MWG — Dec 2023 — Express note

Details 

Margins fell to record lows. Group operating margins fell by -4.7ppt YoY to 0.3% in 2023 as the declining COGS (-6.6% YoY) and SG&A costs (-9% YoY) failed to offset revenue weakness in 2023. 2023 net margins were just 0.1% (-2.9ppt YoY), which was in line with our forecast.

ICT&CE slump continues. Total sales at TGDD&DMX dropped by -5% YoY in 4Q23 / -19% YoY in 2023 to reach VND83.5tn. Air conditioners were the only product line to post positive growth in both volume and sales in 2023.

BHX is the key growth driver with sales increasing by +31% YoY in 4Q23 / +17% YoY in 2023, mainly due to increased SSSG. Bill volume increased by +20% YoY but average bill values were flat YoY in 2023. According to MWG, BHX achieved EBITDA break-even in Dec 2023, and MWG expects operating profit to cover D&A costs and BHX to record positive full-year PAT in 2024.

Outstanding growth at An Khang Pharmacy & AvaKids in 2023. Full-year sales at An Khang (2% of consolidated MWG revenue) jumped by +47% YoY in 2023, while sales at Avakids (1% of Group revenue) accelerated by +80% YoY. Notably, the number of stores for both chains did not increase sharply from end-2022.

Our View

We reiterate our BUY recommendation on MWG with target price of VND 59,300, implying 31% upside. Last year was MWG’s annus horribilis, but as discussed in our Jan 25 initiation, we expect operational improvements in 2024 and beyond. Foreign investors have plenty of FOL room (3.7%) and should take this opportunity to accumulate the shares, in our view.

Grocery chain is the key growth driver. We forecast BHX to post double-digit revenue growth in 2024E-26E as the operational improvements implemented in recent quarters bear fruit in increased market share and SSSG. Admittedly, ICT/CE markets remain weak, but demand for consumer electronics is not going to zero. We expect MWG to continue restructuring its store networks in 2024E, and we expect improved results at TGDD/DMX from the low base of 2023 given the product replacement / upgrade cycle starting later this year.

Please see the link for more details: MWG — Express note — Dec results