MWG – Short-term headwinds – Update

• 2Q21 revenue/net profit (NP) grew 20.4% yoy/35.8% yoy to VND31,658bn/1,214bn, respectively.
• For 1H21, MWG posted VND62,486bn (+12.3% yoy) of revenue and VND2,553bn (+26.1% yoy) of NP, fulfilling 46.6%/47.3% our forecasts.
• Downgrade to HOLD with a higher target price at VND175,700

1H21 results: in line with our forecast
MWG’s 2Q21 revenue grew 20.4% yoy to VND31,658bn, mainly driven by 49.4% yoy growth of Bach Hoa Xanh (BHX), accounting for 23.4% of total revenue. 2Q21 gross margin expanded 0.62% pts thanks to higher contribution from BHX. Thus, 2Q21 net profit accelerated 35.8% yoy to VND1,214bn, much higher than the growth of 18.2% seen in 1Q21. For 1H21, MWG’s revenue and NP grew 12.3% yoy/26.1% yoy to VND62,486bn and VND2,553bn, almost in line with our FY21F forecasts.

Short-term headwinds to TGDD and DMX as stricter virus restrictions
We believe both The Gioi Di Dong(TGDD) and Dien May Xanh(DMX) will experience sales hiccup in the next couple quarters due to stringent virus containment measures and consumer tightening their wallets due to pro-longed lockdown impact. MWG has closed about 67% of TGDD/DMX stores since early-Jul during nationwide lockdown. Thus, we lower our forecasts of TGDD revenue by 9.21%/9.32% and DMX revenue by 7.4%/12.9% during FY21-22F to reflect the above adverse effects.

Bach Hoa Xanh outlook remains intact
BXH is riding on surging demand for essential goods while most traditional markets must close during social distancing period in Jul-Aug. In Jun 21, BHX’s revenue per store recorded VND1.47bn/store, up 28.9% yoy and 22.5% higher than the first 5M21 average. We highly appreciate the quick actions of MWG during the social distancing period, including: optimise goods sources, switch sales staff from TGDD&DMX to BHX and accelerate the online delivery of BXH. Thus, we revise up BHX ‘s revenue by 6.6%/3.2% for FY21F/22F to.

Downgrade to HOLD on share price strength
Overall, we lower MWG ‘s revenue by 4.3%/7.8% for FY21-22F, resulting 8.4%/11.6% downgrade in FY21-22F net profit. Our sum-of-part TP slightly ticked up 1.56% to VND175,700, following an 8.61% increase in DCF-based valuation of Bach Hoa Xanh. However, we believe this is fully captured in the recent price strength. Upside catalysts include faster-than-expected expansion, higher-than-expected revenue per store or higher-than-expected gross margin. Downside risks include longer-than-expected Covid-19 pandemic, slower-than-expected BHX & DMX stores opening and lower than expected revenue per store of each chain.

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