PNJ highly valued despite Dong A Bank fraud case

PNJ highly valued despite Dong A Bank fraud case

In its latest monthly report, Vietnam Opportunity Fund of VinaCapital dedicated an entire section to Phu Nhuan Jewelry JSC (PNJ). The fund summarised the recent scandal that PNJ went through, then emphasised that the jeweller has delivered strong business results in 2018 so far, adding that the stock is undervalued following the recent price drop.

“Our suggestion to PNJ is that senior management purchase shares on the open market or that the company implement a share buyback, as we think the stock is undervalued and such moves would be a vote of confidence in the company’s future,” said VinaCapital.

PNJ is the fifth-largest equity investment of Vietnam Opportunity Fund, taking up 5.5 per cent of the fund’s portfolio as of June 30.

The reason for this special mention is that PNJ, ranked among the 30 biggest stocks on the Ho Chi Minh City Stock Exchange, has been through a tough quarter. Its stock price has fallen by 40 per cent since April, when Tran Phuong Binh, husband of PNJ’s chairwoman Cao Thi Ngoc Dung, was prosecuted for a $150 million fraud case at Dong A Bank.

Specifically, Binh was accused of faking Dung’s signature to buy shares in Dong A Bank without any cash disbursement. At the same time, Nguyen Thi Cuc, former board member and deputy CEO at PNJ, was also prosecuted for her wrongdoings as head of the supervisory board at Dong A Bank.

When the news broke, Dung had to quickly assure shareholders, including Dragon Capital and VinaCapital, that PNJ is not related to any crimes committed at Dong A Bank, and she has been ruled innocent by the court. According to Dung, business will go on as usual at PNJ, and she expressed her faith in the jeweller’s future.

It seems that market observers agreed with Dung, as they noted that the Dong A Bank saga only affected investors’ sentiments in the short term, and most expressed optimism about PNJ’s business potential. Due to the dramatic price decline, the valuation of PNJ is also lower than the market average at 15x, adding to the stock’s appeal for long-term investors.

“We still maintain our viewpoint that PNJ will not be significantly affected by what happened at Dong A Bank. The stock is currently very attractive, as its price-per-earnings ratio in 2018 and 2019 is 16x and 13.2x, respectively,” Viet Capital Securities noted.

In the first half of 2018, revenue at PNJ reached VND3.2 trillion ($141.6 million), up by 37 per cent on-year. Gross profit also rose by 46 per cent on-year to stand at VND583 billion ($25.8 million).

The most significant risk to PNJ’s growth is increasing competition, said researchers at VP Bank Securities. The biggest competitor to watch out for is Ben Thanh Jewelry, which competes in the same segment and counts Mekong Capital, former major investor at PNJ, as its strategic partner. With $7.6 million of backing from Mekong Capital, Ben Thanh Jewelry has announced plans to open 106 stores for its Precita brand by 2020.