MWG Update – NEUTRAL

MOBILE WORLD INVESTMENT CORP (MWG VN)

The company’s 1H2024 results were fostered by not only a rebound in TGDD & DMX’s performance but also the fact that BHX started to make profit. In addition, the company continues to refine its efficiency by streamlining the pharmaceutical chain in 2024.  We revise up our EBT projection by 20% for 2024 and move target price to the end of 2025 at VND72,100/share. Rating NEUTRAL.

MWG seemed to be half-way through restoration of its business performance from gloomy days in 2023, as net revenue achieved VND65,621bn (+16% YoY) and EBT was VND2,722bn (similar to 1H2020’s result and +9 times YoY) in 1H2024.   

TGDD & DMX, together capturing c.68% of MWG’s sales, generated 6.5% YoY growth in revenue irrespective of a continued decrease (of 3.9% YTD and 9.5% YoY) in the number of stores in 1H2024 to eliminate underperforming ones. The growth was 6.3% YoY with 206 stores closed in 7M2024 (down by 6.3% YTD and 11.5% YoY). 

BHX was in the limelight for turning profitable (albeit tiny at VND7bn) in 2Q, despite still recognizing accumulated net loss in 1H2024. Making up 32% of MWG’s sales, the chain upheld vivid growth of 42.1% YoY in 1H2024 (and 40.2% YoY in 7M) thanks to an uptrend in monthly revenue per store since early 2023. 

An Khang, whose contribution to MWG’s sales remains modest (c.2% in 2024-2025 forecast), kept putting a priority on boosting revenue per store and optimizing operations. The chain also began to review and close 46 stores in 1H2024, mostly in June (and additional 94 in July and 44 in August), in order to strengthen efficiency.

The jump in EBT came as a result of enhancement in gross margin and the SG&A expenses to net revenue ratio. The overall gross margin widened to 21.4% in 1H2024 (1H2023: 18.8%), fueled by advances in all three key chains. The SG&A expenses to net revenue ratio improved to 17.6% in 1H2024 (1H2023: 18.6%) in view of a recovery in sales. The average inventories per store in both ICT and groceries chains were stable compared to YE2023. 

We project that the company may generate VND132,774bn of net revenue (+12.3% YoY) and EBT of VND5,271bn in 2024 (+7 times YoY), up by 3.5% in terms of revenue and 20% in terms of EBT compared to the prior update. The respective growth is projected at 6.2% YoY and 17.5% YoY for 2025. Our target price for MWG by the end of 2025 is VND72,100/share, equivalent to a total return of 8.4%.