INVESTMENT HIGHLIGHTS

Transcription

1 COMPANY VISIT NOTE 04 Dec 2015 PHU NHUAN JEWELRY JOINT STOCK COMPANY (PNJ) INVESTMENT HIGHLIGHTS Positive growth in core businesses. Revenue from core businesses (jewelery & accessories) increased by 6.2% yoy to VND5,650 billion from VND5,322 billion of the same period last year, of which sales of gold jewelry has positive growth (+14% yoy). Consolidated gross profit grew impressively at 24.5% yoy, reaching VND818.6 billion thanks to (1) no more revenue recorded from low-margin petrol and oil trading activities (2) shifting towards producing higher value-added products. Actively investing in network expansion. Accumulated from January to end of Nov 2015, PNJ has opened a total of 45 new stores nationwide, bringing the total number of stores up to 199, of which 42 stores having posted profit and only 3 new stores operating below the break-even point. PNJ's strategy is to continue increasing coverage with the objective of 300 stores nationwide to end of 2017, up 50% compared to this year-end will be a brighter year for PNJ as provision for diminution in value of investment is not to cause much concern. In 2016, PNJ is forecasted to reach VND8,273 billion in revenue (+7% yoy), mainly from the jewelry segment s growth. Also the company will make provision for the remaining 20% investment in Dong A bank, equivalent to VND84.7 billion. Thus 2016 PAT would reach VND398 billion, +2.3 times compared to Hence 2016 EPS would amount to VND3,677/share, equivalent to a 2016 P/E of 10.7x (closing price as of 02/12/2015 was VND39,500). Valuation. To eliminate the effect of provision to the company s profit, we use EV/EBITDA method to valuate PNJ. Based on adjusted regional average industry EV/EBITDA of 8.5x, we recommend HOLD to PNJ at VND44,000/share, 11.4% higher than current trading price. Unit (Billion VND) % yoy 9M2014 9M2015 % yoy Net revenue 8,914 9, % 7,272 5, % Jewelery & accessories trade 7,562 7, % 5,322 5, % Gross profit % % Gross margin 7.5% 9.7% 9.0% 14.3% Net financial expenses (61) (72) +16.9% 50 (249) PAT % % PAT margin (%) 1.9% 2.8% 2.7% 2.7% Source: PNJ.

2 TVS Research Consolidated revenue fell due to a missing petroleum business but gold and jewelery segment still maintains sustainable growth. 9M2015 results 9M2015 consolidated revenue reached VND5,650 billion, -22.3% yoy due to no revenue from oil and gas business since Sep Despite low season of business, consumption of gold and silver jewelry in Q2 and Q of PNJ still grew. 9M2015 revenue of jewelry and accessories segment rose 6.2% to VND5,650 billion. 9M2015 revenue structure by product 9M2015 structure of gross profit by product 2% 0% 2% 1% 24% 10% Gold bar Gold jewelry 74% 87% Silver jewelry Others Source: PNJ Gold jewelry still contributes large proportion to revenue structure and profit REVENUE STRUCTURE Gold Jewellery: represented the largest contribution, came at VND4,158 and VND693 billion respectively with 73.6% net revenue and 87.2% gross profit (up 43% yoy) in 9M2015. During the period, gold jewelery sales recorded an impressive gain of 14% yoy. Gold jewelry sales Gold jewelry gross profit trillion VND % 9% 13% 22% 14% 25% 20% 15% 10% 5% Hundred billion VND % -1% 13% 34% 43% 50% 40% 30% 20% 10% 0% M2015 0% M % Gold jewelry sales (trillion VND) Gold jewelry gross profit (billion VND) Growth rate yoy (%) Growth rate y/y (%) Source: PNJ - Gold bar: gold bar business contributed 24% of revenue and 10% of gross profit. The company maintains this business as a traditional sales

3 COMPANY VISIT NOTE 04 Dec 2015 channel for customers which has low profit margin and requires large working capital, hence PNJ has no plan to expand this segment in the future. - Silver Jewelry: 9M2015 reached VND115 billion (+7% yoy), while gross margin maintained at a high level (over 60%). However, silver business so far contributed a relatively small proportion to revenue and profit. IMPROVED GROSS MARGIN Gross profit 9M2015 exceeding yoy 9M2015 gross margin improved sharply to 14.5% from 9% of the same period last year. Therefore, consolidated gross profit reached VND818.6 billion, up 24.6% yoy on account of these factors: (1) PNJ has no longer booked the revenue from oil & petrol trading which has low profit margin. (2) PNJ has improved production capacity to create greater added value. Recently, PNJ has been able to replace 70% of goods imported from Italy by replacing machinery, diversifying products and expanding target customer ages range. PAT PLUNGED DUE TO IMPACT OF COSTS Operating & provision expenses soaring, dragged PAT by 22.6% Core business remains positive in Q42015 as jewelry consumption entering high season. Total net financial expenses in 9M2015 reached VND249.1 billion, % yoy. Percentage of administration and sales expenses over revenue increased from 4.75% to 6.53%, in which sales expenses sharply increased as new stores had not kept up with the old ones in sales. Finally, 9M2015 consolidated Profit After Tax reached VND153.3 billion (-22.6% yoy). Excluding provision for 38.4 million shares at Dong A bank, the company's profit after tax would be VND293.9 billion, +42.6% yoy FORECAST In recent meeting, PNI s representatives revealed preliminary numbers of 10M2015. Accordingly, PNJ s consolidated gross profit reached VND918 billion (+43% yoy), mainly due to gross profit from gold jewelry segment which arrived at VND819 billion (+49% yoy). PNJ assumes DAB share price at year-end would reach VND2,200/share therefore PNJ will make a provision of VND120 billion in Q42015 (Dong A bank shares have been suspended from trading since 14/08/2015 by SBV s decision). Accordingly, total amount of provision for over 38.4 million shares of Dong A bank as of 31/12/2015 would be VND311 billion. The remaining book value of PNJ is VND84.7 billion. Besides, in Oct 2015, the company has finalized the divestment at the Saigon M&C real estate JSC and recorded a loss of VND39 billion.

4 TVS Research Date Provision for investment in DAB (billion VND) Accumulated provision for provision in DAB (billion VND) 31/12/ /06/ /09/ /12/2015 (expected) Source: PNJ A positive revenue growth is not enough to offset the decline in profit due to too large financial expenses. We estimate net financial expenses in Q42015 at VND185 billion, cost of sales and administration at 7.2% over net revenue, thus Q4 PAT would be -VND46.1 billion (last year +VND57.8 billion). For the entire 2015, revenue and PAT are forecasted at VND7,732 billion and VND117 billion respectively EPS forward is VND1,085/share. PROSPECTS IN 2016 Boosting investment in retail shops 2016 prospect will be brighter thanks to reducing provision. PNJ has issued VND300 billion bonds to boost the expansion of the stores system as well as financing those stores working capital. As of 30 Sep 2015, PNJ opened 35 mixed stores (selling both gold and silver), bringing the total number of stores to 189 with a coverage of 44/63 provinces. Accumulated from January to end of 11/2015, PNJ has opened a total of 45 new stores nationwide, bringing the total number of stores to 199, of which 42 stores having posted profit and only 3 new stores operating below the break-even point. Average of 9 months, old stores sales posted growth of + 29% yoy. The company aims to have 300 stores nationwide by the end of 2017, so in the next 2 years PNJ will open average 50 stores/year and focus only on large-scale stores. Our estimate for net revenue in 2016 is VND8,273 billion (+7% yoy). Steady sales growth plus modest financial provision burden will help PNJ s PAT reach VND398 billion ( % yoy), equivalent to 2016 EPS of VND3,677/share. Valuation. To eliminate the effect of provisions to the company s profit, we use EV/EBITDA method to valuate PNJ. Based on adjusted regional average industry EV/EBITDA of 8.5x, we recommend HOLD to PNJ at VND44,000/share, 11.4% higher than current trading price. There is no room for foreign ownership, however the company has yet to plan any increase in room for foreign investors. Besides, due to the impact of provisioning, the cash dividend may be proposed to the AGM at 15%/par value (VND1,500/share) instead of 20% (VND2,000/share) as planned.

5 COMPANY VISIT NOTE 04 Dec 2015 FINANCIAL STATEMENTS (Unit: VND Billion) Business Results Q2015 2Q2015 3Q2015 Net revenue 9,199 2,137 1,718 1,795 Gross profit EBITDA PBT PAT Balance Sheet Q2015 2Q2015 3Q2015 Cash & Cash Equivalents Receivables Inventory 1,437 1,853 2,261 2,128 Total assets 1,831 1,997 2,396 2,323 Net fixed assets Total assets 2,829 3,027 3,405 3,195 Short-term liabilities 1,132 1,25 1,444 1,299 Long term liabilities Total Liabilities 1,532 1,636 2,061 1,831 Total capital 1,297 1,391 1,343 1,364 Total Liabilities & Capital 2,829 3,027 3,405 3,195 Cash flow Q2015 2Q2015 3Q2015 Cash at beginning of year Cash flow from business activities Cash flow from investment activities Cash flow from financial activities Differences End of period cash flow Financial Ratios Q2015 2Q2015 3Q2015 Growth Total assets -4.3% 3.2% 9.2% 9.9% Total capital -1.6% 13.7% 5.0% 2.6% Net revenue 3.2% 10.9% -19.6% 4.5% Net profit 48.6% 45.7% 3.3% -15.2% Profitability Gross margin 9.7% 13.8% 15.2% 14.2% EBITDA margin 4.7% 8.3% 8.9% 7.6% Operating margin 4.4% 7.9% 8.5% 7.1% PAT margin 2.8% 5.4% 3.6% 2.2% Leverage (EBIT / I) 5.1x 9.9x 7.4x 5.6x Total Liabilities / Capital 54.2% 54.1% 60.5% 57.3% Total liabilities / Equity 118.2% 117.6% 153.5% 134.2% Liquidity Receivables (days) Payables (days) Inventory (days) Current ratio 1.3x 1.3x 1.3x 1.5x

6 TVS Research ANALYST CERTIFICATION We, Research Department of Thien Viet Securities Company (TVS), hereby certify that the views expressed in this research report accurately reflect our personal views about the subject securities or issuers. We will not compensate, directly or indirectly, for any specific recommendations or views expressed in this report. by Thien Viet Securities Company. All rights reserved. This publication may not be redistributed, retransmitted or disclosed as a whole or partially in any form or manner without the prior written consent of Thien Viet Securities Company (TVS). The information herein is obtained from various sources and TVS does not guarantee its accuracy. Neither the information nor any opinions expressed in this publication constitutes a buy or sell recommendation on any securities or investment. TVS therefore does not take any responsibilities for any investor s decisions. THIEN VIET SECURITIES COMPANY HO CHI MINH 63A Vo Van Tan St, District 3 Floor 9, Bitexco Nam Long Building Tel: +84 (8) Fax: +84 (8) HA NOI 22 Lang Ha, Dong Da TDL Building Tel: +84 (4) Fax: +84 (4) RESEARCH DEPARTMENT INVESTMENT BANKING BROKERAGE DEPARTMENT research@tvs.vn ib.hcm@tvs.vn brokerage.hcm@tvs.vn