[Update] DGW — Xiaomi wave gaining momentum

Hold-Outperform

Target price: VND 30,000

Upside: 20.7%

Event

DGW’s released strong 3Q19 results yesterday, with a +51% YoY increase in sales and +43% YoY increase in PAT. Although smartphones and office equipment were in line with our expectations, growth in laptops and tablets was significantly stronger than our forecasts. It was the second sequential quarter of strong growth, bolstering our positive view on the stock.

Our take

DGW has now fulfilled 84% of 2019 revenue guidance and 80% of its PAT guidance. The smartphones segment (and mainly Xiaomi) was the main growth driver, with segment sales +80% YoY higher in 3Q19. The segment has now fulfilled 85% of FY19 guidance. Management attributed the impressive growth to new model sales during the period, with mid-end phones as the main contributor.

Laptops and tablets (+32% YoY) continued to surprise in 3Q19, as indicated by the segment’s 93% fulfillment rate of FY19 guidance. Management attributes the growth to DGW’s premiumization strategy aimed at profiting from the current strong demand for high-value products. In addition, Vietnamese enterprises’ aggressive digital rollout was cited as a supportive catalyst.

Office equipment continued to grow at a fast pace of 29% on the back of blooming digitalization in Vietnam. Management believes that this segment should maintain +25% growth for the foreseeable future (FY18-23E).

We reiterate our HOLD-Outperform rating with total expected return of 26.4% (including the 6% dividend yield).

DGW’s sales and PAT are outperforming their guidance, but as noted previously we think that guidance was intentionally conservative. The company’s YTD performance represents 76% of our sales forecast and 80% of our net profit forecast for FY19. These forecasts now appear moderately conservative, which adds to our positive view on the stock. We retain our long-term positive view on DGW, and reiterate our target price of VND 30,000 or 7x FY20 forward PE.

Please access the link for our complete report: 20191018 DGW 9M19_Edited

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