PNJ — Express note — Oct 2024

Margins are gradually improving in 2H24, driven by the higher jewelry retail contribution. However, gold supply shortage remains a challenge.

Details

Revenues seasonally recovered in Oct to reach VND 3.1tn (+32% MoM /+4% YoY). 10M24 revenues reached VND 32.4tn (+23% YoY), with the sales mix shifting from the gold bullion focus of 1H24 to jewelry retail sales in Jul-Oct (+19% YoY) and the wholesale channel (+52% YoY).

October PAT increased by +113% MoM / +12% YoY to VND 217bn, which brings 10M24 PAT to VND 1.6tn (+4% YoY).

Gross margin is thus gradually improving in 2H24, as expected. Average gross margin was 17.8% in Jul-Oct, +1.4ppt compared to that of Jan-Jun. However, net margin was only 4.2% in Jul-Oct, which was -1.1ppt lower than that of 1H24 due to the raw gold supply shortage: PNJ incurred higher costs of processing from alternative gold supplies.

Store expansion continues with three new outlets added in October and a net 21 new outlets in 10M24. As such, PNJ now has 421 retail outlets, including: 412 PNJ Gold, 3 CAO, 5 PNJ Style, and 1 wholesale center.

Additionally capacity in 2H25. PNJ is training new employees to prepare for the launch of its Long Hau factory, where production should ramp up starting from 2H25.

Management presented at our Nov 21-22 conference in Bangkok to a fully packed room of institutional investors. We managed to squeeze into one meeting in which client questions focused largely on issues such as how the gold price effects business operations, gold material sourcing, and working capital — especially inventory.

Our view

We continue to like PNJ for its leading jewelry retail business and not as a “play” on gold. The core jewelry retail operation has clearly re-emerged as PNJ’s key sales growth driver in Jul-Oct, in line with our expectations. This is a positive trend.

Reiterate BUY with target price of VND 125,200, implying +36.7% 12-month TSR. PNJ’s share price has been capped since March, as its full-FOL status means that any possible support from FINI net inflows is absent. However, we believe the downside risk is minor.

Upside catalyst: Possible regulatory support for jewelry manufacturers (such as allowing them to engage in direct sourcing of raw gold imports) would be a very positive driver for PNJ’s share price, in our view.

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