MWG – New plan provides growth sustainability – Update

• In 2022, MWG targets to pause BHX network expansion in order to optimise its business model and develop new businesses.
• We expect MWG to deliver solid earnings growth of 31.3% yoy and 21.8% yoy for FY22F and FY23F, respectively.
• Reiterate ADD rating with target price of VND178,100.

Bach Hoa Xanh (BHX) network expansion hit a pause button in 2022
After scaling up to 2,106 stores in the South, MWG management decide to pause the BHX network expansion in order to optimize the operation. Mr. Nguyen Duc Tai, MWG Chairman, has been appointed as BHX’s CEO since 1/1/2022 which re-affirmed the company’s effort to improve this grocery business’ quality to provide growth sustainability. Thus we decrease number of BHX stores by 192 but increase revenue per BHX store by 1.4% vs. previous forecast FY22 to reflect its better operation control. We expect BHX to reach the break-even point in 2H22F and to set its footprint in the North since 2023F.

In the search of new success formulas
In 2022, MWG will speed up expanding its Apple’s product shop, Topzone, from current 27 stores to 54 at end-1Q22 and 200 at end-2022. We estimate Topzone will boost revenue from Apple products with additional value of VND4,207bn /VND4,388bn, contributing about 2.8%/2.5% to total revenue in FY22/23F. On 10 Jan, MWG officially launched 5 new AVA chains with 12 independent stores of AVAKids (Mom and kid products), AVAFashion and AVASports, as well as integrated stores AVAJi (jewelry retail) and AVACycle (bicycle retail). In our view, we believe AVAKids could be the new success formula of MWG riding on the growing awareness about healthcare and product quality for mom and kid.

A strong growth of MWG’s net profit in FY22-23F
We expect MWG to deliver 22.2%/18.3% yoy growth of FY22/23F revenue, driven by: (1) 36.9%/21.2% yoy growth of BHX, contributing about 25.7%/28.3%% to total revenue, (2) 13.3%/12.3% yoy growth of Thegioididong (TGDD) thanks to acquiring more market share of selling Apple products, and (3) 21%/15% yoy growth of Dienmayxanh (DMX) bolstered by the recovery of consumer electronics demand. In bottom-line, FY22/23F earnings are forecasted to grow 31.3% yoy and 21.8% yoy.

We reiterate ADD rating with target price of VND178,100
We reiterate ADD rating with target price of VND178,100 by using sum-of-parts methodology to value MWG’s two core businesses: consumer electronics (TGDD and DMX) at VND92,800 per share and BHX at VND85,300 (WACC: 11.6%). Downside risks: Lower-than-expected Topzone expansion or lower-than-expected revenue per stores, especially BHX chain. Re-rating catalysts: faster/higher-than-expected expansion, revenue per store or gross margin and success in their new AVA chains.

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