Challenges blur MSH’s outlook

MSH’s revenue and net profit recorded VND2,736bn (9.0% yoy) and VND187bn (-13.4% yoy) in 1H22, respectively

MSH reported VND1,444bn in revenue in 2Q22 (20.0% year on year) due to increased demand from key customers such as Columbia and Haddad, as well as contributions from the Song Hong 10 (SH10) factory.

However, due to high input material prices and a labor shortage in the SH10 factory, MSH's net profit fell by 6.1% pts year on year, reaching 14.6% in 2Q22.As a result, MSH’s net profit in 2Q22 declined 31.5% yoy to VND85bn. Overall, MSH’s revenue and net profit recorded VND2,736bn (9.0% yoy) and VND187bn (-13.4% yoy) in 1H22, respectively, fulfilling 48.8% and 39.6% of VNDirect’s forecasts.

Mr. Nguyen Duc Hao, analyst at VNDirect thinks that the demand for clothes such as skirts and t-shirts in the US market will cool down in 2H22 due to high inflation. Thus, MSH’s revenue growth momentum may decelerate in 2H22 as 70% of Free on Board (FOB) order revenue comes from the US market with main items such as skirts, shirts, and woven pants. Additionally, although PET chip and cotton declined 15.6% and 40.8% vs. May 2022, MSH’s input material prices in 3Q22 will remain at a high level due to the delay of fabric price vs. yarn price (2 months). As a result, VNDirect revised down MSH’s gross profit margin and net profit in FY22F by 1.5% pts. and 26.7% vs. its previous forecast.

"We expect MSH’s net profit to rebound in 2023 thanks to (1) cooling down input material prices from 4Q22, (2) controlling inflation in the US and European markets, and (3) the SH10 factory is expected to operate at 80 percent capacity in 2023 thanks to recruiting enough workers. As a result, we forecast MSH’s revenue and NP to increase 7.5% and 27.4% yoy in FY23F", said Mr. Nguyen Duc Hao.

VNDirect revised down its target price for MSH by 16.7% following a FY22-23F EPS downgrade of 26.7% and 12.9%, respectively, while thinking that this is not the right time to invest in MSH due to short-term challenges in 2H22.

"Upside catalysts for MSH include 1) higher than expected sales volume of FOB orders and 2) controlling inflation better than expected in the US market. "The downside risk for MSH is stronger-than-expected input material price hike", said Mr. Nguyen Duc Hao.