Company Visit: MWG — Moving toward the next growth driver(s)

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Upside: N/A

Event catalyst:

• MWG is on track to fulfil FY19 guidance.
• Expansion/conversion planned for core TGDD and DMX stores.
• Aggressive expansion at BHX (fresh foods & FMCGs).
• Broadening its product range to find the next growth driver(s).

MWG is on track to fulfil FY19 guidance with 1Q19 sales of VND 25tn (+10% YoY, 23% of 2019 guidance) and NPAT of VND 1tn (+29% YoY; 29% of guidance). 1Q19 sales growth was attributable to consumer electronics (16% YoY growth at DMX) and fresh foods/FMCGs (+156% YoY growth atBHX), while TGDD’s sales declined by 8% YoY. Gross margin expansion (+26bps YoY) and SG&A cost contraction (-42bps YoY ) also helped boost the bottom-line result.

Expansion/conversion strategy for TGDD and DMX chains. MWG plans to open new DMX stores and to convert TGDD stores into DMX stores, with the target of 850 DMX stores by end-June (vs 774 at end-March). In addition, MWG targets sales-per-store to expand by 30% via improved store layout to increase the number of SKUs. MWG expects sales for DMX to grow by 20% YoY and for TGDD to expand by 10% YoY in FY19.

BHX expanding aggressively. MWG plans to open 50 BHX stores per month for the rest of 2019, substantially boosting the total number of stores from the current figure of 469. MWG plans to accelerate the number of contracts signed directly with suppliers, which it expects will improve gross margin by 100-150 bps. In addition, logistical and storage efficiency improvements to ensure the freshness and reduce the proportion of spoilage are on the right track, as evidenced by the 2ppt YoY increase in gross margin at BHX to 18% in 1Q19.

In search of the next growth driver(s). MWG is currently implementing a pilot scheme to sell wristwatches and kitchenware. Wristwatch sales only launched on March 8 but contributed 1.8% of company-wide sales in that month. Meanwhile, kitchenware posted 50% YoY growth and contributed 6.8% of sales in 1Q19.

Our view: We don’t cover MWG and have no investment view on the stock. The company is clearly doing a good job in expanding the grocery business, and we agree with management’s view about the strong potential of the market. That said, MWG is not all about groceries. Its two main pillars – phones and consumer electronics – are showing signs of slowing down. It may be unrealistic to expect the still-nascent grocery business to maintain the overall (large) group’s sales growth at historically impressive levels of 40%-50% (over the last three years). It may take a while for the grocery business to have make a substantial (and positive) earnings contribution.

Please access the link for our complete report: MWG — Company visit–Moving toward the next growth driver(s)

Analyst: Quang Vo, quang.vo@yuanta.com.vn