FRT — Company update — The Restless Visionary

We continue to view Long Chau as the key growth driver, a view that has been widely adopted on the Street – which is understandable given Long Chau’s clear leadership position among Vietnamese modern pharmacies. Long Chau plans to add 400 new pharmacies to reach c.1.9k stores by the end of 2024E. We expect double-digit sales growth (CAGR of 27%) in 2023E-2027E, with a total of 3,000 pharmacies by the end of 2027E.

Vaccination centers have emerged as a share price catalyst. Long Chau currently (Apr 19) runs a network of 58 vaccination clinics and targets 100 clinics by yearend. We assume this business will contribute c.4-5% of consolidated sales starting from 2025E, and this business represents 5% of our new fair value estimate for FRT. Given the lack of disclosure on this business, our assumptions for it are admittedly speculative in nature. As such, we provide sensitivities (page 10) illustrating how a range of possible results for the vaccination centers would affect our target price.

FRT continues to streamline its electronics retail networks by closing low-performance stores. However, we expect sales per store to improve by +5% YoY in 2024E & 2025E as household appliance product diversification helps to increase ticket size. Our long-term view on this segment has not changed: “Consumer electronics remains challenging – But it won’t go to zero”. We forecast tepid-but-positive ICT sales CAGR of 6% in 2023-27E, but we assume just 2% terminal growth in our valuation for this segment.

We reiterate BUY and increase our target price by +66% to VND166,800 per share, implying 12-month TSR of +18.3%.  This target price is based on a sum-of-the-parts valuation approach that comprises the pharmacy / vaccination segment (77% of our fair value estimate) consumer electronics (23%). We have not factored in any value for the medical partnership with IHH, but investors could consider this as a free option.

Please see the link for more details: FRT — Company Update — Apr 2024 (002) (002)