PNJ – October performance shines – Update

• PNJ reported Oct topline and bottomline to grow 6.5% yoy / 35% yoy to VND1,827bn / VND175bn, respectively.
• PNJ’s 10M20 revenue stayed flat yoy at VND13,495bn, while net profit dropped 13% yoy to VND817bn, fulfilling 83.5% our forecast.
• Reiterate ADD with a higher TP of VND99,500.

10M20 results above our expectation

PNJ’s Oct revenue increased 6.5% yoy to VND1,827bn, mainly thanks to the strong growth of revenue from retail channel, which increased 17.5% yoy and offset the decline in wholesales channel and gold bar channel. PNJ’s Oct net profit reached VND175bn, up 35% yoy. For 10M20, PNJ’s revenue stayed flat yoy at VND13,495bn, while 10M20 net profit decreased 13% yoy to VND817bn, completing 83.5% our FY20F forecast, above our expectation.

Weakening gold price may benefit PNJ’s inventory restocking process

The gold price rally of more than 29.2% from Jan 20 to Aug 20 put a heavy pressure on PNJ’s COGS in the long term when they want to restock their inventory. However, the good news of vaccine for Covid-19, which led to the reduction of gold price by 7% from Aug 20 to Dec 20, could help ease the pressure on PNJ’s COGS when PNJ’s inventory is restocked at lower costs.

Changes to our forecasts

We increased our FY20/21/22F net profit forecasts by 11.2%/0.5%/2.6%, respectively, due to 1) higher sales in the retail segment in FY20F/21F/22F (+14.6%/+12.5%/+23.1% vs. old forecasts) and 2) a faster pace of store opening in 2021-22F thanks to the recovery from Covid-19 impacts (20/15 PNJ gold stores in 2021/22F vs. 10/10 in previous forecasts).

Reiterate ADD with a higher TP of VND99,500

We increased our DCF-based TP by 26.2% to VND99,500 following a rollover to FY21F, 0.5%/2.6% upward revision in FY21F/FY22F net profit forecasts and higher 10-year EBIT CAGR at 8.4% (vs. 7.8% in previous forecast). Our TP translates to a FY21F P/E of 17.7x, based on the assumptions of risk-free rate at 3% and WACC at 10.6%.

Re-rating catalysts and downside risks

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 leading to another social distancing, especially in Hanoi and Ho Chi Minh City.

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