PNJ Flourishes Amid "Gold Price Fever"

Continued Business Improvement

In a retail industry that has yet to fully recover in 2023, PNJ has achieved profits through breakthrough initiatives and the promotion of appropriate retail channels.

By the end of April 2024, PNJ had recorded a net revenue of VND 16,049 billion, a 33.1% rise, and an after-tax profit of VND 915 billion, a 6.5% gain over the same time the previous year, indicating strong development from the company's high base in 2023.

Retail jewelry income in the first four months of 2024 climbed by 12.4% year on year. During the same period, wholesale jewelry income increased by 9.3%. The thriving 24K gold market increased income by 79.9% year on year over these four months.

The average gross margin for the first four months of 2024 reached 17.0%, down from 19.1% in the same period in 2023 owing to changes in the product mix in retail channels, revenue structure, price variations of raw materials, and other input variables.

Total operational costs for the first four months of 2024 grew by 29.3% year-on-year. The four-month operating expense-to-gross profit ratio grew from 52.0% to 57.0% as a result of changes in client purchasing behavior that impacted the revenue and gross profit structures.

Short Term Volatility - Long Term Opportunity? 

PNJ's business activities are displaying revenue growth, notably emphasized by the spike in 24k gold amidst continued price swings and growing demand for "safe-haven" assets more than ever before. This also illustrates that despite PNJ being a retail firm with an emphasis on jewelry gold, market demand variations are nevertheless modifying the total contribution to the company’s income from its initial orientation.

Previously, at the 2024 AGM, PNJ's CEO Mr. Le Tri Thong shared with shareholders that the revenue structure at the beginning of the year was changing compared to previous years as consumers were shifting towards buying more bullion gold with a higher speculation tendency, rather than just purchasing gold jewelry for aesthetic purposes.

However, higher 24K gold sales may not necessarily guarantee more earnings. Because the gross margin from 24K gold dealing at PNJ is just around 1% owing to the growth in cost of items sold with gold prices, but jewelry gold has a bigger gross margin since gold only accounts for 50% of the cost of jewelry products. This led to PNJ's net profit in Q1 not surpassing its record but only approximating the same period last year, reaching almost VND 738 billion, corresponding to 35% of the cautiously predicted profit (expected to expand by 6% to VND 2,089 billion this year).

Analyzing PNJ's business performance and prospects, Ms. Nguyen Tran Phuong Nga, an analyst from SSI Securities, expects that PNJ's earnings will return to positive growth from Q2/2024. "Currently, we expect PNJ's net profit for 2024-2025 to be VND 2.22 trillion and VND 2.57 trillion, respectively, an increase of 13% and 16% compared to the previous year, keeping with our earlier predictions). Thus, profit growth for 2024-2025 is driven by the recovery of jewelry demand alongside network development (48, 35, and 40 new shops in 2023, 2024, and 2025)," Ms. Nga observed.

This suggests that the substantial rise in bullion gold sales may only be short-term, and PNJ's focus still rests on the retail advantage of jewelry gold.

SSI has established a one-year target price of VND 112,000 per share for PNJ, keeping the target P/E at 17x based on the profit forecast for 2024-2025. PNJ is currently selling at VND 94,200 per share and is suggested for accumulation, with an 18-20% rise.

TPS's valuation of PNJ, which combines the DCF, P/E, and P/B techniques, has a target price of just VND 109,700 per share. The company also identifies investment risks as: (1) significant gold price fluctuations affecting the company's profits; (2) government regulation of the gold market through Decree 24/2012/ND-CP, resulting in a price difference between Vietnamese and global gold; and (3) macroeconomic fluctuations posing challenges to jewelry retail revenue.