MWG – A V-shaped recovery – Update

• MWG’s 3Q20 revenue rose 2.1% yoy to VND26,022bn and net profit jumped 11.2% yoy to VND950bn, returning to growth after the slump in 2Q20.
• 9M20 revenue hit VND82,289bn (+5.8% yoy) and net profit came in at VND2,976bn (same level as 9M19), forming 85.8% of our full-year forecast.
• We reiterate our Add call with a higher TP of VND151,200.

A V-shaped recovery on the wings of Bach Hoa Xanh

Mobile World Investment Corp’s (MWG) 3Q20 revenue grew 2.1% yoy to VND26,022bn, thanks to rapid expansion of Bach Hoa Xanh (BHX), where total stores increased 105% yoy and revenue surged 86% yoy to VND5,672bn. BHX contributed 21.8% to total revenue in 3Q20 to offset the decline in revenue from The Gioi Di Dong (TGDD) and Dien May Xanh (DMX) chains, (-9.5% yoy and -8.4% yoy, respectively). 3Q20 net profit rose 11.2% to VND950bn, marking a significant recovery after a 17.1% yoy decline in 2Q20. In 9M20, MWG’s revenue increased 5.8% yoy to VND82,288bn and net profit growth was flat, reaching VND2,976bn, completing 85.8% of our forecast, above our expectation.

Store expansion slowed down while gross margin widened

BHX’s opening process slowed down, opening only 137 new stores in 3Q20 (vs. 328 in 2Q20) in order to focus on efficiency at existing stores. With the increase in bargaining power during and after the social distancing period in Apr 20, MWG’s food and FMCG margin reached a high of 25% (vs. 21% in 1Q20), propelling 2Q20 GM to 22% (+4.1% pts yoy) and 3Q20 GM to 22.1% (+2.7% pts yoy). We believe MWG can keep its gross margin higher over the next few years as its bargaining power grows with the expansion of BHX and market share dominance of the DMX and TGDD chains.

Conservative mode with positive net cash for first time ever

At the end of 3Q20, MWG’s inventories decreased 32% YTD to VND17,514bn and held-to-maturity investment increased by 111% YTD to VND13,189bn, lifting the quick ratio 30% pts YTD to 63%. For the first time in its history, the company recorded positive net cash per share amounting to VND405 at end-3Q20. We expect the negative impact of the pandemic on the demand for non-essential products to persist in 2021F/22F, prompting MWG to keep these products’ inventory levels low to reduce inventory risks.

Changes to our forecasts

We lift our FY20F/FY21F/FY22F EPS by 11.3%/4.4%/7.5% on the back of 1) GM expansion of 1.3% pts/0.6% pts/1.2% pts, and 2) changes in net financial income to positive at VND122bn/VND248bn/VND390bn to reflect higher short-term investment.

Reiterate our Add call with a higher TP of VND151,200 per share

We lift our SOP-based TP by 9.2% to VND151,200 to reflect increased EPS in FY20-22F and lower WACC for BHX (14% vs. 15% in previous report). Key downside risks are: 1) lower-than-expected GPM, and 2) another nationwide social distancing.

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