DGW – Get ready for new consumption cycle – Initiation

• DGW is one of market leaders in ICT product distribution with more than 6,000 points of sale (POS) in Vietnam.
• FY23F net profit is expected to drop 28.8% yoy following weak domestic demand but will get back to 23.3% growth p.a over FY24-26F.
• Initiate coverage with ADD rating and TP of VND44,400.

One of largest ICT distributors with fast growth rate in the past 3 years
DGW has embarked a strong growth trajectory with FY18-22 CAGR of 38.6% in revenue to become the leading ICT distributor, followed by FPT Synnex and PET. Currently, DGW has the largest POS with 6,000 (PET:1,700; FPT Synnex: 3,800) to be the biggest Xiaomi distributor in Vietnam (~80% market share of Xiaomi products) and one of authorized distributor of Apple products.

Growing along with emerging trends in Vietnam’s consumption
With a population exceeding 100m and a youthful demographic where 70% is under 35 years of age, the nation’s technologically adept populace coupled with the upswing of e-commerce and the expansion of the middle class, are stimulating the demand of wide range products from consumer electronic to home appliance to maintain a sustainable growth from 6%-10% p.a from 2023-26F based on Euromonitor report. In light of this, suppliers such as DGW, which can offer a comprehensive range of distribution services, including market research and after-sales services, proved by building Xiaomi brand from zero to Top-3 in the VN smartphone market are poised to achieve success within this burgeoning market.

Poised for recovery in FY24-26F after challenging FY23F
DGW is facing a challenging year in FY23F due to the decrease in people’s spending and tightening consumer finance in the non-essential product. We estimate DGW’s revenue/net profit will drop by 2.8%/28.9% yoy in FY23F, before returning to a growth cycle in FY24F. For FY24-26F, as ICT demand recover from the fall in FY23F, especially in Xiaomi and Apple products, combine with DGW’s expansion into other business segments, such as home appliance products (Whirlpool, Xiaomi…), consumer goods (beverage), and industrial equipment through M&A Achison, will help DGW’s revenue growth can reach 11.9% p.a in FY24-26F, delivering NP growth at 23.3% p.a in the same period.

Recommend ADD rating with target price of VND44,400
We initiate coverage DGW with ADD rating with target price of VND44,400, based on an equal combination of 10-year DCF and target FY23-24F P/E of 12.0x. We believe the current price – equivalent to PE FY23-24F of 10.0x is a good opportunity to bottom fishing for a new up cycle. Potential re-rating catalysts include 1) a higher-than-expected demand of ICT products, especially Xiaomi or Apple and 2) better-than-expected brands expansion. Downside risks to our call are 1) lower demand of ICT products 2) lower-than-expected brands expansion and 3) terminal of distribution brands, especially Xiaomi or Apple.

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