June 22, 2016
Disclaimer: The opinions expressed herein are that of HSC Securities and not of VietnamAdvisors. This is NOT a solicitation to buy or sell securities
- MWG YTD numbers exceed expectations fulfilling 48% and 50% of the full year sales and net profit targets respectively.
- Performance driven by aggressive new store opening primarily with 215 new mobile stores and 30 new electronics stores opened.
- Green grocery concept chain stands at 15 shops but few financial details shared to date.
- HSC forecast calls for net profit of VND1,575 billion (+46.4% y/y).
- Valuations look very reasonable given the strong growth seen. However long term growth will depend on the current greengrocery concept
- chain. Reiterate Outperform.
MWG shows strong first 5 months numbers. Reiterate Outperform
MAIN TAKEAWAY – NPAT up 80% driven by an aggressive pace of new store opening and same store sales growth for both formats. HSC looks for FY2016 NPAT of 46.4% y/y. The existing formats appear to have another year or two of growth left. Thereafter much will depend on the greengrocer chain concept where they have opened some stores in order to test the market.
ACTION – Reiterate Outperform. Valuations not that cheap but still justified by strong growth. FOL is full alas. However blocks do become available from time to time.
Mobile World Group (MWG – Outperform) shows first 5 month numbers running above target – the leading mobile and consumer electronic retail chain reported very strong 5-month earnings with sales coming at VND16,240 billion (+80% y/y) and net profit reported at VND700 billion (+86% y/y). Fulfilling 48% and 50% of the full year sales and net profit targets respectively. These numbers were driven by a combination of new store openings and strong existing store sales.
Both formats adding new stores at a very aggressive pace still – In the first 5 month of FY2016, MWG opened 215 new mobile stores and 30 new electronics stores opened, bringing the mobile chain store count to 779 (+85% y/y) and that of the electronics chain to 99 (+312.5% y/y).
While same store sales growth is growing at around 10% y/y – Then same store sale growth came to around 9% – 10% for both the mobile and consumer electronic retail chains.
HSC looks for FY2016 NPAT of 46.4% y/y – For FY2016, we forecast MWG will report sales of VND37,455 billion (+48.3% y/y) and net profit of VND1,575 billion (+46.4% y/y). Thus generating an EPS of VND9,336 leading to a forward P/E valuation of 11.5xs. Our forecast bases on following assumptions:
1. We assume that MW will grow to 900 stores (+60% y/y) and CE will grow to 130 stores (+88.4% y/y) by year-end, i.e. this means that 336 new MW stores and 61 new CE stores will open during FY2016.
2. We assume SSS growth of 5% for the mobile chain and then 10% for the consumer electronics chain (slowing from last year).
3. We estimate GP will come to VND5,847 billion and grow by 49.07% y/y. Also assume overall GPM will increase from 15.53% to 15.61%; flat at 15.5% for MW and then increase marginally for CE from 15.3% to 15.65%.
4. We project net financial income will decrease by 36.0% to VND25.8 billion given financial income of VND105.4 billion (+30.14% y/y) and financial expenses of VND79.6 billion (+95.7% y/y). The change because of MWG’s sales mix changes with CE contribution increases from 17.7% in FY2015 to 22% in FY2016. We also assume day’s payable of 28.1 vs. 25.5 in FY2015.
5. We then estimate SG&A will come to 10.4% of sales vs. 10.3% in FY2015.
MWG has now opened 15 greengrocer stores – MWG has opened 15 greengrocer stores with an average shop size of 250 sqm since 2-H FY2015. Majoring in everyday products especially fresh fruit and vegetables. So far all of these stores have been located in major roads in the Binh Tan and Tan Phu districts in HCMC. MWH has released very little information about how things are going except to say that progress is as expected. We think that they will make a final decision on the viability (and therefore ramp up potential of the concept next year.
Investment thesis – Reiterate Outperform. Valuations look very reasonable given the strong growth seen. The continued expansion of SSS in the mobile chain is both welcome and surprising given the growing maturity of this business and suggests that a new mobile replacement cycle has begun. MWG’s leading mobile models in FY2015 and Q1 FY2016 include IPhone 6, IPhone 6s and Samsung Galaxy A series. However we view this format as being fully optimized and close to sustainable levels already with perhaps 6-12 months of growth left. Then on the consumer electronic side things are going well as we expected. This chain likely has another 2-3 years’ worth of sustainable expansion left in it with some room to expand GPM further also. However long term growth will depend on the current greengrocery concept chain working out for them. They have been rather tightlipped to date however we understand that the experiment is on track at the moment. If they manage to get proof of concept and then ramp things up from perhaps next year this would greatly enhance long term growth prospects.