PNJ — Company Update — Sep 2024

We have a conservative view on PNJ in 2H24 due to Vietnam’s gold supply shortage which may negatively impact margins. A combination of rising speculative demand for gold and the government’s tight control over the origin of gold mean that jewelry manufacturers are struggling to obtain raw gold material, leading to increased manufacturing costs.

PNJ’s focus on jewelry manufacturing should help to offset potential margin pressure in 2025E-2026E. PNJ is now prioritizing its core jewelry manufacturing business to meet increased seasonal demand in 4Q22-1Q25. Given the changed sales mix from 1H24, we expect to see a significant improvement in the company’s margins in 2H24 and 2025E.

We retain our longer-term positive view on PNJ given its position as Vietnam’s largest jewelry retailer with the most diverse product range. In addition, further easing of gold market policy should only empower PNJ even more, in our view. Sales of its core business –- jewelry retail — increased by +14.6% YoY in 7M24 despite weak overall consumer discretionary spending. We believe that this positive result against the macro tailwinds proves PNJ’s operational strengths.

Upgrading our forecasts. We increase our 2024E revenue forecast by +7.3% to VND 38.4tn (+15.7% YoY) but cut our PATMI forecast by -0.6% to VND 2.2tn. For 2025E, we slightly increase our sales forecast by +1.1% to VND 38.7tn but increase our earnings forecast by a far more substantial 20.4% vs. the previous forecast given our increased assumption for jewelry retail sales (69% of 2025E sales, +10ppt YoY).

Yuanta vs. the Street. Our sales forecasts for 2024E-2026E are lower than the Street’s, but our revised average 2024E-26E EPS forecast is +10% higher than the Street’s. This suggests that the Street is assuming persistently high sales of gold bars going forward, which seems extremely unlikely to us.

We upgrade PNJ to BUY and increase our target price by +39% to VND 125,200, implying +25.5% 12-month TSR. We believe our target price to be conservative given that it implies an undemanding 14.5x 2025E P/E and 0.5x 2025E PEG.

Please see the link for more details: PNJ – Company Update – Sep 2024