PHU NHUAN JEWELRY JSC Consumer Goods Industry Update report July 2017 Recommendation OUTPERFORM Recommendation (VND) 135,000 Market price (28/7/2017) 103,100 Expected profit 31% SHARES INFORMATION Trading exchange HSX 52-week price range 61,060-104,000 Market cap 10,132bil VND Outstanding shares 98,273,868 10-day average volume 242,844 Foreign Ownership 49% FOL 49% Dividend per share 1,800 Dividend yield 1.8% Beta 0.3 Ticker: PNJ Reuters: PNJ.HM Bloomberg: PNJ VN Solid Growth Driven by its Retail Segment PNJ s revenue and profit grew by 39% and 55%, respectively during H1 2017. PNJ s revenue rose by 39% as a result of: (1) a 59% increase in gold bar sales to VND1,183 billion, which resulted from a surge in gold demand in the Caishen day of 2017; (2) Favorable results from jewelry trading (up 34%), especially from the retail segment (46% YoY increase); (3) good results from other segments such as wholesale and silver jewelry. As a result, PNJ s net profit reached VND378 billion, rising 54% yoy. However, if eliminating the provision for DAB and the profit from transferring the house on Phan Dinh Phung in H1 2016, its H1 2017profit before and after tax from its core business would have increased by 36% and 35% yoy, respectively. The sales growth of the existing stores accelerated from 8% in H1 2016 to 28% in H1 2017, resulting in an increase in its gold jewelry revenue in H1 2017. PNJ s statistics have shown that its revenue from the existing stores rose by 28% yoy in H1 2017. The 2 main reasons for this impressive growth rate are:(1) The company has restructured its distribution network and inventories, based on each store s needs. This restructuring began in H2.2016 and has already produced positive results in H1.2017; (2) Demand for gold jewelry has-been increasing as a result of the improvement in the living standards of citizens in big cities. VND/Shares 120,000 100,000 80,000 60,000 40,000 20,000 - PRICE MOVEMENTS Shares 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - PNJ will reach its 300-retail-store target in H1 2018. As of June 30th, 2017, PNJ established 18 new stores to increase its total store number to 237. Given the benefits from the retail system, PNJ has focused on expanding its retail system, as PNJ plans to open 63 new stores by April 30th, 2018. PNJ also shared that it has chosen a location for 50 stores, and is still searching for the remaining locations. Therefore, we think that the company can achieve the goals set by its BOD. These new stores will enable PNJ to gain a faster growth rate in jewelry trading during 2018-2019. YTD 1M 3M 6M PNJ 56.0% 1.3% 9.7% 43.3% VN-Index 15.6% 0.1% 7.9% 10.7% Analyst Nguyen Chi Hong Ngoc (84 8) 3914.6888 ext 252 Nguyenchihongngoc@baoviet.com.vn PNJ plans to issue 9.8 million shares at an average price of 101,000 VND/share. PNJ has found the partners to purchase the 9.8 million additional shares at an average price of 101,000 VND/share, much higher than its expectations. The total proceeds of nearly VND990 billion from this issuance will be used to develop its retail system, pay its short-term debts and increase the working capital, thus ensuring the company s long-term development. We expect that PNJ will gain more impressive profit growth for FY2017, at 73%. We have increased our projections for PNJ s 2017 revenue and profit based on the following assumptions: (1) Strong growth in gold bar revenue in H1 2017 and (2) An increase in the retail revenue proportion from 58% to 64% due to the development of the retail network. Therefore, PNJ will likely earned VND11,045 billion in revenue
in 2017, increasing by 29% yoy and completing 108% of its plan. It may gain VND780 billion in net profit, surpassing its own target by 34%, equivalent to an EPS of VND7,762/share. Recommendation. The strong expansion of its retail network and the improvements in its supply chain have brought impressive business results for PNJ in H1 2017 and this will likely continue in subsequent years. In addition, VND990 billion from share issuance will enable its BOD to set more ambitious strategies for the long-term development. The target of 300 retail stores by H1 2018 displays the strong ambition of its BOD to set a strong development strategy. Given the above positive results and the changes towards a higher growth potential for PNJ, we have given an OUTPERFORM recommendation for PNJ. Our 12-month price target is about VND135,000/share, presenting 31% upside. 2
PNJ s Positive Results were Driven by its Retail Network s Expansion PNJ s H1 2017 revenue and profit rose by 39% and 55% yoy, respectively In the first 6 months, PNJ earned revenue of VND5,475 billion, up 39% yoy, thanks to: (1) a 59% increase in gold bar sales to VND1,183 billion resulting from the surge in gold demand in the Casen day of 2017; (2) Favorable results from jewelry trading (up 34%), especially from the retail segment with a 46% increase yoy; (3) good results from other segments such as wholesale, and silver jewelry. Total Revenue 1H.2017 1H.2016 % yoy Gold bar 1,183 745 59% Gold jewelry 4,172 3,102 34% - Wholesale 1,469 1,245 18% - Retail 2,662 1,818 46% - Export 41 39 6% Silver 106 78 36% Accessories, services 16 16 0% Total revenue 5,477 3,941 39% PNJ s net profit reached VND378 billion, up 54% yoy. However, if eliminating the provision for DAB and the profit from transferring the house on Phan Dinh Phung in H1.2016, its H1.2017profit before and after tax from core business would have increased by 36% and 35% yoy, respectively. The sales growth of its existing stores accelerated from 8% in H1.2016 to 28% in H1 2017 This is the main reason for an increase in PNJ s gold jewelry revenue in H1.2017. PNJ s statistics have shown that its revenue from the existing stores rose by 28% yoy in H1.2017. The 2 main reasons for this impressive growth rate are: (1) The company has restructured its distribution network and inventories, based on each store s needs. This restructuring has begun in H2.2016 and produced positive results in H1 2017; (2) Demand for gold jewelry has been increasing as a result of the improvement in the living standards of citizens in big cities. PNJ will reach its 300-retail-store target in H1 2018 As of June 30th, 2017, PNJ established 18 new stores to increase its total number of stores to 237. Given the great benefits from the retail system, PNJ has been increasingly focusing on the expansion of its retail system. PNJ plans to open 63 new stores by April 30th, 2018. PNJ also shared that it has chosen locations for 50 stores and is still searching for a location for the remaining stores. Therefore, we think that the company can achieve the goals set by 3
its BOD. These new stores will enable PNJ to experience stronger growth in jewelry trading during 2018-2019. We expect that PNJ will gain more impressive profit growth for FY2017, at 73%. The key assumptions for forecasting PNJ s business results during 2017-2021 are: High revenue growth thanks to a faster-than-expected expansion of its retail system We have revised our revenue projections for PNJ during 2017-2021 since its retail system has been expanding faster than expected. The company plans to grow to 300 stores by H1 2018 and 360 stores by 2020. We think that PNJ can expand its retail network to 400 stores by the end of 2021. Accordingly, the company will open 30 stores/year on average between 2019 to 2021. Therefore, we think that the 400-store target for 2021 is totally feasible and can ensure the efficiency of each new store. PNJ s gross profit margin will improve thanks to the changes in its revenue structure We have estimated that PNJ s retail jewelry sales will account for 60% of its total revenue in 2017 and 77% in 2021. The retail jewelry segment has the highest profit margin, with the gross profit margins for retail gold jewelry and silver jewelry at 28% and 70%, respectively. We expect that these changes in revenue structure will bring improvements for PNJ s gross profit margin, and its gross profit margin will likely increase from 16.5% to 17.8% in 2017. PNJ plans to issue 9.8 million shares at an average price of 101,000 VND/share PNJ has found partners to purchase the 9.8 million additional shares at an average price of 101,000 VND/share, much higher than its expectations. The total proceeds of nearly VND990 billion from this issuance will be used to develop its retail system, pay its short-term debts and increase the working capital, thus ensuring the company s long-term development. 2016A 2017F 2018F 2019F 2020F 2021F Revenue 8,564,590 11,045,960 13,382,293 15,874,738 18,030,194 20,388,040 Outlet number 219 260 310 340 370 400 Growth rate of existing stores 8.0% 9.9% 8.4% 7.9% 6.3% 6.2% Proportion of retail revenue 59.5% 64.0% 69.4% 73.2% 75.2% 77.0% Gross profit margin 16.5% 17.8% 18.9% 20.1% 20.8% 21.4% Net profit 450,111 780,072 1,061,731 1,399,541 1,686,434 2,021,342 Share volume 98,274,577 108,103,490 108,103,490 108,103,490 108,103,490 108,103,490 EPS 4,580 7,216 9,821 12,946 15,600 18,698 4
Valuation We have combined the comparable method and discounted cash flow method to calculate PNJ s fair value. Comparable method: Average PE of regional jewelry companies Company Country MC PE Chow Sang Sang HK 1,568 15.9 Lao Feng Xiang China 2,564 11.4 Eastern Gold Jade China 1,999 60.4 PC Jewelry India 1,016 16.9 Average 26.9 PNJ s fair price by PE method Industry s PE 14.8x EPS 2017 * 7,762 Price calculated by EPS 2017 114,728 EPS 2018 9,849 Price calculated by EPS 2018 145,169 (*) average outstanding share volume in 2017: 100,5mil Discount rate 45% 14.8 DCF method: PNJ s DCF-based target price is VND139,882/share (discount rate: 10.9%, long-term growth: 3% and share volume after issuance: 108.1 million shares) By combining the 2 valuation methods, we have calculated PNJ s target price at VND135,000/share. Method Proportion Value DCF 50% 69,941 Comparing PE 2017 25% 28,682 Comparing PE 2018 25% 36,292 Average (VND/share) 134,915 Recommendation The strong expansion of its retail network and the improvements in its supply chain have brought impressive business results for PNJ in H1 2017, which will likely continue in subsequent years. In addition, VND990 billion from share issuance will enable that its BOD will set more ambitious strategies for its long-term development. The target of 300 retail stores by H1 2018 displays the increased ambition from its BOD in continuing to expand. Given the above positive results and the changes towards a higher growth potential for PNJ, we have given an OUTPERFORM recommendation for PNJ. Its12-month price target is about VND135,000/share, with 31% upside. 5
FORECASTED FINANCIAL RATIOS Profit and Loss Statement Unit (VND billion) 2014 2015 2016 2017F 2018F Revenues 9,199 7,708 8,565 11,046 13,382 Cost of goods sold 8,310 6,538 7,153 9,083 10,851 Gross profit 889 1,170 1,411 1,963 2,531 Financial income 19 1 5 7 14 Financial expenses 90 431 182 100 120 Net income 256 152 450 780 1,062 Balance sheet Unit (VND billion) 2014 2015 2016 2017F 2018F Cash and cash equivalents 38 38 155 1,046 1,498 Accounts receivable short-term 72 47 68 151 182 Inventories 1,672 2,135 2,839 3,360 4,071 Tangible fixed assets 452 492 423 460 505 Long-term investments 532 167 - - - Total assets 2,829 2,975 3,593 5,153 6,406 Short-term loans 1,395 1,502 2,027 2,054 2,481 Long-term debt 138 79 66 66 66 Owners equity 1,297 1,394 1,501 3,033 3,859 Total resources 2,829 2,975 3,593 5,153 6,406 Financial ratios Items 2014 2015 2016 2017F 2018F Growth Revenue growth (%) 3.2% -16.2% 11.1% 29.0% 21.2% Net profit growth (%) 51.4% -40.5% 195.5% 73.3% 36.1% Yield Gross profit margin (%) 9.7% 15.2% 16.5% 17.8% 18.9% Net profit margin (%) 2.8% 2.0% 5.3% 7.1% 7.9% ROA (%) 8.8% 5.2% 13.7% 17.8% 18.4% ROE (%) 19.6% 11.3% 31.1% 34.4% 30.8% Capital structure Total liabilities to total asset (%) 54.2% 53.1% 58.2% 41.1% 39.8% Total liabilities to owners equity (%) 118.2% 113.4% 139.5% 69.9% 66.0% Per shares EPS (VND/share) 3,208 1,550 4,580 7,216 9,821 Book value (VND/share) 17,150 14,188 15,269 28,057 35,696 6
DISCLAIMER I, Ngoc Nguyen, hereby declare that this report is written with my honesty and without any personal motivation. All information contained in this report has been collected from reliable sources and carefully verified. However, I cannot guarantee the completeness or the accuracy of the information above. All the views and comments in this report are my personal opinion only and do not intend to advise readers to buy, sell any securities. This report is for the purpose of providing information and investors should use the report as a source of reference only. I and BaoViet Securities Company will take no responsibility towards investors as well as the companies referred to in this report for possible losses of investment or false information concerning the companies. The report is a property of BVSC and under copyright protection. Infringement of copy, change and reprint of the report without permission of BVSC is illegal. BVSC owns the copyright on the report. CONTACTS Research & Investment Advisory Department, BAOVIET Securities Joint Stock Company Equity Research Macro & Market Research Luong Luu Deputy Head of Research luuvanluong@baoviet.com.vn Phuong Le Deputy Head of Research ledangphuong@baoviet.com.vn Binh Nguyen Deputy Head of Research nguyenxuanbinh@baoviet.com.vn Ha Nguyen Banking, Insurance nguyenthuha@baoviet.com.vn Ngoc Nguyen Real Estate, Consumer Goods nguyenchihongngoc@baoviet.com.vn Thang Bach Chief economist bachngocthang@baoviet.com.vn Trang Che Fertilizer, Steel, Electricity chethimaitrang@baoviet.com.vn Hoa Le Building Materials lethanhhoa@baoviet.com.vn Yen Tran Economist tranhaiyen@baoviet.com.vn Trang Phan Natural Rubber, Sugar phanthuytrang@baoviet.com.vn Phu Truong Automobiles & Parts, Garment & Textile truongsyphu@baoviet.com.vn Anh Tran Market strategist tranducanh@baoviet.com.vn Dung Nguyen Information Technology nguyentiendung@baoviet.com.vn Hang Ha Pharmaceutical hathithuhang@baoviet.com.vn Bach Tran Technical Analyst tranxuanbach@baoviet.com.vn Hao Thai Water infrastructure thaianhhao@baoviet.com.vn 7
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