PNJ Update – NEUTRAL

PHU NHUAN JEWELRY JSC (PNJ VN)

The company reported shaky growth in light of weak consumer spending as projected in 1H23, though the results are expected to improve in 2H. Maintain NEUTRAL recommendation at a target price of VND83k/shr.

PNJ announced net revenue and EAT at VND6,663bn (-17.4% YoY) and VND338bn (-8.0% YoY) in 2Q23. On a cumulative basis, the company’s net revenue and EAT fell by 9.6% and 0.2%YoY, to VND16,459bn and VND1,086bn, respectively, in 1H23. 

The retail segment’s revenue dropped by 10.3% YoY in 1H23, explained by the high base last year and weakening spending, which has been seen since late 2022. By the end of 1H23, PNJ had 381 stores (YE2022: 364) in operation, including 360 gold stores (YE2022: 343). Sales of gold bars and high-gold-content products contracted by 1.1% YoY while the wholesale segment slumped by 30.2% YoY in 1H23. PNJ’s overall gross margin was 18.9%, compared to 17.6% in 1H22, explained by cost optimization, while the SG&A expenses to gross profit ratio climbed slightly to 54.9% vs 54.6% in 1H22.

Despite difficulties in 1H23, we expect consumer spending may see improvements toward the end of the year, fostered by softer interest rates and the government’s support measures, albeit probably with a moderate pace.  We assume the retail segment, the company’s key earner, may narrow its decline to 8% on a whole-year basis. PNJ’s 2023 net revenue is projected at VND31,568bn (-6.8% YoY), 10% lower than our previous projections but EAT may climb by 1.9% YoY, to VND1,846bn, 7% lower than our previous projections. Combining DCF and PER methods, we value the stock at VND83,489/share, equivalent to a total return of 8.2% at YE2023.