Downgrading to Reduce on earnings cuts & uncertainty

P-Lab incident: Trust shock contained, but brand repair will take time

Director of P-Lab, PNJ subsidiary, implicated in diamond smuggling ring

On 2 July 2026, Thanh Hoa police today announced the dismantling of a transnational diamond smuggling ring run by foreign nationals, charging 22 individuals and seizing 1,100 diamonds. Since 2024, the ring allegedly smuggled over 28,000 diamonds into Vietnam. Among those charged is Dang Ngoc Thao, Director of P-Lab, which is PNJ's wholly-owned subsidiary majoring testing and examining diamonds. Thảo allegedly bought smuggled diamonds whose specs deviated from their GIA certificates, removed the GIA inscriptions, and re-certified the stones under P-Lab codes for personal profit, in breach of rules barring an independent appraisal unit from trading in products it certifies.

Management call: No exposure to smuggled diamonds; sell-back pressure easing

PNJ held the call with analysts and investors on 6 July 2026. The meeting was joined by Chairwoman Cao Thi Ngoc Dung and senior management, including CEO Phan Quoc Cong and Vice Chairman Le Tri Thong. Key updates focused on the P-Lab incident, customer response, governance remediation and preliminary 2Q26 performance.

PNJ framed the incident as an individual case under investigation

PNJ reiterated that the incident relates to the alleged conduct of Mr. Dang Ngoc Thao, former CEO of P-Lab, and is being handled by competent authorities. Management will not comment beyond publicly disclosed information but acknowledged the impact on stakeholder trust and has initiated a review of P-Lab’s governance and operating procedures.

Customer sell-back activity appears to be normalizing

PNJ recorded a higher-than-usual number of customers selling back diamond products on 3 July. This fell to around 50% of the first-day level on 4 July and around 30% on 5 July. Management also noted that some customers subsequently switched into other PNJ products.

Management asserted no exposure to the 28,000 diamonds under investigation

PNJ stated that these diamonds did not enter its retail system. Management noted that PNJ imports diamonds through official channels, does not purchase loose diamonds from the domestic market, and that P-Lab has no mandate to trade diamonds. The relationship between PNJ and P-Lab is limited to testing services, with no diamond trading between the two entities. This is broadly consistent with P-Lab’s registered business scope, which lists technical testing and analysis, including diamond and gemstone appraisal services, as its principal activity, with no diamond trading business line identified.

P-Lab certificates are technical reports, not provenance certificates

Management clarified that P-Lab provides grading/testing reports based on the condition of the stone at the time of examination. These reports do not represent commercial valuation and do not certify origin, provenance, ownership history or legal circulation history.

Governance remediation is underway. PNJ’s Board has launched a comprehensive review of P-Lab’s governance and operating procedures. Internal Audit has also established a special task force to review internal control implementation, while PNJ is considering engaging independent experts to advise on further governance improvements.

Preliminary Q2/2026 performance remains on track

PNJ indicated that 2Q26 revenue and NPAT both recorded double-digit growth, while retail jewelry sales remained positive. GPM stayed broadly in line with the company’s target. Management maintained the 2026 business plan approved at the AGM, supported by the upcoming peak season in 4Q26.

Diamond inventory increased temporarily but remains manageable

PNJ has incorporated the higher diamond inventory from customer buybacks into its 3Q-4Q rolling forecast and plans to use it for production and year-end collections.

Share buyback remains an option, not a commitment

PNJ noted that treasury share buyback is an available tool, subject to Board review, market conditions and regulatory compliance. Chairwoman Cao Thi Ngoc Dung also said family members and insiders may consider buying PNJ shares, subject to required disclosure procedures.

HSC view: Brand damage likely to weigh on earnings beyond the near term

We believe the reputational fallout will take considerable time to repair, implying sustained damage to both brand equity and earnings. The impact is likely to manifest through three channels:

(1) Diamond revenue under pressure. Weakened customer confidence should translate into a significant near-term decline in diamond product sales, which carry above-average margins within the retail mix. Diamond-related products account for ~30% of retail revenue, hence a 50% decline would shave ~15% off in retail revenue.

(2) Margin compression from demand-stimulus efforts. To restore footfall and defend market share, PNJ will likely need to step up promotional activity. This implies either elevated SG&A expenses or gross margin dilution, depending on whether incentives are booked as marketing spend or price discounts.

(3) Rising inventories and interest expense from customer sellbacks. Customer sell-back activity should inflate inventories, requiring incremental debt to fund repurchases. Higher borrowings would in turn lift interest expenses, adding further pressure on net earnings. Furthermore, prolonged holding of elevated diamond inventory raises devaluation risk and the potential need for inventory provisions.

New estimates: Cutting FY26-28F net profit by 26% on average

We cut our FY26-28F forecasts by 26% on average to reflect the three transmission channels outlined above. For FY26, we cut net sales by 6.7% to VND47,193bn (up 34.9% y/y) and net profit by 13.8% to VND3,256bn (up 15.1% y/y).

Revenue. We lower net sales by 6.7%/11.1%/15.4% for FY26/27/28F, driven primarily by the retail segment, where we cut forecasts by 11.5%/17.6%/22.5%. The widening revision profile reflects our view that brand damage will take time to repair, with confidence in diamond products recovering only gradually rather than rebounding in a single year.

Margins. We trim gross margin assumptions by 0.1ppt/1.9ppt/1.7ppt to 18.7%/16.7%/17.2% for FY26/27/28F. Notably, FY27F bears the deepest net margin cut (-1.8ppt to 5.7%), and the pressure sits almost entirely at the gross margin line rather than SG&A: we expect deeper price incentives and an unfavorable mix shift away from high-margin diamond products to peak in 2027, as PNJ works through the demand recovery phase. FY26F gross margin is largely protected as the incident only affects roughly half of the year. On operating expenses, we lift FY26F SG&A/sales by 0.4ppt to 9.9% on higher promotional spending, before normalizing to 9.3%/9.2% in FY27/28F as marketing intensity eases. Combined, our net margin assumptions fall by 0.6ppt/1.8ppt/1.6ppt to 6.9%/5.7%/6.2%.

Inventories and provisioning. Customer sell-back activity lifts our inventory forecasts by 6.4%/5.3%/1.5% to VND19,172bn/21,081bn/22,378bn for FY26/27/28F. As repurchased diamond stock is held over an extended period, we now factor in materially higher inventory devaluation provisions - most notably VND263bn in FY27F (vs. VND56bn previously), booked in COGS - before easing to VND95bn in FY28F as inventory is absorbed into production and collections.

Financing costs. We assume PNJ funds the repurchases largely with debt, raising our debt forecasts by 34.8%/44.4%/45.0% for FY26/27/28F. Interest expenses accordingly rise sharply across the forecast horizon (+87.5%/+121.8%/+129.8%), adding a further drag below the operating line.

Downgrading to Reduce with TP of VND46,700

We maintain our DCF methodology to value PNJ. We now apply a WACC of 12.9%, up from 12.0% in our previous update, as we add a 1.0% company-specific premium to reflect legal uncertainties around the ongoing investigation. This lifts our equity risk premium to 9.75% (from 8.75% previously), while other assumptions remain unchanged: a risk-free rate of 4.0%, a beta of 1.0x, and a terminal growth rate of 3.0%. These inputs yield a DCF-based fair value of VND46,679 per share. With a potential downside of 8%, we downgrade PNJ to Reduce.

Given the subjectivity of the company-specific premium, we present fair value sensitivity across a 0-2.0% range: each 0.5ppt increase reduces fair value by roughly 4-5%, from VND51,849 with no premium to VND42,368 at 2.0%. We intend to review, and potentially remove, the premium upon case closure or formal confirmation that PNJ has no wider exposure. Removal of the premium would imply roughly 11% upside to our base-case valuation, all else equal.

Valuation context

Down 22% in the past 3M, PNJ is now trading on a 1Y rolling fwd. P/E of 9.9x (based on our new earnings estimates), 1.3 SDs below its average of 12.2x (based on data since Jan-21). Meanwhile, on a FY26 P/E of 9.4x, PNJ is 15% below its peers’ average of 11.1x.

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