PNJ – Earnings recovery almost priced in – Earnings Update

• PNJ posted VND7,182bn (+43.6% yoy) and VND512bn(+25.6% yoy) in 1Q21 revenue and NP, respectively.
• PNJ announced a plan for a private placement of 6.6% of outstanding shares to fund for network expansion and digital transformation.
• Downgrade to HOLD as we think the earnings recovery has been almost priced in.

PNJ 1Q21’s results in line with our projection

• 1Q21 revenue grew significantly 43.6% yoy across the boards: gold bar (+65.6% yoy); retail (34.9% yoy) and wholesale (+28.6% yoy), thanks to robust sale volume in International Women’s Day, God of Fortune day and Valentine this year.
• 1Q21 gross margin compressed by 2.5 pts % yoy to 18.5% as higher revenue contribution from of gold bar, 27.6% in 1Q21 vs. 24.1% in 1Q20.
• Consequently, 1Q21 net profit grew robustly 25.6% yoy to VND512bn, fulfilling 40.5% of our FY21F projection. 1Q21 was roughly in line with our estimates following the seasonality of jewelry and gold retail business.
• In 1Q21, PNJ opened 4 new PNJ Gold stores, closed 3 stores including 1 PNJ Gold, 1 PNJ Silver and 1 CAO to optimize its retail system. By the end of Mar 21, PNJ had 340 stores including 306 PNJ Gold, 27 PNJ Silver, 3 CAO and 1 PNJ Style.

PNJ will issue 15m share via private placement
In 17th Apr, the AGM approved a private placement plan of 15m new shares, equivalent to 6.6% of the outstanding shares. The placement price will not be lower than the prevailing 60 trading days average close price. We estimate the private placement value of about VND1,280bn, based on the average price of 60 trading days at VND85,400 per shares. The capital raising will be used as follow: (1) retail chain expansion in the next 2-3 years, of which 40-45 stores are expected to be opened in 2021, and (2) digital transformation plan to optimize sales and management systems.

Downgrade to HOLD as market price is close to fair value
PNJ’s share price has rallied 17% ytd following the market expectation about earnings recovery. We maintain our DCF-base target price of VND99,500 per share and downgrade to HOLD rating. Potential re-rating catalysts include 1) a faster-than-expected store opening pace, 2) a better-than-expected recovery after the pandemic, and 3) new projects which are expected to boost sales. Downside risk to our call is the next wave of COVID-19 outbreak in Vietnam.

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