27/10/2023 - 16:38
PNJ VN — Expanding through the cyclical weakness
PNJ posted negative sales growth in 9M23 but after-tax profits were flattish YoY given higher operating efficiencies. Specifically, 9M23 net sales were 23.4tn (-8.6% YoY) and after-tax profits were VND 1.3tn (-0.1% YoY). Thus, average net margin improved by +0.5ppt YoY to reach 5.7% in 9M23.
Footprint expansion continues. PNJ has opened +26 stores YTD in 9M23, increasing its retail network to 390 outlets nationwide. This is the fastest expansion pace of any jewelry retailer in Vietnam, and in our view should help PNJ to increase its market share going forward.
Positioned to benefit from the rising middle-class population. In addition, we believe that PNJ will remains its leading position as Vietnam’s largest jewelry retailer with its retail-oriented and multi-brand strategies.
Gap between free cash flow and net income in 2016-2022 driven by growth in inventories. Substantial precious metals inventory represents a risk given price volatility, but it also supports future revenue growth. Concerns regarding working capital are reasonable but are somewhat mitigated by PNJ’s efficient risk management system and sales growth plans.
Forecast cuts: We were too optimistic in our previous assumptions. We cut our sales forecasts by -15% to VND 32tn (-5% YoY) for 2023E and by -19% to VND36tn (+12% YoY) for 2024E. We also slash our PATMI forecasts by -21% to VND1.7tn (-4% YoY) for 2023 and by -21% to VND2.2tn (+27% YoY) for 2024E.
Yuanta vs. the Street. Our sales forecasts for 2023E and 2024E are in line with the Street’s. However, our revised 2023E EPS forecast is -8% lower than the Bloomberg consensus, probably driven by a higher SG&A cost assumption. We forecast EPS to grow by +25% YoY in 2024E EPS, but this expectation is -2% lower than the average estimate of the Bloomberg consensus.
We reiterate BUY on PNJ but cut our target price by -11.4% to VND 90,100 after paring our previously aggressive operating assumptions. Our reduced target price implies +24.3% 12-month TSR, which justifies our BUY recommendation.
