Mobile World Investment JSC (HSX: MWG) - mbs.com.vn · PDF fileWe initiate coverage for Mobile...

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Mobile World Investment JSC (HSX: MWG)

Enhancing competition advantages of being a

leading company and expanding its market shares

significantly

Key Financials

Unit: VND bn 2015 2016F 2017F 2018F

Net Revenue 25.253 35.910 42.773 47.170

Net Income 1.072 1.413 1.688 1.892

EPS 7.305 9.634 11.509 12.901

ROE 54% 47% 40% 35%

P/E 10,5x 8,0x 6,7x 6,0x

Source: MWG FS and MBS Forecast

INVESTMENT THEME

We initiate coverage for Mobile World Investment JSC (MWG) with a BUY

rating and 12-month target price of VND 97,600 (upside 26.7%) based on

specific catalysts as follows:

Mobile phone retail segment will continue to expand and

thegioididong.com chain is likely to gain higher market share. We estimate

that there will be 170 stores in this chain, meanwhile same-store sales growth (SSSG)

is expected at 8%/year. Revenue from mobile device retails is forecasted at 26,019

bil VND (up 25.3% YoY).

The company plans to expand market share regarding large and

fragmented consumer electronics retail market. Dienmayxanh.com chain is

expected to get more 65 stores in 2016 to improve market share from 8% to 12% in

2015. SSSG ratio is forecast to reach 20% within the year. Consumer electronics

retail segment will become a key driver for total revenues growth in MWG in coming

years. Revenue from dienmayxanh.com is estimated at VND 9,892 bn (up

120.2%YoY)

Competitive advantage in consumer electronics retails market thanks to

better ERP system, store expansion getting higher brings it advantages regarding

brand, inventories management and purchase strategy. Human resources are

experienced in managing stores and expand more ones.

Testing Bachhoaxanh retailing model with the first 20 stores are expected

to complete in 2016. Therefore, MWG will expand number of stores with larger

scale that currently have accounted for 80% of total market shares in order to take

advantage of traditional retail market. However, this project is still being researched,

accordingly we do not include this chain in our model.

VALUATION

Our price target of VND 97,600 (upside 26.7%) is based on our DCF analysis. The price target

implies a 10.1x multiple of our FY2016 EPS estimate of VND 9,634, lower than average peer

P/E 11.6x).

Initiation on 29/03/2016

Rating BUY

Price target (VND) 97,600

Upside 26.7%

Dividend (VND) 1,000

Dividend yield 1.3%

Stock data on 29/03/2016

Current price (VND) 77,000

Current Listed Shares 146,888,974

Current Outstanding Shares 146,670,301

Market Cap (VND bn) 11,294

52-week Low High 59,000 – 87,200

30-day Average trading Vol 151,865

% Foreign Ownership 49%

% Foreign Ownership Limit 49%

Allowed Foreign Ownership Shares 71,975,597

Remaining Room 0

12-month price chart

Contact:

Analyst

Lam Tran Tan Si

Email: [email protected]

Tel: +84 949 187 525

2 Mobile World Investment JSC (MWG)

29/03/2016

RISKS

Risks from existing competitors in the same sector

Mobile devices and consumer electronics retail market in Vietnam is disperse; therefore,

competition pressure is getting high. Competition not only comes from small traditional

stores but there has been share growth regarding participant professional retailers such

as FPT shop, Vienthong A, Nguyen Kim…

Risks from potential competitors

Mobile device retail market is distributed with products at very low prices through

telecom providers regarding long term contracts. Therefore, Viettel and Mobifone will be

large potential competitors when these contracts are operated. However, we think that

telecom service costs in Vietnam are lower than that in the USA and Canada, therefore,

providers will have decreased drivers to operate these contracts.

Additionally, mobile device retail trend has experienced participation of intermediary

suppliers in the world. Firstly, when gross margins from smartphones are declining,

producers want to save more commission cost for these suppliers. Secondly, producers

are now focusing on bringing about more value by direct services more than building

loyalty for brand following product quality. However, presently, producers cannot expand

substantially mobile device retail stores in the world while consumers need more

convenience to buy these products.

Risk from inventory

Inventory management is the vital role for retail enterprises. Moreover, mobile products

will definitely see level of prices going lower within a year. Inventory was provisioned for

lower prices around 1.5-2.5% in the Company in the past.


29/03/2016

CONSUMER ELECTRONICS RETAIL MARKET IN VIETNAM IS ACCELERATING

SHARPLY

Figure 1: Vietnam Consumer Electronics Retail Market

Source: GFK and World Bank

Vietnam consumer electronics retail market have picked up gradually though the economy was

struck by economic depression in 2012. The GFK reported over 2012 – 2015, total electronics

consumption climbed averagely by 21.48%/year to VND 139,049 bn of which, mobile device

consumption represents VND 65,666 bn, or 47.23% in total electronics consumption. Consumer

electronics market scale is 1.25 times larger than that of mobile device thanks to its various

products and high quality products which represents by 51.66%.

THEGIOIDIDONG.COM

Thegioididong.com stores chain arrived at 597 till late February, 2016, covering 63 cities and

provinces. This chain’s market share went up from 21% to 30% over 2013 – 2015. The

Company targets of expanding the market share to 35% thanks to store broadening

and revenue increase per each store.

In 2015, thegioididong.com chain’s revenues reached VND 20,758 bn (up 53.9% YoY), reaching

high growth as the Company is reaping advantages of mobile device market scale going up by

31.9% YoY and the market share from 27% to 30%.

Average revenue per store in chain of thegioididong.com reaches VND 3 bn dong/month. SSSG

growth rate reached 7-8% in 2015 and we expect that the Company will remain this level

during 2016 due to high newly-opened stores number in 2015, being a growing driver. We

forecast that MWG will get 170 new stores, 100 stores higher than expected one,

equal to forecast revenue of VND 26,019 bn (up 25.3% YoY).

0

50

100

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200

250

0

20,000

40,000

60,000

80,000

100,000

120,000

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160,000

2011 2012 2013 2014 2015

Consumer Electronics Retail Market

Consumer Electronics Total Demand (Bil VND) GDP (Bil USD)

31 40

84

211 232 217

344

564

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Number of stores Thegioididong.com


29/03/2016

Figure 2: Revenue of Thegioididong.com

Source: MWG

Currently, mobile device retail market declined dispersion and might focus on large retailers.

Thegioididong.com is the largest market share holder but competition for this segment is still

tense. Other competitors still continue to set new targets for growth such as FPT shop,

Vienthong A and Viettel.

Figure 3: Mobile phone retail market

Source: GFK & MBS

DIENMAYXANH.COM

The system of Dienmayxanh.com was established in 2011 and now has 87 stores. In 2016,

MWG plans to open more 50 stores and targets on leading in the market share in

terms of electronics retail.

In fact, compared to mobile device retail market, Vietnamese electronics retail market is more

disperse, of which a large market share is mom & pop shops. Therefore, there is a stiff

competition within this sector due to the high degree of dispersion. We expect that taking away

market share from mom & pop shops will lower level of fragmentation in this sector which

creates growth momentum in MWG’s retail market share.

Strategy is performed through many tactics such as providing reasonable prices as well as

professional services rather than mom & pop shops. Owning advantage of getting large scale,

dienmayxanh.com is active in diversifying products even in provincial markets. In long terms,

0

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014 2015

Bil

VN

D

Revenue of Thegioididong.com

30.0%

11.9%

9.9% [VALUE]

40.0%

MOBILE PHONE RETAIL MARKET SHARE

MWG FPT Shop VienthongA Viettel Store, Mai Nguyen,… Mom&Pop

4

12 12 17

69

2011 2012 2013 2014 2015

Số lượng cửa hàng Dienmayxanh.com


29/03/2016

this strategy will create brand awareness for consumers and transfer buying habit in mom & pop

shops.

Figure 4: Vietnam Electronics Retail Market

Source: GFK and MBS

Average revenue per store of Dienmayxanh.com chain currently ranges between VND 8 – 10

billion/month. In 2016, we expect sales in existing stores to increase by 20% due to mostly

stores having operated within one year. At the same time, we estimate that MWG will open 65

new stores against 50 planned stores planned, reaching an average 12% market share.

Revenue of consumer electronics retail segment is projected to reach VND 9892

billion (+ 120.2% YoY).

Figure 5: Revenue of Dienmayxanh.com

Source: MWG

BACHHOAXANH.COM

Bachhoaxanh.com development model was established in 2015 and now is currently on trial.

Bachhoaxanh is not constructed as a convenience store but this model is aimed at selling fresh

foods and supplying professional services. Therefore, MWG are aiming at restructuring

fragmented traditional markets at present. Currently, average monthly revenue of

Bachhoaxanh is VND 400 million per store. We do not include forecast about Bachhoaxanh in

the valuation model because of earnings model still being on the research.

Traditional retail channels have accounted for 83% market share in Vietnam which consist of

30% market share are large sized stores; 30% small sized ones; 11% and 7% markets and

12%

8%

7.50%

20%

52.50%

ELECTRONICS RETAIL MARKET SHARE

Nguyễn Kim Dienmayxanh Cholon Trần Anh, Pico, Thiên Hòa,… Mom&Pop

0

1,000

2,000

3,000

4,000

5,000

2011 2012 2013 2014 2015

Bil

VN

D

Revenue of Dienmayxanh.com


29/03/2016

specialized stores, namely; 5% other channels. Modern channel consists of 17% remaining

market share, of which 10% supermarkets, 4% hypermarkets, 2% minimarts, 1% metro and

online market.

Figure 6: Vietnam Retail Market

Source: GFK and MBS

Effective inventory management limits adverse impact of reducing prices on

electronics.

ERP system could manage each store’s inventory, allowing accessibility and management of

inventory days of each product line. Based on this information, managers can establish a

performance rating scale to decide on reward and punishment for employees accordingly.

Based on the ERP system, thegioididong.com and dienmayxanh.com are managed and

distributed through a total source of goods such as laptop, mobile phones, enhancing overall

efficiency, increasing inventory turnover instead of separate sources as in 2012.

Competitive advantages of large stores are promoted in provincial markets thanks to diverse

product lines and controlling well inventory resources.

New stores are opened selectively by process.

Opening new stores to ensure increasing profits but not reducing benefits in many stores is a

key for success. In case store could not generate positive EBITDA after 3 months of operating

stably, it must be closed, in case of thegioididong.com. The period applied on dienmayxanh.com

is 1 year. Besides, decision to open a new store bases on population density, visitor number,

etc. Reward policy for regional directors depends on each store’s performance.

30%

30%

16%

7%

10%

4% 2% 1%

RETAIL MARKET

Big Grocery Stores

Small Grocery Stores

Market

Specialized stores

Supermarket

Hypermarket

Minimart

Metro & Online


29/03/2016

FINANCIL ANALYSIS

Figure 7: Operating results

Source: MWG FS

Both MWG’s revenue and profit have been continuously growing since 2009. Compounded

average growth rate (CARG) of revenue and profit after tax reach 53.11% and

67.77% per year respectively. During 2011-2014, MWG’s growth momentum mostly came

from thegioididong.com system thanks to industry growth and increased market share. Since

2015, consumer electronics started to contribute significantly 18% to growth in total revenues.

Gross profit margins remained stable around 15-16% which tends to slightly decline in the

future when revenue contribution from consumer electronics gradually increases.

Figure 8: Efficency of Asset Usage

Dupont Analysis

Source: MWG

Efficiency of assets management

Days of inventory in stock is managed stably around 45-55 days. However, by the end

of 2015, this figure significantly went up to 62 days. This spike resulted from increased

inventory of mobile devices in preparation for the beginning of 2016. Based on revenue on the

first month of a year to calculate days of inventory in stock, we still get the result of 51 days,

similar to the normal level of previous periods.

MWG’s debts are mainly short-term debts financing for working capital. From 2013 to

2015, financial leverage lowered to 2-3 times compare to that the previous period. Average

asset turnover during 2010 - 2015 were over 5 times which dropped to 4.73 times by the end of

2015 due to increased inventories. However, as mentioned above, projected inventory turnover

will be stable by the end of Q1/2016. In addition, ROE is maintained averagely over 40% mainly

thanks to high efficiency assets performance.

0.0%

5.0%

10.0%

15.0%

20.0%

0

5,000

10,000

15,000

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25,000

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2009 2010 2011 2012 2013 2014 2015

Operating Results

Net Revenue

Gross Profit

Net Income

GPM

Net Margin

Unit: Bil VND

-

20.00

40.00

60.00

80.00

2010A 2011A 2012A 2013A 2014A 2015ADays Inventory OutstandingDays Payable OutstandingCash conversion cycle (days)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

2010A 2011A 2012A 2013A 2014A 2015A

Asset Turnover Leverage Net Margin ROE Dupont


29/03/2016

EARNINGS MODEL AND VALUATION

We derive our 12-month target price of based on our DCF analysis.

Some of our key assumptions used in earnings model include:

Thegioididong.com

In 2016, we expect MWG’s market share will reach 35% and then gradually increase to 40%

in 2020. Number of newly-opened stores in 2016 is projected to increase to 170.

Due to accelerating number of new stores in 2015 which has been operating under 1 year,

there is still large room for existing stores. Therefore, we assume SSSG growth in 2016 will

reach 8%.

Dienmayxanh.com

2016 is expected to a strong expansion stage for Dienmayxanh.com system. We expect its

market share will reach 12% and there are more 65 newly-opened stores.

Dienmayxanh.com is in the early phase of development, therefore, revenue growth per

existing store is rather high, and we expect SSSG growth will reach 20% in this year.

From business activities of both dienmayxanh.com and thegioididong.com, we expect revenue

and profit in 2016 will reach VND 35,910 billion (+42.2% YoY) and VND 1,413

billion (+31.8% YoY), namely. Gross profit margin of each category such as mobile devices

and electronics are estimated to remain stable at 15.8% and 14.5% respectively. In particular,

COGS includes only cost of purchasing inventory. Costs of depreciation, labor and rental are

included in selling expenses and administration expenses. Currently, average gross profit margin

of electronics retail industry is 19%. Therefore, we expect the gross profit margin of 14% - 15%

to be ideal in the long term.

Estimated 170 new stores of thegioididong.com and 65 dienmayxanh.com in 2016, CAPEX is

estimated to reach VND 569.6 billion in 2016. Investment will gradually decline until 2018 based

on assumption that the model does not include Bachhoaxanh system and investment plan in

Myanmar, as well.

MWG plans to pay off all debts in 2017. Cost of debt and cost of equity are 6.3% and 15.9%,

namely. Proportion of long-term sustainable growth is 2%.

Figure 9: Operating Forecast

2016F 2017F 2018F 2019F 2020F

Net Revenue 35.910 42.773 47.170 51.152 55.198

Gross Margin 5.547 6.583 7.244 7.844 8.452

Selling Expense 3.319 3.953 4.359 4.727 5.101

G&A Expense 485 569 594 424 326

EBIT 1.744 2.061 2.290 2.692 3.025

Financial Income 80 80 80 80 80

Financial Expense 65 38 12 - -

EBT 1.766 2.110 2.365 2.779 3.112

Net Income 1.413 1.688 1.892 2.223 2.490

EPS 9.634 11.509 12.901 15.159 16.974

P/E 8,1 6,8 6,0 5,1 4,6

Source: MBS forecast

Our FY2016 EPS estimate is VND 9.634. Our price target implies to a P/E of 10.1x, lower than

average P/E of peers in the same industry of 11.6 times. In the past, MWG’s average trading

range P/E was 11.7x.


29/03/2016

Figure 10: Sensitive Analysis

Inventories Turnover

Pay

able

Tu

rno

ver

5.00 5.50 6.00 6.50 7.00

15.08 89,079 94,979 100,040 104,332 108,292

16.08 87,839 93,633 98,745 102,917 106,878

17.08 86,731 92,432 97,587 101,804 105,618

18.08 85,636 91,467 96,545 100,800 104,489

19.08 84,637 90,611 95,604 99,891 103,471

Source: MBS Research

Figure 11: Consumer Electronics Retail Companies Comparison

Ticker Company Market Cap

VND bn Revenue

VND bn GPM ROE P/E

MWG VN Equity MOBILE WORLD INV 11,366.9 25,252.7 15.5% 54.2% 10.0

TELE IJ Equity TIPHONE MOBILE I 5,413.6 22,039.7 5.5% 13.9% 14.4

MTDL IJ Equity METRODATA ELEC 1,536.3 9,957.3 7.8% 22.0% 8.4

ECII IJ Equity ELECTRONIC CITY 894.0 1,947.4 19.2% 2.6% 19.8

493 HK Equity GOME ELECTRICAL 18.7 62.9 14.9% 7.4% 12.2

6188 HK Equity BEIJING DIGITA-H 2.2 15.8 13.8% 16.6% 4.8

Mean 19.5% 11.6x

Median 15.3% 11.1x

Source: Bloomberg

Figure 12: MWG’s PE Ratio History

Source: Bloomberg

0

2

4

6

8

10

12

14

16

18


29/03/2016

Free Cash Flow FCFF FCFE

FCFF (Unit: VND bn) 2015 2016 2017 2018 2019 2020

EBIT 1,322 1,744 2,061 2,290 2,692 3,025

Minus: Tax (310) (353) (422) (473) (556) (662)

Add: Dep 197 384 447 459 277 166

Minus: Capex (587) (570) (298) (55) - -

(Inc)/Dec in NWC (2,061) (321) (596) (429) (429) (385)

Unlevered free cash flow (1,438) 884 1,193 1,792 1,984 2,183

Cumulative sum PV of FCF - 783 1,709 2,915 4,075 5,184

PV of Terminal value 8,799

FCFE (Unit: VND bn) 2015 2016 2017 2018 2019 2020

EBT 1,385 1,765 2,109 2,364 2,778 3,111

Minus: Tax (310) (353) (422) (473) (556) (622)

Add: Dep 197 384 447 459 277 166

Minus: Capex (587) (570) (298) (55) - -

(Inc)/Dec in NWC (2,061) (321) (596) (429) (429) (385)

Add: Net Borrowing 1,434 (666) (743) (644) - -

Levered free cash flow 59 239 499 1,222 2,070 2,270

Cumulative sum PV of FCF - 207 579 1,372 2,538 3,648

PV of Terminal value 8,587

WACC 12.9% 14.2% 15.2% 15.2% 15.2%

Discounted Period 1 2 3 4 5

FCF Valuation

Unit: VND bn FCFF FCFE

Cumulative PV of FCF 5,184 3,648

PV of Terminal value 8,799 8,587

Terminal value % of total PV of FCF 62.9% 70.2%

Total PV of FCF 13,983 12,234

Cash & ST Investments 344 344

Short and long-term debt 2,053 -

Enterprise value (EV) 14,327 12,578

Total equity value 12,274 12,578

Outstanding shares(million) 146,670,301 146,670,301

Target Price 2016 (VND) 96,392VND 98,781VND


29/03/2016

Income Statement and Balance Sheet Forecast

Unit: VND bn 2015 2016F 2017F 2018F

Net Revenue 25,253 35,910 42,773 47,170

COGS 21,330 30,363 36,190 39,926

Gross Profit 3,922 5,547 6,583 7,244

Selling Expense 2,351 3,319 3,953 4,359

G&A Expense 249 485 569 594

EBIT 1,322 1,744 2,061 2,290

Financial Income 81 80 80 80

Financial Expense 41 65 38 12

Net Other Income 23 7 7 7

Net Income 1,072 1,413 1,688 1,892

EPS (VND) 7,305 9,634 11,509 12,901

Unit: VND bn 2015 2016F 2017F 2018F

Current assets 6,176 6,273 7,319 8,639

Cash & Equivalent 344 364 434 1,136

Trade Receivables 77 102 121 126

Advanced to Suppliers 218 221 221 221

Inventories 5,010 5,061 6,032 6,654

Other current assets 527 527 512 502

Long-term Asset 1,089 1,163 985 581

Tangible Fixed Assets 827 1,057 908 505

Construction in progress 43 - - -

TOTAL ASSETS 7,266 7,436 8,304 9,220

Total liabilities 4,782 3,873 3,525 3,079

Short term debt 4,782 3,873 3,525 3,079

Long term debt - - - -

Total shareholder equity 2,482 3,562 4,777 6,139

Source: MBS forecast


29/03/2016

CONTACT

Phạm Thiên Quang Tel: +84 37262600 Ext 6862 Email: [email protected] Lâm Trần Tấn Sĩ Tel: +84 8 3920 3388 Ext: 189 Email: [email protected]

Institutional Sales: Truong Hoa Minh

Email: [email protected]

Tel: +84 938 207 357

STOCK RATING: The recommendation is based on the difference between the 12-month target price and the current price:

Rating When (target price – current price)/current price

BUY >=20%

OUTPERFORM From 10% to 20%

HOLD From -10% to +10%

UNDERPERFORM From -20% to -10%

SELL <= -20%

DISCLAIMER: Copyrights. MBS 2014, ALL RIGHTS RESERVED. Authors have based this document on information from sources they

believe to be reliable but which they have not independently verified. The views expressed in this report are those of the authors and not

necessarily related, by any sense, to those of MBS. Neither any information nor comments were written for advertising purposes or

recommendation to buy / sell any securities. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on

any form or by any means, electronic, mechanical, photocopying recording, or otherwise, without the prior written permission of MBS.

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Mobile World Investment JSC (HSX: MWG) - mbs.com.vn · PDF fileWe initiate coverage for Mobile...

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