DGW – Surfing the Xiaomi wave

Current price: VND 24,200

Rating: BUY

Target price: VND30,000

Upside: 24%

Key event catalysts:

• Strong growth momentum and increasing penetration of Xiaomi smartphones in Vietnam.
• The renewed relationship with Nokia should both increase and diversify revenues starting in 2019E.
• Fast growth and high margins of office equipment and (in the longer term) IoT devices.

Strong growth momentum of Xiaomi smartphones, which offer high performance at an affordable price, should be the key growth driver for DGW in upcoming years. Looking further out, Xiaomi IOT products such as home appliances could become a substantial growth driver.

Nokia’s comeback could enhance sales further. The c. VND 1 tn contract with Nokia represents both a new source of income and product/customer diversification for DGW starting in 2019E. Feature phones are not a growth story, but they remain popular in Vietnam. In our view, the inevitable replacement cycle with smartphones is likely to be drawn out over the medium term.

Office equipment to maintain high growth and margin. We see substantial potential for DGW in office equipment given the market’s huge size and high level of fragmentation. We forecast 16% segment sales CAGR in 2018E-20E. This should enhance the company’s profit margin significantly. Smart connected devices could be another driver of this segment and consumer goods too as Xiaomi rolls out its IoT ecosystem, but this is a long-term and uncertain story.

Please access the link for our complete report: DGW_Initiation report_Final

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