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Vietnam

Phu Nhuan Jewelry: Conservative target for 2020 due to Covid-19 impact

  • Conservative target for 2020 not surprising: 12% growth in revenue and 13% growth in PAT

  • Gross margin is expected to be flat in 2020, even though it has been improving significantly in recent years

  • We are currently in the process of reviewing our forecasts and target price

Son Tran
Son Tran

Market Strat, Retail, Consumer 

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Rong Viet
19 March 2020
Published byRong Viet

In the latest AGM document published recently, PNJ set an unsurprisingly conservative target for 2020: 12% growth in revenue and 13% growth in PAT. This is in the context that the Covid-19 pandemic will significantly hit jewellery retailers as shoppers stay away from public places to avoid infection, while also limiting spending. 

Gross margin is expected to be flat in 2020, even though it has been improving significantly in recent years (+520bps in the last four years and +130bps in 2019) due to an increase in retail jewellery contribution and higher margin items. We believe this is because of the increasing expansion into Tier 2 and Northern regions, which have a different consumer behaviour. PNJ plans to open 31 new stores in 2020, almost the same as in 2019 (32 new stores). 

Gold bar sales grew nearly 50% in 2019 due to worries related to the potential economic fallout of the US-China trade war. Despite the high base in 2019, with increasing levels of risk around the world, we believe gold bar sales will remain high in 2020 since it is a defensive asset. In contrast, B2B and the wholesale business will suffer the most from Covid-19, as wholesale clients order less. However, due to the thin margin for gold bars and wholesale, these only affect the top line, while the bottom line depends vastly on retail jewellery sales. While the coronavirus outbreak brought concerns on PNJ’s retail sales, this segment will grow from a low base in 2019 when the ERP issues caused a significant impact on the company’s sales from April to July. 

Moreover, considering that Q2 and Q3 are not peak seasons for jewellery, we believe that if Covid-19 is put under control before Q4 – when the wedding season starts (from 18 September 2020) – PNJ could still have a good year in 2020. We are currently in the process of reviewing our forecasts and target price. 

PNJ proposed an 18% cash dividend for 2020, implying a 35.5% payout ratio from 2019’s earnings. This is consistent with the payout ratio in 2019, when PNJ paid VND2,000 in cash dividend, equivalent to a payout ratio of 35.2%.