May 25, 2016
Mobile World Investment Corp (MWG) [BUY +42.1%] Update Report
We reiterate BUY on MWG. Apart from its dominant brick-and-mortar model, MWG has established an excellent omni-channel that allows its online sales to thrive in a highly potential but tough-to-win e-commerce sector in Vietnam. These are sustaining high growth yet MWG is trading at an undemanding valuation of FY16 PER of 6.8x.
Growth remains admirably elevated on solid SSSG, online sales and new store openings. Q1 2016 net revenues and NPAT grew by 75% and 80% respectively vs Q1 2015. This is driven by a 10% SSSG, doubled online sales and, to a larger extent, contribution from the stores opened last year and Q1 2016. Seasonality played a role in this robust SSSG as Tet holiday came two weeks early this year. Sales typically peak a month before and after Tet holiday according to MWG.
We increase FY16F sales by 4% on faster-than-expected store expansion. Thegioididong store count alone has reached 740, rendering management’s initial guidance of 680 Thegioididong by YE2016 completely outdated. As such, we added another 120 Thegioididong stores to our projection, bringing the target store count to 800 by YE2016 while maintaining our store target for DienmayXANH at 120. Our FY16 sales forecast improved 4% accordingly vs our previous update.
Wider GPM, offset by higher cash bonus expense, will push FY16F NPAT 7% higher. Q1 2016 GPM reached a multiyear high of 16.5% on the back of greater scale, direct purchase from Apple and robust accessories sales. DienmayXANH’s GPM already enhanced to 15% in Q1 2016 in our estimates, a similar level to Thegioididong’s in 2015. On the other hand, G&A expenses related to cash bonuses to employees in exchange for the ESOP reduction came in ahead of our previous projection. Management suggested that such cash bonuses might reach as high as VND300 billion (USD13 million) this year compared to the VND200 billion (USD9 million) previously guided. Our FY16F NPAT is therefore revised up 7%, translating into a growth of 52% vs FY15.
MWG is becoming an e-commerce powerhouse. MWG’s B2C omni-channel solves the biggest issues that prevent consumers from shopping online in Vietnam: trust, delivery and payment. Trust derives from MWG being a top-of-mind mobile retailer, delivery is easier for MWG than others thanks to its extensive store network serving as delivery hubs, and finally, cash-on-delivery is comfortably accepted. Added onto that is top class services including call center, online consulting and installation. MWG now has one of the largest e-commerce platforms in terms of revenue, which is targeted to double every year by management. This will ensure MWG to be at the forefront to benefit instead of suffering once a strong shift from offline to online shopping happens.
I, Thanh Duong, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.
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