- We cut our target price (TP) for PNJ by 48% to VND46,500/share and downgrade our rating from BUY to MARKET PERFORM.
- Our lower TP reflects: (1) a 22% reduction in our aggregate 2026-31F NPAT-MI forecast (12%/30% cuts in 2026F/27F and an average 23% reduction over 2028-31F); (2) a lower terminal growth assumption of 3% (from 5%) to reflect a more moderate long-term growth trajectory; and (3) a 10% incident risk discount to our DCF-derived fair value, reflecting our current limited visibility on the earnings outlook. Following the diamond smuggling investigation involving the former Director of PNJ Laboratory Company Limited (P-Lab), we lower our aggregate 2026-31F retail sales forecast by 6% (10%/13% cuts in 2026F/27F and an average 5% reduction over 2028-31F), reflecting more cautious consumer sentiment toward diamond jewelry and loose diamonds. We also reduce our retail GPM assumptions while raising our SG&A expenses/retail sales (due to higher marketing spending to rebuild customer confidence) and financial expense assumptions (due to higher debt assumptions).
- For 2026F, we forecast 2% YoY retail sales growth and 11% YoY NPAT-MI growth, supported by strong preliminary H1 2026 results, partially offset by weaker H2 2026 performance following the incident. For 2027F, we project retail sales to grow 5% YoY, while expecting NPAT-MI to decline 14% YoY, mainly due to lower retail GPM and higher SG&A expenses/retail sales.
- PNJ currently trades at 7.1x TTM P/E, representing a 52% discount to its 5Y average of 14.9x. We view this valuation discount as justified, given our lower 2025-30F NPAT-MI CAGR forecast of 8% (vs 13% previously) and the current limited visibility on the company's earnings outlook.
- Upside potential: Faster-than-expected consumer confidence recovery. Downside risk: More prolonged consumer sentiment weakness; stronger-than-expected buyback activity.
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