mobile world investment jsc (hsx: mwg) · pdf filewe initiate coverage for mobile world...
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Bloomberg: MBSV<GO> Tel: +84 4 3726 2600 – Fax: +84 4 3726 2601 www.mbs.com.vn
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.
3 Mobile World Investment JSC (MWG)
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
150
200
250
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
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
4 Mobile World Investment JSC (MWG)
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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
5 Mobile World Investment JSC (MWG)
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
6 Mobile World Investment JSC (MWG)
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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
7 Mobile World Investment JSC (MWG)
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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
20,000
25,000
30,000
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
8 Mobile World Investment JSC (MWG)
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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.
9 Mobile World Investment JSC (MWG)
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
10 Mobile World Investment JSC (MWG)
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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
11 Mobile World Investment JSC (MWG)
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
12 Mobile World Investment JSC (MWG)
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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