MWG – Eyes on Bach Hoa Xanh store sales growth – Update

• For 4M22, MWG posted revenue of VND47,908bn (+34% yoy) and net profit of VND1,891bn (+8% yoy), fulfilling 28% our full year forecast.
• We expect BHX’s store sales to grow strongly in 2H22F, at 30% vs 1H22F after all BHX stores are upgraded to the new layout.
• Reiterate ADD rating with target price of VND90,100.

Bach Hoa Xanh same-store-sales plummeted due to renovation

4M22 revenue of Bach Hoa Xanh (BHX) grew modestly 2% yoy to VND8,240bn, but same-store sales (SSS) dropped 15% yoy to VND0.97bn per month. In 4M22, only 460 out of 2,140 stores have been successfully upgraded to new layout. The renovation progress has started since early Apr 22 and happened slower than our expectation. According to management, the delay of layout renovation was due to some core changes in operating process. We estimate that the renovation process could be completed by Jul 22.

Waiting for growth of BHX’s SSS in 2H22F

According to MWG, new BHX’s layout can increase 10% SSS compared to previous layout in Apr 22 to mark BHX’s return to SSS growth phase. We believe with effort of MWG’s management since end-2021 and the well-prepared in operating process in 1Q22 to gain back customer’s belief, BHX’s SSS will show a marked improvement from 2H22F, after all of BHX stores has been renovated by Jul 22. Thus, we expect BHX’s SSS can increase 30% compared to 1H22F to come at VND1.39bn per store in 2H22F. However, as BHX’s renovation was slower than we expected, we lower our forecast of 2022/23F revenue by 14%/12% to VND33,167bn/VND44,285bn (~22.5%/24.8% of total revenue).

Target to expand the pharmacy retail business

By end-2021, MWG sucessully raised their stake of An Khang pharmacy stores chain from 49% to 100%. For 4M22, 72 new An Khang stores have been launched, bringing the total nationwide stores to 250 stores. Per our estimate, An Khang pharmacy recorded monthly SSS of ~VND0.75bn for the standalone store and ~VND0.45bn for store inside Bach Hoa Xanh. We expect stores might reach 811/1411 by end 2022/23F, to deliver VND2,618bn/VND7,178bn, equivalent to 1.8%/4% MWG’s revenue over FY22-23F.

We reiterate ADD rating with target price of VND90,100

We reiterate ADD rating with target price of VND90,100 by using sum-of-parts methodology to value MWG’s consumer electronics (TGDD and DMX) at VND47,600, BHX at VND40,900 and An Khang at VND1,600. Downside risks: Lower-than-expected expansion or lower-than-expected revenue per stores, especially BHX chain. Re-rating catalysts: faster/higher-than-expected expansion, revenue per store or GM and success in their new AVA chains.

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