PNJ Update – HOLD

PHU NHUAN JEWELRY JSC (PNJ VN)

The company released 2021 (unaudited) results in line with our expectations. We almost maintain our latest earnings projection with expectation that 2022 should be a better year. Maintain  HOLD.  Target price VND107,454/shr.

Closing a harsh 2021, weighed by the resurgence of the COVID-19 pandemic, PNJ reported 12% YoY growth in net revenue and 3.4% contraction in EAT, in line with our projection, including negative VND160bn in EAT in 3Q2021 as a result of restricted operations of stores and online sales during the social distancing phase in HCMC and some provinces. 

Revenue and EAT grew by 21.5% and 7% YoY in 4Q. The major segments comprising of retail, gold bar trading and wholesale almost returned to YoY growth in 4Q, when social distancing measures were removed and the company’s store network was able to reopen entirely. On a cumulative basis, while the wholesale revenue fell slightly by 5.5% YoY, the retail and gold bar segments posted 10.5% and 25% YoY growth in 2021, respectively. At the end of 2021, PNJ had 341 stores (YE2020: 339), including 319 gold stores (YE2020: 302), 13 silver stores (YE2020: 33) and others. 

Gross margin was 18.2% in 2021, lower than 19.6% in 2020, given higher revenue contribution of low-margin gold bar/high-gold-content products, while the SG&A to net revenue ratio was unchanged at 11.0%.

For 2022, we expect the company to generate decent growth based on assumptions that there are no long social distancing measures applied on a large scale like 2021, given the government’s strategies to adapt with the presence of the virus and hasten vaccinations. Gross margin may strengthen mostly fostered by the retail segment’s growth. However, our projections also consider the probability that certain impacts on consumption of discretionary products may remain this year after such a long social distancing phase in 2021 and given that the pandemic still shadows, although this pressure may be different in consumer segments. Net revenue and EAT growth are projected at VND22,013bn (+12.2% YoY) and VND1,300bn (+25.9% YoY) in 2022. Combining DCF and PER methods, we value the stock at VND107k/share, equivalent to a total return of 12.8% at YE2022.