DGW – Conservative guidance for FY19

Conservative FY2019 guidance. DGW provided 2019E revenue guidance of VND 7.2tn, implying 20% YoY growth vs our 32% forecast. DGW guided 2019E smartphone sales of VND 3tn vs. our forecast of VND 4.1tn. Management noted that they usually set a conservative target at the start of the year, but we are also concerned about the limited promotional activities of its major brands.

DGW also signed a distribution contract with Nestlé to distribute its nutritional powder drink products. Management did not disclose the estimated sales from the new business, citing contract clauses. However, guidance for the overall functional foods segment (including Nestlé, Kingsmen, and PNKids) is just 2% of the FY19 sales target, so we do not expect the new business to contribute much in the short run.

No share issuance until at least 2Q19. Due to unfavorable market conditions, management does not intend to raise equity funding for now. The company will instead utilize bank credit lines to for any necessary working capital funding requirements.

Our view: Despite the moderate 4Q18 earnings beat, we came away from the meeting with a less optimistic outlook. We believe that DGW’s smartphones target is obviously too conservative. That said, we share management’s concern about the core phone brands’ market share growth in the absence of aggressive promotional activities. We make no changes to our forecasts for now, but we believe that earnings cuts could be in the cards if evidence emerges to confirm these fears.

Please access the link for our complete report: DGW VN — Conservative guidance for 2019E

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