FRT update – BUY

We give a BUY recommendation on the stock with a target price of VND113,365/share, representing a 16.5% expected total return, fostered by Long Chau pharmacy chain’s potential outlook and improvements in its profitability.  

FRT’s business picture was refreshed by advances in its results. The company reported vigorous growth in 2021 – net revenue of VND22,495bn (+53% YoY) and EAT of VND444bn (2020: VND10bn) – and 1Q2022. In addition to growing from a low base 2020, the performance came as a result of:

I. Expansion of Long Chau pharmacy chain’s scale and profitability. Besides growth from network expansion, the chain’s sales benefited from increased demand for its products due to the strong outbreak of COVID-19 in Vietnam in 2021 and early 2022. Of note, Long Chau started to post positive EAT in 2021, albeit still moderate at VND3.7bn in our estimate.

ii. Surging demand for laptops and other devices serving working from home, online learning, etc. amid the outbreak and in social distancing stages. Sales of other technology devices also recovered dramatically after the end of social distancing.

In 1Q2022, FRT recorded net revenue growth of 66.9% YoY to VND7,786bn. FPT Shop chain generated VND5,646bn (+38.3% YoY), in which laptop revenue continued to rise by 74% YoY, accounting for 25% of FPT Shop’s revenue. Still, we do not expect this growth to sustain in the following quarters, given high base last year and that the working-from-office and direct learning modes have been resumed as the pandemic cools down now. FPT Shop opened 29 new shops in 1Q, bringing its number of shops in operation to 676 at the end of March 2022 (YE2021: 647). In 2021, the chain expanded its product portfolio by adding small home appliances to shops that are large enough, under shop-in-shop model. This product group is set to be present in at least 160 shops at the end of this year, from 100 shops currently, and its performance will decide next steps of expansion in terms of product category (e.g larger appliances), scale, business model, etc. However, its revenue contribution remains humble at this time. We think the expansion to home appliances may support FPT Shop in improving customer traffic, taking advantage of its customer base to enhance revenue per store. Deeper penetration in the consumer electronics products and home appliances market, if any, may aim to exploit the market potential rather than replacing the leader, dienmayxanh.com chain, which has consolidated its dominant position for years and is performing well.

For the whole year 2022, we project FRT’s net revenue and EAT at VND27,806bn (+23.6% YoY) and VND582bn (+31.1% YoY), quite similar to the company’s plan. In which, we project Long Chau accounts for c.30% of FRT’s net revenue (from 17.5% in 2021) and c.15% of EAT. For a long-term outlook, we believe Long Chau will be the company’s growth catalyst while FPT Shop’s growth is assumed at one digit. Besides Long Chau, other chains such as Pharmacity and recently An Khang also plan to gain sizable shares of Vietnam pharmaceutical retail market, which is still surrounded by a myriad of mom-and-pop stores. Despite possibly higher competition, the market is believed to offer huge growth opportunities as the emergence of retail chains will bring a new business model to this fragmented market. Combining the DCF and EV/Sales methods, our target price for this stock is VND113k/share, equivalent to a total return of 16.5% at the year end.

View details in full report below.