Mobile World Group (MWG VN) — The Hero’s Journey

Bach Hoa Xanh: the key growth driver. Modern trade accounts for just 12% of total grocery spending in Vietnam, but this alone does not guarantee success for BHX. The company has experienced considerable operational difficulties, at least partly due, in our view, to an overly rapid pace of expansion. However, management’s efforts to improve BHX’s performance appear to be bearing fruit, especially in late 2023. We forecast BHX to post double-digit sales CAGR in 2024E-26E, with expanding average sales per store coupled with a more conservative pace of store network expansion.

Consumer electronics: Soft demand, but it’s not going to zero. Consumer electronics retail sales weakened substantially in 2023 amid the economic downturn and an intense price war that drove losses at CE retailers. But extrapolating the recently abysmal operating performance as continuing into perpetuity would be a mistake, in our view. By contrast, we expect mobile phone retail sales to bounce slightly in 2024E due to 1) the Sept shutdown of 2G networks and 2) the product replacement cycle starting from mid-2024.

Yuanta vs. the Street. We are in line with the Street in expecting MWG’s sales to recover in 2024E-25E, but our SG&A assumptions are more optimistic. Thus, our EPS forecasts are 32-33% higher than Bloomberg Consensus for 2024-25E, and our target price is 16% above the Street’s.

We initiate coverage with a BUY rating and set our target price at VND59,300 based on a weighted valuation approach that applies 60% weightings to our discounted FCFE model and 40% to comparable P/S multiple analysis. Our target price implies 12-month TSR of +34%.

Key risks to our view: 1) The consumer electronics slump could be deeper and last longer than we assume; and 2) execution at BHX — food quality and customer experience may not improve in accordance with our expectations.

Please see the link for more details: MWG – Initiation – Jan 2024