PNJ – Watch this space

Target price: N/A

Upside: N/A

Event catalyst:

• FY18 revenues (+33% YoY) and NPAT (+32% YoY).
• FY19E guidance for mid-20s percentage growth YoY.
• Wristwatch segment: a potential future growth driver.

Strong FY18 results. PNJ reported 2018A sales growth of 33% YoY and NPAT growth of 32% YoY. The key gold jewelry segment saw same-store sales growth of 20% YoY and 55 new stores in 2018. PNJ said that its gross margin also improved from 17.4% in 2017A to 19.1% in 2018A due to a higher contribution from the gold jewelry segment and an increase in premium product launches during the year.

FY19 guidance. PNJ guided for 24% YoY revenue growth and 23% YoY NPAT growth in 2019E. Management expects gold jewelry segment same-store sales growth of 18% YoY and plans to open another 40 new stores in 2019E. PNJ intends to extend its focus more toward Tier-2 and Tier-3 cities and to promote its watch segment more aggressively as it prepares for maturity in its current major business.

Watches: the next growth catalyst? Management discussed the watch segment as a potential future growth driver. PNJ has been a watch retailer for many years, but largely as a sideline. Given the segment’s small scale, PNJ purchases products from distributors rather than from brands, which results in thin profit margins.

Our view: We don’t cover PNJ and have no investment view on the stock. However, Vietnam’s gold jewelry market remains highly fragmented, with traditional independent stores accounting for 80% of market share. As such, the industry appears ripe for consolidation. Also, PNJ’s strategy to scale up its wristwatch retailing network should be a key area of investor interest. The stock trades at 16x 2018A PE, but given the stock’s full FOL, foreign investors are likely to be asked to pay a 10-20% premium to purchase a PNJ block.

Please access the link for our complete report: PNJ_Company Visit Note

Analyst: Quang Vo, quang.vo@yuanta.com.vn