MSN: VCM deal – Conference call takeaways

Hold-Outperform

Target price: VND 84,100

Upside: 49%

Event

MSN held a conference call to discuss the VinCommerce deal.

Key Takeaways

The new entity holds 83.7% of VinCommerce-VCM and 85.7% of Masan Consumer Holding. Masan Group will hold 70% of the new entity and Vin Group (VIC – not rated) will hold the other 30%. The 2020 action plan comprises three strategies to turn around the acquired business: footprint, traffic, and profitability.

For the footprint strategy, VCM will increase its coverage in Hanoi, where its stores are performing well, but will be selective in HCMC. For example, management plans to close down 150-300 VinMart+ stores with poor performance and low chance of improvement.

For the traffic strategy, VCM plans to focus on product localization and strengthening the fresh portfolio. MEATDeli and VinEco will be positioned as core products in Vinmart+, contributing up to 35% of total sales (up from 30% in 2019), according to MSN.

For profitability, management targets -3% to 0% EBITDA margin in 2020E (vs the -7.5% EBITDA margin in 2019). Increasing sales / m2, optimizing costs, and logistics and warehousing are key areas where MSN believes it can improve the acquired business.

Our view: We believe MSN’s post-merger net profit will be reduced by two factors: (1) pre-tax losses from VCM and reduced profit from its core consumer business (fish sauce, noodles, etc), because MSN’s net ownership in MCH VN will decline from 86% to 60%.

If we (unfairly) extrapolate VCM’s 2019E EBITDA loss of VND2.1 trillion into 2020E, our back-of-the-envelope calculation suggests a 52% reduction in MSN’s 2020E consolidated PBT. This is likely too bearish, but our forecasts for MSN (which do not incorporate the deal) now appear optimistic and are under review.

Please access the link for our complete report: MSN Vincommerce_MA

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