Group-5-PNJ-Company-Analysis- SABV-2009 21-Group-report. PDF

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PNJ ANALYSIS Assessment 1: Group Report GROUP 5 1 signature: Ha Ngoc Quynh Thy Note: An examiner or lecturer tutor has the right to not mark this assignment if the above declaration has not been signed. 00398 TABLE OF CONTENTS CONTENTS PAGE I. Executive Summary 3 II. PNJ Overview 3 Jewelry Industry ...

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PNJ ANALYSIS Assessment 1: Group Report GROUP 5

SCHOOL OF BUSINESS

GROUP ASSIGNMENT COVER SHEET STUDENT DETAILS Student name: Nguyễn Ngọc Ánh Student name: Nguyễn Thị Thanh Hà Student name: Hồng Tố Thanh Student name: Hà Ngọc Quỳnh Thy

Student ID number: Student ID number: Student ID number: Student ID number:

19982335 19982364 19989714 19984184

UNIT AND TUTORIAL DETAILS Unit Unit number: 200921 name: Security Analysis Business Valuation Tutorial/Lectur e: Class day and time: 1:00PM Lecturer or Tutor name: Dr. Hoang Anh Nguyen ASSIGNMENT DETAILS Title: Assessment 1 - Group Report GROUP 5 Length Due Date submitted: 26/11/2019 : 2000words date: 30/11/2019 Home campus (where you are enrolled): 17 Pham Ngoc Thach campus DECLARATION I hold a copy of this assignment if the original is lost or damaged. I hereby certify that no part of this assignment or product has been copied from any other student’s work or from any other source except where due acknowledgement is made in the assignment. I hereby certify that no part of this assignment or product has been submitted by me in another (previous or current) assessment, except where appropriately referenced, and with prior permission from the Lecturer / Tutor / Unit Coordinator for this unit. No part of the assignment/product has been written/produced for me by any other person except where collaboration has been authorised by the Lecturer / Tutor /Unit Coordinator concerned. I am aware that this work will be reproduced and submitted to plagiarism detection software programs for the purpose of detecting possible plagiarism (which may retain a copy on its database for future plagiarism checking).

Student’s signature: Student’s signature: Student’s signature:

Nguyen Ngoc Anh Nguyen Thi Thanh Ha Hong To Thanh

1

Student’s signature:

Ha Ngoc Quynh Thy

Note: An examiner or lecturer / tutor has the right to not mark this assignment if the above declaration has not been signed. 00398 09/16

TABLE OF CONTENTS CONTENTS

PAGE

I. Executive Summary

3

II. PNJ Overview

3

III. Jewelry Industry Analysis

4

IV. PNJ’s Financial Analysis

5

V. PNJ’s Financial Forecasts & Valuations

8

VI. Recommendation

10

VII. References

11

VIII Appendix

13

2

I.

Executive Summary: From the first look at our PNJ’s survey report, the outstanding point is that PNJ has

developed from small to big enterprise due to numerous factors such as investing in advanced production process, training skillful staff and also pioneering in exporting jewelry in many foreign countries. In addition, over the years, PNJ’s revenue experienced a good growth rate since the company has constantly improved the products’ quality and customer services and also there are an increase in population rate and potential income which are a crucial factor for PNJ’s revenue growth rate. More importantly, the company is considered as a good debt controllers when using debt as a main source to finance but still maintain a high and stable interest coverage ratio. All in all, the sales revenue growth rate is expecteced to up to 25% for the next 5 years (2019-2023) compared to 33% in 2018 despite the underperformed of silver products. Therefore, PNJ need to take action to avoid its influence to the development in the long run.

II.

PNJ Overview: 1. The company description and its history Phu Nhuan Joint Stock company originally named Phu Nhuan Jelwery, Fine Arts and

Currency Exchange which was established in 28/04/1988 by the People Commitee of Phu Nhuan. From the starting point, PNJ’s strategy was to become a dominant company in areas of distributing and selling gemstone and jewelry. The most developed period of PNJ was in 1992 when it decided to invest mainly in professional and modern production line. This period also marked its outstanding performance in building a professional brand not only in Vietnam, but also in other countries as PNJ has exported to foreign markets just after a few years since its founding. Currently, there are 330 retail stores across countries which is a significant factor contributing to a high growth of PNJ’s revenue. In addition, in 12/02/2019, the first flagship store called PNJ Next located at Hai Ba Trung, District 1 to prepare for a dramatic transformation in jewe lry retail, by increasing customer’s experience, affirming the brand and attracting more customers. 2. Gross sale and net income In Vietnam’s gold market, the small gold business is accounted for 80% of the market share and 20% for large enterprises such as Doji, PNJ, SJC, etc while PNJ’s market share constitutes 5,3% out of the whole market. According to 2019 business results, the company’s accumulate profit before tax was up to over 1 trillion VND which was remarkably higher than that in previous year 17.5%. The reason is PNJ witnessed a total revenue growth up to more than 11 trillion VND and also its gross profit was about 2,438 bn, a 25% rise against the previous year. The retail revenue contributes significantly to PNJ’s high profit because of a massive number of retail stores. 3. Number of share outstanding and dividend payment

3

This year, the company decided to issue over 222 million number of outstanding shares in the form of common shares with the price 10,000 VND/share and the first payment in cash for shareholders was 8% of the face value and 33% for bonus share issue. It can be seen that the percentage of cash dividend payment was decrease compared to that in previous year since PNJ retained more earning to reinvest and increase the rate of share issue. By doing so, the company will become more bigger and attract more new investors. 4. Debt and equity structure Another important point is that PNJ increase the demand of using debt to invest in various sectors which leads to a high debt to equity ratio. However, when we look at the percentage debt over its total asset, it is accounted for a reasonable number which around 30% while the use of equity for business activates marked up a high proportion which is over a half of the total asset. Therefore, it can be seen that PNJ prefer using equity to finance than using debt. All in all, PNJ’s performance in 2019 is quite well due to a significant rise in revenue mostly from retailing.

III.

Jewelry Industry Analysis: 1. Describe the industry

PNJ was born at a time the jewelry industry in Vietnam was still young and marketed still hard, and can say in the path of its foundation and improvement, PNJ has turned from "the impossible to be possible" In 1992 when accessible with information and foreign businesses about technology of producing jewelry. In addition, the company has boldly invested in machinery and equipment and sent people to train in the country and for many consecutive years, hiring foreign experts to train at the company PNJ is always the leading jewelry company in the country in terms of output and quality of jewelry PNJ is proud to own prestigious and high-class jewelry brands in Vietnam. 2. Growth of the Industry From a small business store, initially there were only 20 HR and assets were only 7.4 tons of gold, however PNJ has become a large enterprise today. The enterprise has a total asset of nearly 2,000 billion VND, with a staff of nearly 2,000. The person, who owns a large-scale jewelry manufacturing enterprise, is one of three enterprises leading in the field of jewelry and gold in Vietnam, reaching the global standard with technology. Modern, advanced production processes according to ISO 9001-2000 and nearly 1,000 needles.

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Completely skilled, PNJ brand becomes the leading jewelry brand in Vietnam prestigious jewelry brands, able to compete with famous national jewelry brands. In fact, it is distributed throughout the country with a network of nearly 220 stores around Viet Nam.  The comapny jewelry products have also been exported to numerous countries such as European countries, USA, Australia ...In 2007 PNJ ranked in the top 200 by the United Nations Development Program UNDP largest enterprise in Vietnam. It was the traditional PNJ gold jewelry brand launched in the first years establish; PNJ Silver Jewelry was born in 2001; is a luxury jewelry brand CAO Fine Jewelery was established in 2005 and the Phuong Hoang gold bar brand was born since 1991 and was re-launched into Phuong Hoang PNJ - DongA gold bar brand Bank in 2008. PNJ is also the first Vietnamese jewelry exporters to the market internationally. Since 1995 PNJ jewelry products have been present at the Hong Kong jewelry fair and until now PNJ products have been available in Denmark, Germany, the United States and Australia and are starting to enter the Dubai market. 3. Competitive pressures and threats Unlike previous businesses, PNJ did not select the development path how to do business with private companies to take advantage of their strengths. Experience and market that from the earliest starting point the aggregate authority was resolved to manufacture the thing pepper turns into a main undertaking in the Vietnamese gems industry with its very own assets. This is a huge challenge, yet because of that, PNJ has a procedure radical and maintainable advancement. The organization immediately assembled its goldsmith group devoted to the calling, composed professional instructional courses for youth and retired fighters in region as the establishment human asset for the Company and from that point the layers of laborers and artisans PNJ additionally developed with PNJ’s improvement.

IV.

PNJ’s Financial Analysis:

The financial health analysis of PNJ in this report focuses on the period of 2016-2018.

PNJ's Inventory turnover 2016

2017 5

2018

Inventory Turnover

2.5

2.64

2.34

Source: Financial consolidated report of PNJ from 2016 to 2018 In the period from 2016 to 2018, there were many variations in the PNJ's Inventory turnover. The ratio slightly increased by 0.14 in 2017 compared to 2016 which indicated that the company efficiently controlled its inventory management system in the first two years of this period. A good explanation for this was that the company’s store chain expansion with fast speed. PNJ had opened additional 50 stores across Vietnam in 2017 so as to meet the increase in consumption as well as the jewelry market when the bustling shopping season in late 2017 - early 2018. Along with the expanding activities, the company also launched many attractive incentive programs to customers. For example, at the last store opened in 2017, which was the PNJ Center in Luy Ban Bich street, Tan Phu District, Ho Chi Minh City, customers were offered a discount of 2% - 10% as well as if they purchased jewelry from 29/12/2017 – 14/1/2018 (PNJ, 2018). As a result, this caused the slight increase in the PNJ’s inventory turnover. However, the fast expansion of the company’s store chain was also the reason for the decrease in the 2018’s inventory turnover ratio. The expansion required the company to increase its production and maintain a large inventory to fulfil the consumption. Therefore, the amount inventories in 2018 increased sharply which caused lower inventory turnover ratios. PNJ's Capital Structure ratios Total Liabilities

2016 2,087,660,199,49

2017 1,542,697,241,02

2018 2,692,822,128,700

Total Assets

9 3,587,986,910,16

9 4,571,300,159,49

6,437,895,556,604

Debt ratios

3 58.2%

1 33.4%

41.8%

Operating profit

548,093,427,340

901,368,672,577

1,203,646,500,973.0

54,981,032,499 16.4 times

0 61,109,042,390.00 19.79 times

Interest exp Interest coverage ratios

73,196,281,440 7.5 times

Source: Financial consolidated report of PNJ from 2016 to 2018

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Barky (2016) stated that the Debt ratio and Interest coverage ratio are used to analyze the sources of finance of a company. Thereby, the financial health of a company can be evaluated. Generally, the PNJ’s debt ratio had many fluctuations in this period. In 2016, the company witnessed the highest debt ratios due to its high long-term debt account. However, the company had good control in its debt by making the debt repayment in the next two years. This meant PNJ decided to use less percentage of its capital structure on debt during this time. Therefore, the company debt ratio in 2017 and 2018 sharply declined as compared to 2016. Financial health also can be evaluated by using the interest coverage ratio, which is a mean to measure whether the firm has the ability to meet debt’s interest repayment or not. As can be seen, the PNJ’s interest cover ratios tend to be increased gradually in this period. In 2016, the company’s interest ratios were 7.5 which indicated that the company had the ability to pay its total interest expenses by 7.5 times. However, in the next two years, the ratios had two times performance better. There were two main reasons why in 2016 PNJ witnessed the lowest interest coverage ratios. Firstly, the of the world economy variation and the world gold market fluctuations had a great impact on the domestic gold market in Vietnam. Secondly, the world economy recovers slower than expected, global trade growth plummets, affecting our country's economy, the economic growth in 2016 was only 6.21%, lower than 6.68% in 2015. These factors caused the company’s poor operating profit management and high interest expenses. Also, these factors resulted in the company’s strategy of using high percentage of its capital structure on debt in 2016. Consequently, leading to the company’s lowest interest coverage ratios. However, as mentioned before, in 2017 and 2018, there was a markable increase in comparison to 2016. Because PNJ succeeded in controlling its debt during these two years, the interest expenses of the company decreased sharply. Additionally, the whole years economic growth grew as expected was another reason why PNJ’s interest coverage ratios had better performance in 2017 and 2018. In conclusion, although the inventory turnover ratios have complex fluctuation, the Capital Structure ratios of the company still maintain stable, especially the interest coverage ones. This 7

indicates that PNJ has a strong financial health. The company can still afford to pay interest obligations and have less chance to face the possibility of bankruptcy or default.

V.

PNJ’s Financial Forecasts & Valuations

PNJ ends 2018 with impressive sales – VND 14,680 bn in sales which are considered grow 33% compared to 2017. The continuously speedy progress is attributable to the increase in 20% SSSG of gold jewelry retail, particularly, the gross value’s contribution of sixty-one new stores, as well as three hundred and twenty-four, exist stores nationwide. According to the research of TVS in 2019, the main reason for SSSG and margin improvement is the enhanced demand for jewelry products as well as the booming quantity of diamond & gemstone jewelry in the gold store. In 2018, PNJ has launched two subsidiaries including PNJ Production Ltd which focus on wholesales and Customer Era Company Ltd which pays attention to apply high technology and innovation such as big data, online channel, etc. in optimizing marketing & logistics activities. These new companies are

considered as replacements for PNJ labs. On the other hand, the research of TVS about PNJ in 2019 indicates: “Company booked from services a record sale of VND 106.4bn in 2018 (+250% YoY) and enjoyed VND 85bn gross profit (+983% YoY).” Source: Financial consolidated report of PNJ In addition to the remarkable growth of PNJ in 2018, the company is also evaluated to have numerous potential growths in the future, at least the next five years. While the world jewelry demand has decreased suddenly, the thirst for precious stones in Vietnam increased rapidly. According to a recent World Gold Council survey, Vietnamese gold jewelry demand increased at its fastest pace in a decade last year. The VNexpress (2019) also highlighted: “The country's love for the shiny metal outstripped most of the rest of Asia growth-wise, with demand rising 7 percent year-on-year to 16.5 tons, the council said in the report.” Moreover, the GOLDHUB (2019) 8

indicates: “Performance ranged across the spectrum from weak (South Korea and Singapore), to stable/firm (Malaysia, Japan, and Thailand) and strong (Vietnam and Indonesia). The Q1 picture in Vietnam was contrastingly positive: jewelry demand grew 6% y-o-y to 5.4t, the strongest quarter for jewelry demand since Q1 2011.” That is the reason why many pieces of jewelry like PNJ will benefits significantly from new demand. Another factor positively influencing the growth of PNJ is the high growth rate of population and potential income. The research of Vietcombank securities about PNJ in 2017 illustrated: “According to The General Statistics Office, Vietnam's population is growing at an average annual rate of 1.2%, with more than 50% of those of female. Besides, the Vietnamese economy is on the pace of growth which supports per capita income, with an annual compound annual growth rate of

14.2%.” On the other hand, one of the most outstanding targets of the Ministry of Planning and Investment is increasing an average annual economic growth to 7% per year. Therefore, the Vietnamese life standard will be improved continuously in the next five years. Customers have more conditions and interests in luxury products such as jewelry.

Source: PNJ Summary Report of 2018 Business Results

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To meet the increasing demand for jewelry gold, PNJ invests in technology systems and retail stores to approach customers’ needs closely, analyzing customers’ tastes as well as manufacturing flexibly. According to the survey of MBS about PNJ, the company plans to open forty more stores as well as invests in high technology with an estimated investment of $8.3 million in 2019. PNJ is a director Vietnamese jewelry corporation with a market share of 30% as well as a significant store with more than two hundred stores across forty-five provinces. Moreover, one of the most striking features strengths of PNJ great coverage and brand recognizable. On the other hand, taking advantages of much potential Vietnamese jewelry market such as increasing in consume jewelry, the growth of population and try to develop new technology and store, PNJ is expected to growth at least 20-25% in sales in next 5 years (2019-2023) compared to 33% in 2018. Because, the research TVS in 2019 also states: “The only unit that underperformed in 2018 is silver retail, which recorded 0% SSSG and suffered plummeting margin (-380bps YoY to 61.9%).” This disadvantage can influence the sales growth rate of the company in the next five years if PNJ cannot seek any solution for it. PNJ Expected FCF EBIT Less: Taxes NOPAT Plus: Depreciation expense Less: CAPEX Less: Change in NWC Firm FCF

VI.

2018 1,266,659,315,511 249,485,408,708 1,017,173,906,803 234,828,557,069 336,378,415,370 1,877,883,869,672 2,793,507,918,174

2019 1,570,114,431,967 314,022,886,393 1,256,091,545,574 234,828,557,069 454,110,860,750 2,347,354,837,090 3,384,164,078,983

2020 1,962,643,039,959 392,528,607,992 1,570,114,431,967 234,828,557,069 613,049,662,012 2,934,193,546,363 4,126,086,873,387

2021 2,453,303,799,948 490,660,759,990 1,962,643,039,959 234,828,557,069 827,617,043,716 3,667,741,932,953 5,037,596,486,265

Recommendation: 1. Rating

Buy: The PNJ expectation was to provide at least 10 percentag...