MWG — July results

MWG sustained positive consolidated sales growth in 7M24 (+15% YoY), driven by BHX’s outstanding sales growth of +40% YoY in the same period.

Key Highlights

July revenues decreased -4% MoM but increased +10% YoY to reach VND10.9tn. BHX remains the key sales growth driver, recording sales of VND3.5tn (-3% MoM but +26% YoY) in July. YoY growth has slowed compared to the last few months (BHX posted average YoY growth of c.42% in Jan-June) as sales per store reached what management sees as the optimal level of VND2.1bn in July. Additionally, BHX opened another 2 outlets in July, bringing its network to 1,704 grocery stores (+6 outlets YTD).

ICT&CE retail sales were modest (-5% MoM / +5% YoY) in July at VND7.0tn. The MoM decline was attributable to a slowdown at DMX, where sales growth decreased by -9% MoM in July as the peak season for ACs and TVs is over. By contrast, TGDD posted modest increases of +4% MoM /+6% YoY; back-to-school seasonality undoubtedly played a role in the sequential improvement, but we believe the YoY growth has also been driven by the smartphone replacement cycle and the imminent 2G/3G network shutdown in September.

Sales from other retail chains (i.e., An Khang Pharmacy and Ava Kids) increased +16% MoM but declined -10% YoY to reach VND 306bn in Jul. The YoY decline was likely caused by the aggressive closure of 150 pharmacies YoY. This leaves MWG’s store network at 387 pharmacies (-140 outlets YTD) and 64 mom-and-baby shops (flat YTD) as of the end of July.

7M24 total sales increased by +15% YoY to reach VND 76.5tn. BHX is clearly the key driver of consolidated sales growth, with segment revenue reaching VND23.0tn in 7M24 (+39.7% YoY). DMX & TGDD also posted positive sales growth in 7M24 (+6.2% YoY to reach VND 51.4tn) despite the closure of 156 DMX outlets and 48 TGDD outlets YTD in line with the restructuring strategy.

MWG has fulfilled 60% of our full-year forecast and 61% of its guidance for 2024E.

Our View

MWG has now exceeded our target price. MWG’s share price has increased by +58% since our initiation in January and is trading well above our target price, which is now under review. The valuation has reached 22.4x 2024E PE, which is around two standard deviations above its 5-year historical mean. We find it difficult to pound the table despite the solid operation momentum YTD.

The story is now focused on BHX’s profitability as sales-per-store have reached what MWG sees as the optimum level. Guidance to open another 100 groceries this year may be a challenge as the company must strike a balance between profitability and expansion, in our view.

The beleaguered ICT segment should benefit from three tailwinds in 2H24: (1) back-to-school purchases, (2) 4G smartphone upgrades, and (3) the growing appetite for advanced AI devices.

Please see the link for more details: MWG — Express note — Jul results (1)