PNJ_BUY_TP 122,100_Upside 23%__2022 – Profit Falling Point_BSC Company Update

Valuation

BSC maintains its recommendation to BUY PNJ with a 2022 target price of 122,100 VND/share, 23% upside compared to May 9, 2022. Valuation is based on the DCF method with WACC = 10.7% and g = 3.8% and the P/E method with a target P/E of 19x. We adjust our target price by 0.6% compared to the previous report's valuation of 121,400 VND/share (adjusted after release). Although (1) Net revenue and NPAT are expected to increase by 10% and 16% respectively (compared to previous report) thanks to the revenge consumption and political instability as well as higher-than-expected inflation, increasing  hoarding demand for gold bullion and SG&A/DTT cost-effective savings in 1Q22, but (2) cost of capital increased from 10% to 10.7% due to an increase in expected interest rates and target P/E also adjusted about 19 times- Lower than the period of 2021-2022 (21 times).

Forecasting business results

BSC adjusted its expectation that revenue and profit after tax in 2022 will reach 26,196 billion VND (+34%YoY) and 1,610 billion VND (+56%YoY), EPS fw is 6,154 VND/share. PE fw = 16.1x – lower than 5-year P/E average of 17x – Equivalent to 101% of target and 122% of PAT in 2022.

Investment Thesis

Low base level of 2021 with the expectation of expanding market share and scale in the period 2022-2023

Growth potential comes from internal businesses, including (1) Strategy to expand market share by increasing the number of stores in tier 2 and 3 city areas; (2) Restructuring products and optimizing costs by applying ERP system (3) Exploiting potential young customer segments.

Risk:

§  The epidemic continues to affect jewelry purchasing power.

§  Disposable income recovered lower than expected.

Updated business results for 2021

Q1/2022 revenue and NPAT reached 10,143 billion VND (+41.2%YoY) and 721 billion VND (+40.7% YoY), respectively, completing 39.3% and 54.6% of revenue and NPAT target, thanks to revenge buying and investment trend in gold bars in the context of rapid inflation and global geopolitical instability.