-21
May-21

Sep-21
Nov-21
Jan-22
Mar-22
May-22

Sep-22
Nov-22
Jan-23
Mar-23
May-23
Feb-21 1263 710
Mar-21 1356 795
Apr-21 1503 925 HRC Spot China HRC Spot Vietnam
May-21 1662 900
Jun-21 1811 880
Jul-21 1895 917
Aug-21 1946 870
Sep-21 1900 860
Oct-21 1805 815
Nov-21 1610 781
Dec-21 1436 748
Jan-22 1163 800
Feb-22 1059 890
Mar-22 1545 878
Apr-22 1401 797
HRC Steel is expected to trade at 905.08 USD/T by the end of this
May-22 1198 519 quarter, according to Trading Economics global macro models and
Jun-22 933 634 analysts expectations. Looking forward, we estimate it to trade at
Jul-22 854 606 820.93 in 12 months time.
Aug-22 780 566 Source: Tradingeconomics
Sep-22 777 569
Oct-22 714 488
Nov-22 658 571
Dec-22 745 596
Jan-23 788 619
Feb-23 1218 643
Mar-23 1109 648
Apr-23 951 605
May-23 940
Source: VSA, Tradingeconomics
APPENDIX 19: PORTER’S 5 FORCES
Thanks to the competitive pricing, relatively good quality enhanced by deployment of world-leading technologies, big economies of
scale, NKG manages to have (1) low threat of new entrants (2) low threat of substitutes, ; and (3) moderate bargaining power with
buyers. Yet due to the highly competitive market and huge dependence on overseas suppliers, NKG has (4) relatively low bargaining
power with suppliers and (5) moderate rivalry.
Number of competitors
Industry growth
Quality differences
Brand loyalty
Barriers to exit
Switching cost
Legal and regulatory
barriers
Distribution channels
Expertise requirement
Product differentiation
Capital requirement
Incumbents’ defense of
market share
Cost advantage
Scale economies
Product differentiation
Switching cost
Player independence
Player dispensability
Oligopoly threat
Importance of quality/ cost
RIVALRY AMONG EXISTING COMPETITORS
Top 5 market players account for nearly 70% of the market, thus the number of players is not high.
The steel market is expected to recover in the third and fourth quarters of 2023 due to the policies
to promote public investment in projects and the disbursement progress of the state
Outstanding high quality, especially in galvanized steel products
NKG's longstanding customer loyalty, especially in major construction projects, deters switching to
other steel producers.
The presence of specialized equipment, infrastructure, and dependencies within the supply chain
that are exclusive to Nam Kim Steel's operations further elevates the obstacles to exiting the
business.
Due to NKG's competitive pricing and satisfactory product quality in relation to its competitors,
customers face significant switching costs.
THREAT OF NEW ENTRANTS
Domestic players: entry restrictions due to market restructuring, requiring approval from the
Ministry of Industry & Trade and meeting specific criteria
Foreign players: high barriers to entry in construction steel, steel pipe, billets, and steel sheet
segments due to government discouragement and oversupply.
NKG distributes products to rolling mills, distribution agents, through general warehouses mainly in
the South and a warehouse in Hanoi.
NKG has over 20-year experience in steelmaking with established relationship with world-class
experts.
NKG’s products have a long-established history and highly recognized, trusted brand.
Substantial investment is necessary to establish a new steelmaking facility, with an estimated cost of
VND 10-15 trillion to construct a fully integrated complex capable of producing 1.1 million metric
tons per annum.
Top 5 market leaders comprise of 66% of construction steel, 64% of steel pipe, 70% of galvanized
steel sheet,
thus the remaining market share for newcomers is very limited and highly competitive.
NKG has a cost advantage due to the efficient production of large quantities and close association
with distributors
Economies of scale is of huge concern since it can increase the company’s bargaining power against
raw materials suppliers.
THREAT OF SUBSTITUES
There has not yet exist a perfect substitute for steel products.
SUPPLIERS’ BARGAINING POWER
Differentiation is minimal due to the homogeneous nature of raw materials
As the input materials lack differentiation, the cost of switching suppliers is relatively low.
The source of raw materials is imported from major corporations such as Nippon Steel (Japan),
Hyundai Steel (South Korea), CSC (Taiwan), Formosa (Vietnam), and others.
Domestic iron ore suppliers: Mainly relying on Formosa and Hoa Phat, they can supply approximately
600,000 tons per month to the market, meeting about 60% of the demand
Global suppliers: Top 10 countries already purchased 70% of all iron ore imported in 2022 while
Vietnam only ranked 13rd, so NKG does not represent a significant portion of the suppliers’ business.
The significant market concentration and substantial market power of NKG's suppliers pose a
considerable threat of oligopoly.
The quality of raw materials plays a critical role in the steelmaking process, as varying qualities can
lead to distorted end-products. Additionally, the quality of raw materials significantly impacts the
gross profit margin of the company.

Forward integration
Availability of alternatives
Buyers’ volume and price
sensitivy
Product differentiation
Switching cost
Backward integration
Source: Team research
A significant number of suppliers in the industry are pure players, lacking the desire and, more
importantly, the power and capability to expand their value chain into steel production.
BUYER’ BARGAINING POWER
NKG's longstanding reputation in the industry positions it as a favorable choice among various
alternatives
Since steel is mainly purchased for construction, demanded volume is usually high and buyers are
highly price sentitive
Nam Kim Steel has achieved the strictest quality standards in the world, such as JIS (Japan), AS
(Australia), ASTM (United States), and EN (Europe), as well as ISO 9001 and ISO 14001.
Customers face a significant switching cost due to the reasonable quality and price of NKG's products
compared to its competitors.
Since extensive startup costs and specialist knowledge are required, backward integration of buyers
is unlikely.