MWG posted positive FY 19 results, with revenue reaching VND102,174 bn (18% yoy), 2% higher than our forecast, and profit after tax reaching VND3,836 bn (+33% yoy), 1% lower than our forecast. Accounting for 82.5% of MWG’s revenue were smartphones (43%) and electronics (39.5%), which are still the main contributors, although foods, FMCG and others have increased their percentiles to 17.5% in 2019 from 10% in 2018.
MWG posted positive FY 19 results, with revenue reaching VND102,174 bn (18% yoy), 2% higher than our forecast, and profit after tax reaching VND3,836 bn (+33% yoy), 1% lower than our forecast.
Accounting for 82.5% of MWG’s revenue were smartphones (43%) and electronics (39.5%), which are still the main contributors, although foods, FMCG and others have increased their percentiles to 17.5% in 2019 from 10% in 2018.
Expanding in scale
The overall smartphone market continued to shrink by 4.8% yoy (GFK) as customers are buying less as well as due to a shift from high-end smartphones to mid and low-priced ones. MWG still managed to grow in this segment by 2% thanks to increasing numbers of stores and brand name advantage. In other ICT and CE products, MWG also outperformed the overall market with average growth from 10% to 20% for laptop, electronics, other white goods and a surge of 60% in air conditioner sales.
MWG also started selling fashion watches in TGDD and DMX stores in March 2019, resulting in VND800bn in revenue from this move. There were 253 out of 2,014 TGDD and DMX stores offering watches, which is projected to increase, though we believe the product can only fit in stores located in crowded areas with high traffic.
Bach Hoa Xanh’s sales grew 150%, reaching VND10,770bn with 1,008 store at end-2019. The chain is expanding more in other regions beside HCMC – the number of stores went up from 8% of total store at end-2018 to 57% in 2019.
Improving efficiency
Gross margin increased 140bps to 19.1% – the highest-ever thanks to the increasing contribution of BHX and other high margin product lines such as fashion watches and household goods. It was also helped by better procurement from BHX. SG&A/sales increased 100bps to 14.2%, mostly from BHX’s accelerating expansion.
As TGDD & DMX are making abundant cash flow, MWG is able to increase its short-term financial investment by VND3,000bn, which consists of bank deposit at an annual rate of 7.2% to 7.7%. At the same time, since the Tet holiday came earlier this year, MWG had to raise its inventory by VND8,756bn, c54% qoq (or 48% yoy) and short-term borrowings by VND4,119bn, c46% qoq (or 120% yoy) in order to prepare for the Tet shopping season.
Net margin went up significantly to 3.8% (+50bps). It is worth noting that MWG’s net margin is blended by the current loss from BHX, indicating plenty of room to improve in coming years.
We maintain our Buy recommendation on MWG, with a 12-month target price of VND171,000. For 2020, we forecast MWG’s revenue of VND125,332bn (+23%) and profit of VND5,150bn (+33%).