MWG Update- OUTPERFORM

MOBILE WORLD INVESTMENT CORP (MWG VN)

The company’s profitability enhanced much better than our expectations in 1Q2024, mostly driven by a rebound in TGDD & DMX’s gross margin and BHX narrowing loss. We revise up our EAT projection by 35% for 2024 and move our target price to mid-2025. Maintain OUTPERFORM rating with a target price at VND64,900/share, equivalent to a total return of 10.2%.

MWG announced net revenue of VND31,486bn (+16.2% YoY; +0.2% QoQ) and EAT of VND903bn (+43 times YoY) in 1Q2024, driven by a rebound in TGDD & DMX’s performance combined with BHX’s on-track results.   

The TGDD & DMX chains, together capturing c.68% of MWG’s sales in 1Q2024, climbed by 6.7% YoY (and 1% QoQ) in revenue. Despite moderate QoQ growth given that a further recovery in consumer spending remained vague, the YoY enhancement was bolstered by double-digit growth of the white goods category, in light of the hot weather starting soon, and softer price competition. 

BHX, making up 32% of MWG’s sales, continued to report vibrant sales growth of 43.8% YoY in 1Q2024 thanks to rising sales per store throughout 2023. The chain saw its loss shrinking by 70% YoY, getting closer to the target of making net profit in 2024.

An Khang, which may contribute modestly to MWG’s sales (c.2.5% in 2024-2025), still puts a priority on fostering revenue per store and optimizing operations over expanding the store network.

The company’s gross margin widened to 21.3% in 1Q2024 (1Q2023: 19.2%) while the SG&A expenses to net revenue ratio declined to 18.1% in 1Q2024 (1Q2023: 18.8%). 

Inventories at the end of 1Q2024 contracted by 5.7% compared to that at YE2023 (in which, we estimate TGDD & DMX’s inventories contracted by 5%, capturing 82% of the total). The company might have almost completed the target of reducing inventories. The net debt to equity ratio was -33.2% at the end of 1Q2024, improving from -5.5% at YE2023 (i.e increased net cash).

MWG targets VND125,000bn of revenue (+5.7% YoY) and VND2,400bn of EAT (+1330% YoY) in 2024. We project that the company may generate net revenue and EAT at VND128,259bn (+8.4% YoY) and VND3,398bn (+1926% YoY) in 2024, respectively, 35% higher than our prior earnings forecast on a minor revision of 2% in revenue. Our target price for MWG in the next twelve months is VND64,900/share, equivalent to a total return of 10.2%.