Company Quarterly Earnings Update – PNJ VN – Q3 2022

Summary of the Q3/2022 results and outlook of Phu Nhuan Jewelry (PNJ VN)

  • Net revenue reached VND25,574bn, up 104.4% y/y. Jewelry retail sales surged by 113.3% y/y and 140.0% compared to pre-Covid (9M/2019) levels. Excluding the gold price effect, jewelry retail sales surged ~70.0% y/y, while the average industry was 43.4%. Strong growth was thanks to the economic recovery, pent-up demand post-Covid, a low base in Q3/2021, PNJ’s leading market position and a greater market share gained from small unbranded stores. Gold bar trading also saw a big jump in sales at 104.2% y/y thanks to Vietnamese’s investment interest in gold bars.
  • Net profit reached VND1,340bn, up 132.4% y/y. Q3/2022’s gross margin was the lowest since 2017 due to a change in its product mix to higher gold-content products to serve customers in tier-2 and tier-3 cities and increasing promotional activities. The operating margin increased from 6.3% in 9M/2021 to 7.1% in 9M/2022. SG&A expenses as a percentage of sales declined significantly as a result of strong sales growth. Thus, the net margin increased from 4.6% to 5.2%.
  • PNJ maintained its strong financial structure. D/E and D/A ratios remained low at 0.21x and 0.14x respectively with 100% short-term loans. Cash and cash equivalent constituted 9.4% of total assets while another 74.5% was highly liquid inventory.
  • PNJ has made some upgrades to its production facilities. The company has restructured manufacturing processes of its Go Vap factory, is installing a new jewelry production line for its Long Hau factory. After completing the upgrade, its designed production capacity can be extended another 30% to 5.2 million products per year.
  • Thanks to the seasonality of the jewelry business, PNJ will see higher q/q sales in Q4/2022. However, we believe that the company’s retail sales will decline in 2023 as the pent-up demand effect will fade away, rising interest rates will affect consumer discretionary demand, while 2022 provided a high base. 2022’s net revenue will reach VND33,452bn, + 71.1% y/y and net profit will be VND1,817bn, +76.6% y/y. 2023’s net revenue will reach VND33,112bn, -1.0% y/y, with net profit at VND1,781bn, -2.0% y/y. As for long-term prospects, demand will likely stabilize. SSSG will likely stay at 2.2% p.a. thanks to strong economic growth, increasing disposable income and high demand for consumer discretionary products. PNJ will continue to gain more market shares from small unbranded stores (current market share is ~50%). As a result, we forecast net revenue to advance 3.5% p.a. and net profit to grow by 5.6% p.a. for 2024-2027.

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