- In this thought piece, we examine the impacts of a new intiative by State-owned commercial banks (SOCBs) on PNJ – the leading Vietnamese jewelry retailer. Starting from June 3, 2024, SOCBs directly sold gold bars under the brand of Saigon Jewelry Company Limited (SJC, Vietnam's leading State-owned gold and gold jewelry producer and distributor), referred to as ‘SJC gold bars’, to individual customers. Results during the initial days of implementation suggest this initiative has been successful in reducing the premium between the SJC gold bar price and the international gold price. This gap was reduced to only 10% on June 7, 2024 (close to the 17Y average of 7%) from the average of 24% from May 27-31, 2024. While successful initially, the initiative relies on the availability of gold reserves held by the State Bank of Vietnam (SBV). We thus think that this initiative is more a temporary solution rather than a sustainable one.

- We believe that revisions to Decree 24 on gold business activities are necessary for a more sustainable solution for Vietnam’s gold market in the long term. Decree 24, implemented since 2012, established a monopoly on gold bar production for SJC and import/export of gold for the SBV. While the decree successfully addressed the gold market issues in 2012, we believe that it has caused two significant issues including (1) domestic gold supply scarcity and (2) a widening price gap between domestic and global gold as well as between SJC gold bars and non-SJC gold bars in Vietnam. Some of the suggested revisions include (1) dismantling the monopoly currently held by SJC in gold bar production and permitting qualified businesses to produce gold bars, and (2) permitting companies to import gold bullion. We believe these proposals could address the fundamental constraints on the domestic market (domestic gold supply scarcity and wide price gaps) if they are approved for implementation. The regulators have not yet provided any clear directions to amend the decree.

- However, we anticipate no material impact from the direct SJC gold bar sales by SOCBs on PNJ’s profitability. The retail segment has been the main contributor of PNJ’s gross profit, accounting for 96% of PNJ’s gross profit on average over the past three years. In addition, there is no causal relationship between gold prices and PNJ’s retail profit margins. Retail prices for fashion jewelry are determined not only by raw material costs but also by brand equity, design, and value-added services. Although raw gold materials account for approximately 50% of PNJ’s total COGS (per PNJ), PNJ's retail GPM has remained stable over the years due to its strong pricing power. Additionally, PNJ’s regular accumulation of gold inventory on a daily basis helps stabilize its gold raw material cost base.

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