PNJ — Jun’s financial update

PNJ continues to post strong revenue growth but reduced net margins YTD, primarily attributable to 24K gold products. 6M24 earnings were in line but sales came in ahead of our forecasts. Our target price is currently under review.

Details

Jun sales (-26.6% MoM / +20.2% YoY) reached VND2.6tn, while monthly PAT (-14.7% MoM / +1.8% YoY) reached VND116bn.

Margins improved in June. Monthly gross margin was 16.0% (+1.8ppt MoM) and net margin was 4.5% (+0.6ppt MoM). The MoM changes followed the SOE bank start-up of direct gold sales on June 3.

2Q24 sales were VND 9.5tn (-24.4% QoQ but +42.9% YoY) and PAT was VND 429bn (-41.9% QoQ / +28.1% YoY).

6M24 revenues increased by +35% YoY… driven by +81% YoY growth of 24K gold sales. 6M24 jewelry retail sales were up +14% YoY, while YTD wholesale revenues grew by +16% YoY.

…but 6M24 PAT increased by just +7.4% YoY to reach VND 1.2tn. The gap was attributable to the higher contribution of low-margin 24K gold sales (41.5% of total 6M24 sales, +10.8ppt YoY).

Blended margins declined in 6M24. Gross margin fell to 16.4% (-2.5ppt YoY) and net margin to 5.3% (-1.3ppt YoY) in 1H24. Both 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 vs. PNJ’s pre-COVID margins.

No new outlets were added in Jun 2024. PNJ opened a net of 5 outlets (newly added 13 stores and closed 8 stores) in 1H24, bringing its network to 405 retail outlets nationwide: 396 PNJ Gold, 3 CAO, 5 PNJ Style, and 1 wholesale center.

Our view

Our HOLD-Underperform rating since March has been underpinned by our belief that the share price had gotten ahead the fundamentals — likely due to investor sentiment related to gold prices.

We like PNJ for its jewelry retail business, not as a “play” on gold. The retail jewelry business posted decent results in 1H24, with retail sales +13% YoY in 1Q24 and +18% YoY in 2Q24.

Core jewelry business to take precedence in 2H24. Seasonality suggests improved retail jewelry sales in 2H24, while 24K gold demand has eased along with the advent of direct sales of gold from the SOE banks. This implies reduced overall sales but also higher margins in 2H24.

Our model is now under review. PNJ’s 1H24 sales came in at 22% above our assumption, whereas earnings were in line (-2%) with our 1H24 forecast. PNJ is trading at a 2024E PE multiple of 13.2x, slightly lower than its 5-year average level of 14.5x.

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