PNJ — Express note — Aug 2024 results

August margins improved due to the lower contribution of 24K gold sales, as expected. Low-margin gold bar sales have declined from 43% of total revenues in Jan-May to just 20% of sales in June-August.

Details

Aug sales fell (-10.5% MoM / -2.5% YoY) to VND 2.2tn, whereas monthly PAT posted a +23.5% MoM increase (but -17.5% YoY) to VND63bn.

8M24 revenues increased by +27.2% YoY… to reach VND 26.9tn, 72% of guidance and 70% of our forecast for 2024. 24k Gold sales YTD are still up +53% YoY, but most of this occurred in Jan-May (+91% YoY in 5M24). The core jewelry retail sales business continued to post solid growth (+15% YoY in 8M24 vs. 14% in 6M24).

…but 8M24 PAT only ticked up by +2.8% YoY to reach VND 1.3tn, 61% of guidance and 58% of our forecast for 2024. We attribute the gap between revenue and profit growth to the high contribution of low-margin 24K gold sales in 5M24, as well as higher materials costs.

8M24 gross margin decreased to 16.6% (-1.9ppt YoY) and net margin decreased to 4.8% (-1.1ppt YoY). Notably, gross margin was 16.5% in Jan-May and 17.0% in June-Aug. But both of the YTD figures are lower than PNJ’s full-year 2024 guidance of 17.6% for gross margin and 5.6% for net margin, which are both low compared to pre-COVID levels.

Net 5 new outlets in August brings YTD figure to 14. PNJ added 24 new stores and closed 10 in 8M24, bringing its network to 414 retail outlets nationwide: 405 PNJ Gold, 3 CAO, 5 PNJ Style, & 1 wholesale center.

Our view

September results to be impacted by Typhoon Yagi, which resulted in temporary closures across several provinces, although the online channel should partially mitigate this impact.

We remain positive view on PNJ as discussed in our Sep 4 upgrade. We believe that margin pressure has been alleviated by PNJ’s refocus on the core jewelry retail business, as evidenced by this segment’s increased contribution to total sales in the last 3 months.

Risks: 1) Soaring demand for gold bullion might reduce gold jewelry purchases, 2) Persistence of the gold shortage might mean high COGS / reduced profitability, but 3) Potential deregulation of gold imports the purpose of jewelry manufacturing would be an upside catalyst.

Please see the link for more details: PNJ – Express note – Aug 2024