Unlike May and early June, PNJ shares of PhuNhuan Jewelry fell considerably in price recently despite a good business performance. 

PNJ share prices fell from VND130,000 per share in late June to VND113,000. Analysts believe that the prices may fall further because of negative predictions about the retail industry in general and jewelry retail in particular.

According to SSI Research, high inflation will negatively affect consumer spending and therefore the growth rates of retailers may not be as high as expected. DigiWorld (DGW) and FPT Retail (FRT) reached their peaks in Q4 2021, while PNJ is believed to reach its peak in Q3 2022.

The share prices of many retailers have been falling since early this month, causing the market capitalization value to decrease sharply.

As of July 15, the capitalization value of TheGioiDiDong (MWG) and Masan (which owns WinMart) has dropped to a one-year low.

Just within half a month, TheGioiDiDong’s capitalization value lost VND15 trillion and a similar decrease was reported for Masan, or 10-14 percent. Meanwhile, FPT Retail owned by Truong Gia Binh dropped more sharply, by nearly 20 percent.

PNJ’s capitalization value lost VND3.6 trillion, or 12 percent, within two weeks, though the business reported a sharp increase in profit in May to VND141 billion, up 66 percent over the same period last year. Its revenue also increased sharply by 68 percent compared with May 2021.

Leading retailers in the stock market continue to make a breakthrough in their business amid the purchasing power decrease. This reflects the recovery of demand after Covid-19.The increase in selling price (such as gold) and efforts to expand retail networks helped to increase retailers’ revenue and profits.

The recent decline in retail share prices, which was sharper than the decrease of the whole stock market, shows a negative outlook about these shares.

For MWG and FRT, the growth space for home appliance retail is small, while laptops no longer are selling as well as they did during the pandemic. At that time, many people rushed to buy laptops for online work and study.

However, according to SSI Research, inflation may continue to increase in upcoming quarters, which will affect businesses, including retailers, but leading retailers will still have long-term stable growth thanks to market share expansion.

In theory, high inflation will affect purchasing power and force consumers to cut expenses on non-essential goods. In Vietnam, this has occurred since Q2 2022.

In terms of ICT&CE (information communication technology and consumer electronics), Digiworld showed a net profit growth of 20 percent only in Q2, which was much lower than the 97 percent in Q1.

As for Mobile World, the revenue growth rate of ICT&CE in May was 2 percent, much lower than the growth rate of 20-22 percent in January-April 2022. It is expected that the growth rate in H2 2022 will be higher than H1 because of the low levels in H2 2021.

In terms of jewelry retail, though inflation may affect demand in H2 2022, businesses will still get benefits from the recovery after Covid-19 because of the low comparative low levels in H2 2021 caused by social distancing.

High inflation and recession would have a negative impact on spending on non-essential goods. Low-income earners would be the first to suffer, while spending on non-essential goods of high income earners would still be stable. 

However, analysts said if the inflation and recession last a long time the spending of high income earners would also be impacted.

In such circumstances, raising capital would be a factor to support retailers because the money could be used for expansion in the future, or for  reduction of D/E (debt to equity ratio) to lower levels amid interest rate hikes.

In the time to come, retailers may also be affected by changes of policies. The demand for mobile phones may increase if the Government decides to deploy 5G technology, or stop 2G. The deployment has been delayed because of the lack of policies.

In addition, the changes in ENT (economic needs test) policy may affect the network expansion plans of foreign retailers (7-eleven, Family Mart, Circle K).

Manh Ha