pnj phu nhuan jewelry joint stock company

Students: Hoang Thị Minh Chau - 1904000018 Trình Huyen Thuong - 1904000109 Nguyen Minh Ngoc Giang - 1904000032 Nguyen Bui Nam Phuong - 1904010085

EXECUTIVE SUMMARY

To understand the value and potential of a business, investors and also the others must rely on the company’s financial statements over the past years These financial analyses will help assess the company’s overall situation if they have the potential for bankruptcy or growth potential Moreover, it evaluates PNJ's performance Simultaneously, the analysis of the financial statements is also a good choice to help investors perceive the business and make investment decisions

In this paper, our group will analyze the financial statement of PNJ Company over the last five years by using financial ratio analysis and estimate the value of the company using free cash flow Based on the trend ratio analysis, it evaluates the performance of the company and finds out the strengths and weaknesses of PNJ In addition, PNJ Company will be assessed through the intrinsic valuation model based on the free cash flow and the average growth rate over the last 5 years We will provide some recommendations to the investor on whether they should invest or not and to the CFO to adjust the company performance.

TABLE OF CONTENT

TL TNTRODUCTION SH 2111111 111 tt TH HH Hà ru 3 "` ‹ ẽaa 3 Pa 0 5 an 3 3 The main business of the firm ố Ố 4 PART 1: FINANCIALINFORMATION - chớ 4 L EINANCIALSTATEMENTS ANALYSIS à Hee 4 MAI ắắắnẶỈ] 4 PAN W0) (Ti, ho 5 KH) a5 7 Il — STRENGTH AND WEAKNESS nh ưu 8 IS") ha 8 PL ` 9 HI SUGGESTION 2 2 HH HH HH nay 9 I).302A2⁄.9000.4009) 005 10 L INTRINSIC VALUE OF FIRM 2.22122111221201 Ho Ha 10 1 Free cash no 10 PAMNVdvr (la aaoẽăaỪỀ® 10 3 Weighted average cost of capital (WACC) ch 1x ve 11 a Market value of debt ố ố 11 b WACC (table 5 — Appendix A) cc eeccccescescnsessececeseesesessessessceesesseseens 11 Intrinsic value of FIM ce eecceceeceneeeeeseneeseceneeaceeeeeeteeteeetteeteeseetaeeas 12 Intrinsic value oŸ equÏfy -.- cành HH HH HH HH Hành rệt 12 H — RECOMMENDATIONS Q2 SH Hà 13 II Lào ẽẽ 13 2 FOr CEO ẢỶ 14 APPENDICES 0c ceceeeteneescneeseeesenecseneceeseseeseseeeecenssseesesenseseeeceessenieeaeeseenteas 15 3309.401000 21

I INTRODUCTION 1 Background

PNJ was established in 1988, the company has become the leading jewelry manufacturer and one of the top 3 retailers in Asia, with more than 350 retail stores nationwide The enterprise has matured and affirmed its international position after many years of efforts to revive and develop the jewelry industry, making a strong impression with a series of sophisticated masterpieces simulating the beauty of cultural and national, Vietnamese identity with the world-leading level of manufacturing

The Board of Director:

Name Position Number of Shares « Mrs Cao Thi Ngoc Dung Chairwoman 11,384,018 » Mr Lê Trí Thông CEO - Vice Chairman 640,566

« Mr Nguyễn Tuần Hải Member of BOD N/A ¢ Mrs Huynh Thi Xuân Liên Member of BOD 62,000 * Mrs Tran Phuong Ngoc Thao Member of BOD 5,766,400 + Mrs Tiéu Yén Trinh Member of BOD N/A * Mr Lé Quang Phuc Member of BOD 32,000

3 The main business of the firm

PNJ Company also has many different main business fields such as Producing and trading Jewelry, fashion accessories, souvenirs, Trading watches and gold bars, Diamond, precious stones & precious metal inspection services, Trading in real estate

PART 1: FINANCIAL INFORMATION

1L FINANCIAL STATEMENTS ANALYSIS 1 Trending and Analysis

—@=—=CURRENT RATIO —@= QUICK RAT INVENTORY TURNOVER —e—PROFIT MARGIN —@e=—ROA —@—=ROE

Figure 1: The key financial ratio of PNJ in 5 years (2016-2020) (Table 2 — Appendix A)

The linear graph above describes the trend of six key financial ratios among 5 different categories According to the chart, ROA and ROE have had a strong variation over the last 5 years First, ROA reached a peak of 17.94x showing that PNJ had great management in using its assets to generate profits Then the index slowly decreases to a point of 12.52, which means that PNJ has not used its activities effectively Second, the ROE ratio reached its peak in 2017 and then decreased to 21.78x in 2020, demonstrating that using the equity of PNJ to create profitability is less efficient leading to receiving low assessing from investors Thirdly, it can be seen that both the Current Ratio and Quick Ratio fluctuate in the same direction over the past 5 years The Current Ratio and Quick Ratio reached the highest point of 2.62 and 0.33 respectively in 2017, showing that PNJ still has the capacity of paying its short-term debt By 2020, these two indicators decrease

to the point of 2.21 and 0.19 There is a decrease in the Inventory Turnover from 2016 to 2020 The decrease in this index shows that PNJ has low performance in the sale of stocks or even could be overstocking Finally, the profit margin steadily increases from 2016 to 2019, which shows that PNJ has a stable performance by generating each VND of sales to create a profit

2 Comparative analysis

Ratio Formula Company | Industry | Comment Liquidity ratio

Current Asset Current ratio Current Liabilities 2.21x 1.62x High

Current Asset — Inventory Quick ratio ~~ Liabilities Current - 0.19x 0.1x High Asset Management

ratio

COGS

Inventory Turnover | Begininventory+ End inventory] 2.07x 3.23x Low

2 Sales

Total asset turnover Total Assets 2.05x 2.62x Low Debt Management

Low Total

Net Income 0 ° ROE Total Common Equity 21.78% 10.03%, High Market Value ratio

Pri h

P/E Earning per share —— 1879 | 4615 | Low

PNJ’s inventory turnover (2.07x) was lower than the industry average (3.23x) It shows that the time for selling goods of PNJ is slow, and many inventories remain Moreover, the total asset turnover of PNJ was quite poorer than the ratio of industry, at 2.05x and 2.62x in turn

Debt management ratio:

The debt ratio of PNJ at that time was much poorer than the debt ratio of the Jewelry industry (PNJ: 38.21%, industry: 78,79%) It indicates that in 2020, PNJ had less riskiness than industry

Profitability ratio:

It has four ratios that indicate the strength of PNJ in 2020 Regarding operating margin, the ratio of PNJ was quite large with 7.70% and three times as high as the industry operating margin ratio with 2.56% Overall, PNJ in 2020 with higher operating levels outperforming the industry average also showed certain competitive advantages and how much operating profit PNJ got after deducting all costs for production activities such as selling expenses, general management expenses, and so on Next, the profit margin of PNJ was also as efficient as the industry average, at 6.11% and 2.04% in tum It means that with the high operating, PNJ’s businesses not only expanded profit margins but also controlled related operating costs Besides, in 2020, PNJ’s ROA reached 12.52%, PNJ’s ROE reached 21.78% which is much higher than the industry average (5.35% of ROA and 10.03% of ROE) Therefore, a higher ROA indicates that PNJ used assets efficiently and optimally on the available resources When PNJ’s ROE is larger, PNJ had used the capital invested by shareholders more effectively

Market value ratios:

In the category of market value ratio, the 18.79 of PNJ’s P/E ratio was much smaller than the 46.15 of industry’s P/E ratio With the higher ROE, ROA but poor P/E, PNJ was evaluated as an efficient business but underpriced The market to book (M/B) ratio of PNJ was a little bit lower than the industry average, at 3.51 and 4.45 in turn

aeg=ROE PN) 9 ange ROE Industry

Figure 2: ROE of PNJ and the average industry

As can be seen from the table above, PNJ Joint Stock Company’s ROE witnessed a considerable decrease from 32.83% to 27.10% over the period 2016-2017 while ROE of the jewelry industry strongly increased from 7.45% to 10.25% In 2018, PNJ’s ROE experienced an increase of 30.02%, followed by a slight decrease in 2019 (29.82%) Then, in 2020, ROE continued to fall greatly (21.78%) About ROE of the jewelry industry, it was unexpectedly poorer than ROE of PNJ over the period 2016-2020 It was poorest in 2016 at 7.45% However, it experienced the highest rates in 2017 and 2020 with 10.25% and 10.03% respectively

It can be said clearly that because the COVID-19 pandemic over the period 2019-2020 evolved broadly around the world affecting the economies and trade between countries and religions, PNJ’s business witnessed a consecutive decline over the years, especially in 2019 and 2020 as mentioned above Nevertheless, PNJ witnessed an amazingly higher

ROE ratio than the average industry during the COVID-19, or even the period of five years It is proved that PNJ still operated effectively compared to the jewelry industry II STRENGTH AND WEAKNESS

1 Strength

Regarding the strength of PNJ firstly is indicated by liquidity ratio including current ratio and quick ratio Current ratio is to measure a company's ability to pay its costs and make payments in the near future and is calculated by the company's current assets over its current liabilities As you can see from the comparative table, PNJ’s current ratio was quite high and it dominated the industry; so, the larger the asset level of the company, the greater the ability to pay debts without mobilized external capital That would make sense when the debt ratio of PNJ was less than the industry’s debt ratio It means that PNJ company is less risky than the different companies in the jewelry industry because of the great ability to pay debt and the debts are also few Moreover, combined with the current ratio, the quick ratio indicates an enterprise's ability to mobilize working assets to pay off its short-term debts immediately Although this ratio of PNJ was stronger than the industry but it was less than 0.5, it means that the company is in the difficult situation of finance However, its ability to pay debt was still appreciated over other companies in the industry Secondly, the higher the PNJ’s ROE was, the more effective the company used the shareholders' capital It means that the company had harmoniously balanced shareholder capital with borrowed capital to exploit its competitive advantage in the process of capital mobilization, scaling up So the higher the ROE, the more attractive the stocks are In addition, a high ROE of PNJ in 5 years maintained shows the competitive advantage of businesses, businesses with competitive capacity, highly competitive advantage, or monopoly often have a very high ROE Thirdly, another strength of the company is indicated by the rate of return on total assets or on average how many dong of profit will be generated (ROA) Although in 2020, ROA ratio was the poorest in the period of 5 years (2016-2020) due to COVID-19 pandemic but stronger than the whole industry and the previous years were maintained at a high level

2 Weakness

Besides the strengths, PNJ also has negative aspects such as asset management ratio and market value ratio First of all, the time businesses sell their products slowly and their inventories remain too much because the inventory turnover ratio was lower than the industry PNJ’s business operation was not efficient, especially controlling the inventory Next, the low total asset turnover of PNJ indicated that the company was generating less revenue per unit of asset value Although the company used assets efficiently but revenue the company received was not positive Then, the low P/E and M/B means that the company’s stock was undervalued; so, this also made investors reduce expectations for a growth in stocks and not attracted investors any more

Il SUGGESTION

In 2020, PNJ faced difficulties and one of the weaknesses I want to give some suggestions or recommendations for PNJ to improve is P/E ratio The P/E ratio (Price to Earnings ratio) is a ratio that illustrates the amount an investor expects to invest in a company to receive one dollar from that company's earnings A low P/E of PNJ in 2020 showed that the stock is undervalued and that PNJ was having financial and business problems Firstly, I think PNJ should concentrate on the growth in earnings and sales because it is one of the most important factors driving P/E ratio The market is always interested in companies that can grow their sales and profits quickly Secondly, the factor also drives higher P/E ratio for stocks is ROE and return on capital employed The final P/E will be determined by ROE and return on capital employed Generally, companies with a large debt and equity tend to have a lower ROE and lead to a low P/E ratio But in 2020, PNJ was having a low debt ratio (low risky) and a high ROE ratio; therefore, I think PNJ should maintain this ratio to increase P/E

PART 2: VALUATION

I, INTRINSIC VALUE OF FIRM 1 Free cash flow

When calculating free cash flows, we frequently use the formula:

FCF = [EBIT (1-T) + Depreciation and amortization] - [Capital expenditures + NOWC]

From the result as revealed in the table 3 — Appendix A, during the period from 2016 to 2020, the free cash flow of PNJ is inconsistent FCF of PNJ notices a significant increase from 2016 to 2017 Then, PNJ's FCF faced a massive decline between 2018 and 2019 ( decrease from 13.7 billion VND to negative 209.3 billion VND) It has considerably resulted from the rise of about 161 billion VND of capital expenditures in these years In the next two years, it shows signs that PNJ has limited the cash used to purchase new fixed assets recently Therefore, the FCF of PNJ has recovered and rapid growth in 2020 2 Average grow rate

As can be seen from the appendix, the free cash flow shows that PNJ has a negative number from 2016 to 2019 and in 2020 tend to increase from 2020 which means PNJ’s financial situation is not as bad as the previous FCF might suggest PNJ's FCF witnessed a significant decrease in the 2019-2020 period (FCF growth rate decreased significantly from 16.80% to 3.14%) That is the result of a reduction of nearly 197 investment costs in these years But instead, invest heavily in the expansion of market share, which can lead to future growth As a result, we will calculate the growth rate based on the gross revenue:

Gross revenue this year Growth rate =

Gross revenue last year (table 4 — Appendix A) When calculating, we have a below table